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Background: Kenya’s top stockbroker, EFG Hermes has set out to expand from its institutional investors and also target retail customers. They launched their EFG Hermes One app in July 2021 allowing Kenyan investors to purchase shares on the Nairobi Securities Exchange (NSE) anytime on their mobile phones.
First Impressions: To get started, one had to go through the Kenyan regulatory requirements of KYC (know your customer). While the process is extensive for investors, with a lot of forms, ID, address and other details, new clients can scan and email documents, including photos to EFG Hermes.
Once you’re done, download the app and log-in with the credential to start trading. One fund an investor using mobile money (M-Pesa pay bill) and selects their share account (CDS) to get credited.
For any issues, there are quick responses via email from EFG Hermes Kenya client services on issues like registration and trades.
How It Works: Investors can view equities, and their portfolios with up-to-date prices, and also see their cash balances. They can place trades, set the prices and the expiry dates and see the commission/fee calculation before executing any buy or sell trades.
One useful feature of the app is that it allows trading of “odd lots”. This is something not available at many brokers who still only allow investors to buy or sell shares in multiples of a hundred (100) shares – yet many investors end up with odd lots as a result of selling other shares in ’00s or getting bonus issues.
another odd feature from the stockbroking industry is T+3 days/ again this is somewhat standard and after you sell shares, it will take about two days for funds to reach your account after that one indicated at the account opening where the funds will be sent.
For now, the Kenya app only allows trades of equities on the NSE, but in future may have more issues – bonds, derivatives, REIT’s, ETF’s regional and international products from EFG Hermes in different markets and assets classes and also as the NSE comes up with more products for retail investors such as day-trading and short-selling.
Verdict: It enables investors to trade from anywhere securely and tracks their trades and portfolios with up to date prices. The app is really small, just 10 MB, and does not use a lot of data to run. Many retail investors have other apps, laptops and sources to analyze what trades to make, and they can turn to the One app which can also be used to place trades after hours to execute when the NSE opens.
At the end of the month, investors get emailed a statement by EFG Hermes of trades during the month. This is a useful record to keep and they should cross-check with the one that comes from the CDSC.
The EFG Hermes One app is available in the Google Android and Apple App stores.
Kenya’s leading stockbroker, EFG Hermes has launched One, a new online platform that enables retail investors to trade shares on the Nairobi Securities Exchange (NSE).
EFG Hermes One, the equities trading platform will be available to clients of the stockbroker. The One app has been very successful in other markets, notably in Vietnam and the firm hopes to capitalize on the high mobile phone density in Kenya, reported at 108%.
Speaking at the launch, the CEO of the NSE Geoffrey Odundo said that Kenya has an active retail investor base as seen with M-Akiba, a government bond issued and traded on mobile phones that drew 500,000 investors. He added that the new NSE platform has the ability for “day-trading” and “short-selling” and those would be products that appeal to retail investors.
Muathi Kilonzo, Head of Equities at EFG Hermes Kenya said that retail investors across the globe showed great activity in powering different equities and investments markets while the world was slowed by Covid-19.
Ali Khalpey, the CEO of Frontier Markets, said EFG Hermes started in Egypt 35 years ago and had grown to have 5,500 employees and offices in Egypt, Dubai, Nigeria, Kuwait, USA, Oman, UK, Kenya, Jordan, Saudi Arabia, and Pakistan offering stockbroking, investment banking, asset management, securities brokerage, research, and private equity services.
In 2017, EFG Hermes launched a greenfield operation in Kenya that has grown to be the top stockbroker by value traded on the Nairobi Securities Exchange in 2021. Last year it was acclaimed as the top frontier research institution and the best broker in Kenya and Nigeria. It produces highly prized research reports on frontier markets with recent ones on Kenyan banks, the silicon savannah potential and digitizing COVID-19 stimulus initiatives.
Download the One app from the Apple app store and Google play store, register to be an EFG Hermes client, and get on board after a regulator-mandated, know-your-customer (KYC) process.
All data indicates a new age of interest in retail investing. Across the world more people than ever are starting to trade for the first time, with reports of retail participation in the US stock market, for example, increasing from 10% in 2019 to 25% in 2020. Even during a public relations disaster, Robinhood- the U.S retail-focused trading app- onboarded 600k new clients in a single day. Our brokerage, Equiti Group/ FXPesa, saw volumes and client numbers increase by multiples across all our key markets and this will continue through this year.
The pandemic created an environment where people were looking for an income in the safety of their own home and, logically, that trading/ investing answered that need. Anything that brings a heightened awareness of financial literacy is a great thing, but it’s also something that we need to nurture. With millions entering the financial markets for the first time, unfortunately, scams, misinformation and false promises follow, and we must increase consciousness of this.
Social Networks: Most of the world has been following the journey of a supposed war between those on a Reddit forum called r/WallStreetBets and hedge funds betting on the demise of American electronic games supplier GameStop (going ‘short’). This battle was trending on all major social networks, such as Twitter, Facebook, Telegram and Instagram. These networks are powerful, Reddit has 160 million unique visits to its site each month.
People that had never invested before frantically set up trading accounts and placed trades with as much capital as they could put their hands on. Some naïve first-timers often had very little notion of risk or what they were doing, but instead paid full attention to the latest funny meme or influencer that told them that this stock was ‘going to the moon’. It did, and then it came back again leaving a lot of people losing a lot of money.
Ignoring Fundamentals: Social networks and online personalities have an increasing amount of influence over investors. Recently, Elon Musk the CEO of Tesla added 12% to the value of Bitcoin simply by changing his bio to the bitcoin Twitter hashtag. With the wave of memes, online ‘experts’ and celebrities pushing their agendas, the fundamentals of great companies are becoming secondary. We need to acknowledge this and attempt to educate differently.
A perfect example of this was the recent movement in the Silver price. Silver is widely regarded as an undervalued metal, mainly because of its increasing utility in ‘green technologies’, such as solar panels. Various reports declare solar panels and wind turbines will require three times more silver than what is used today. Silver is also used in electric car production and other tech of the future. When the silver price jumped 12% (its biggest intraday rise since 2008), it was not because of these fundamentals. The price jumped primarily because social media declared the same war with hedge funds and decided to try to do the GameStop ‘trick’ again, making the Twitter hashtags #shortsqueeze and #silvershortsqueeze trend across the world. The silver market is huge and not as easily manipulated as a relatively small stock such as GameStop, and so this attempt was doomed, with silver retracing back very quickly and lots of retail traders losing more money.
All this focus away from fundamentals, meant that the market was quite late to understand the stellar Q4 earnings shown by some great companies, especially Big US Tech firms. Amazon posted $126 billion Q4 revenue and shows no sign of slowing. Google saw a 23% revenue growth in Q4. Unfortunately, the circa 4-6% share price increases these saw due to these results aren’t considered attractive enough to those only seeking the 16x returns GameStop gave some in just 2 weeks. There is so much real opportunity in the markets, especially now.
Scams: If you were to investigate your junk mail (don’t!), you would have probably been sent a scam email within the last 24hrs. It is most likely centred around cryptocurrencies, where it is promising huge returns from trading obscure crypto that you have never heard of. Some of the recent scams are from hackers sending out tweets from reputable, businessmen like Jeff Bezos and even former presidents such as Barack Obama’s certified accounts. They ask for the trusting public to send bitcoin to a wallet and then wait for 2x back.
Unfortunately, as unlikely as these scams may seem, the public is losing millions of dollars to them daily. In today’s ‘at once’ society, many aren’t thinking of growing knowledge and wealth over a long period. Instead, they want instant gratification and huge profits, as is the expectation in most walks of life now. Now, if you want something, you want it immediately- but my experience of wealth generation is the very opposite of this. It takes time to do it right.
Long-term side-effects: Social media has been an excellent source of information for new traders, keen to improve their financial futures. However, there is cause for concern if these young and new entrants blindly follow investment ideas that they do not understand, just because the herd are doing the same thing. We have a huge wave of first- time traders ignoring great companies that have incredible distribution channels and solid, multiple revenue streams, instead opting to follow a funny meme of Elon Musk and a Shiba Inu dog (DogeCoin).
A glaring issue is I don’t see how it can work out for these traders. If they make money in these pump-and-dump Reddit schemes, for example, they will invariably put more into the next one and continue until they lose everything. In this search for increasing returns, they are also susceptible to false promises and scams. On the flip side, if they lose their money in the first attempt, they are likely to shut their accounts and never think about their financial futures again. That is a tragedy.
It is far better to work with a brokerage to diversify your investments across global asset classes, regions and short and long-term plays, concentrating on sound fundamental and technical analysis…improving your knowledge day by day, year by year. Understanding this gives you a great chance at achieving real wealth. This has always been exciting enough for me, no meme needed.
A guest post byBrian Myers (@bjmyersUK), the CEO at Equiti Capital UK.
African Alliance Kenya Investment Bank announced its exit from stockbroking, to focus on asset management, digital and treasury business. Clients are to transfer their CDS accounts to other stockbrokers by July 22. It will continue to operate as a licensed investment bank and fund manager and plans to launch several new funds.
AIB Capital and Apex Africa are finalizing a deal announced in February 2020 to merge their stock-broking, bond-trading, derivatives, research and corporate finance businesses that will operate as AIB-AXYS Africa. To effect this, all Apex Africa capital accounts will migrate to AIB by June, without disrupting services, and AIB Capital will move to Apex Africa premises in Westlands, Nairobi.
Genghis Capital and EGM Securities have announced a partnership to give investors a wider range of alternative asset classes including online currencies, commodities, precious metals, oil, and biotech company stocks. EGM runs FX Pesa and the partnership, which is on a revenue share basis, envisions enabling Genghis clients to purchase shares of Amazon, Alphabet, Facebook, Zoom, Moderna and Gilead Sciences.
NSE App: Finally the Nairobi Securities Exchange (NSE) has also launched online share trading through a new app that enables people to open CDS accounts on their phones and start trading listed company shares. The app, available on Android and iPhone, makes it easier to get live share prices, and view data of ongoing trade activity, with personalized notifications, chats, and financial news.
NSE Training: The NSE has also been conducting investment training classes virtually to show people how to invest online, open accounts, choose stockbrokers, manage portfolios, and invest in derivatives.
CMA stats: Statistics from the Capital Markets Authority (CMA) show that Nairobi had a net outflow by foreign investors worth Kshs 11 billion in the first quarter of 2020, compared to inflows of Kshs 601 million in the first quarter of 2019.
Market capitalization was down 15% down to Kshs 2 trillion, from 2.3 trillion in Q1 2019. CMA stats also show that while Kenyan equity trades in the first quarter of 2020 were down 5% compared to the previous year, in (much smaller) Uganda and Tanzania, trades were up astronomically, by 315% and 433%, respectively.
Ultimately, Nairobi stockbrokers need a new IPO to fuel investor interest in the trading shares, and it should probably be through a huge government privatization on par with Safaricom, which the last major government IPO in 2008. Since then there have been IPO’s from Co-op Bank, British American (2011), the NSE itself in 2014, and the Stanlib Fahari I-REIT (2015).
On the derivatives counter, introduced in 2019, there was 47% more activity in Q1 2020 to compared to Q4 in 2019. KCB was the most active (138 contracts worth Kshs 6.6 million), followed by Safaricom and Equity Bank. Meanwhile, the New Gold ETF is 93% traded by foreign investors. NSE stats show that AIB is the leading arranger of NSE futures deals, doing about 41% of deals worth 5.2 million, followed by Sterling Capital (28%) and Standard Investment Bank (9%).
Collective investment schemes currently have 52% of their portfolios in government securities, 26% in fixed deposits and 12% (Kshs 9.2 billion) in listed NSE firms.
The Nairobi Securities Exchange (NSE) has gone live with NEXT – futures derivatives trading in a move to enhance risk management and becoming the second exchange in Africa to offer exchange-traded derivatives.
The NSE will offer two types of derivatives; equity single stock futures (SSF) starting with shares of five listed firms that met specific criteria such as high daily trading volumes (British American Tobacco, East Africa Breweries, Equity Group Holdings, Kenya Commercial Bank Group, and Safaricom Plc) as well as an NSE 25 Share Index futures (EIF) that provides investors with a benchmark to track the performance of the Kenyan securities market. The introduction of NEXT futures will also increase trading activity and liquidity at the NSE as investors will have the potential for greater returns, even when share prices are going down (short selling), as they only have to put up a small amount of money as leverage.
This comes after a successful six-month pilot test in which end-to-end derivative transactions were done in a live environment, and which tested the capabilities of market players. Kenya’s Capital Markets Authority (CMA) then granted approval in May 2019 for the NSE to launch and operate the derivatives exchange market.
The CMA has also licensed several entities to undertake derivative services. The stockbrokers that will offer derivatives futures to investors from today will be African Alliance Securities, AIB Capital, Apex Africa Capital, CBA Capital, Dyer & Blair Investment Bank, Faida Investment Bank, Genghis Capital, Kestrel Capital, Kingdom Securities, NIC Securities, SBG Securities, Standard Investment Bank and Sterling Capital. Also, two banks, Stanbic and Cooperative, will provide clearing and settlement services, collecting margins and generating data and reports on futures trading activities.
The launch of NEXT derivatives trading comes after a series of other innovations at the NSE including the introductions of the M-Akiba mobile phone bond, Real Estate Investment Trusts (REIT’s), asset-backed securities and exchange traded funds (ETF’s). If the uptake and performance of stock futures are successful, next at the NSE will be currency derivatives and interest rate derivatives.
EDIT November 2019: The Capital Market Soundness Report- Q3. 2019 from the CMA showed that 349 contracts were traded between 4th July 2019 and 30th September 2019.
Of these, the market traded 248 Safaricom contracts representing a turnover of KES 6.9 million; banking contracts came in second with 58 KCB Group contracts traded at a total turnover of KES 2.3 million; and 26 Equity Bank contracts traded at KES 1.0 million. The NSE 25-Share index contract traded 12 contracts at a total turnover of 2.6M.