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Peter Mwangi, CEO of the Nairobi Securities Exchange, is fed up of Kenyans getting investment wrong.
Peter Mwangi, CEO of the Nairobi Securities Exchange, is fed up of Kenyans getting investment wrong.
The NSE had a calamitous year in 2011, with the all-share index falling by a full 30.6 per cent, driven down by a currency crisis that gathered force late in the year.
But foreign investors didn’t seem to mind, staying put as domestic investors deserted the market. Foreign fund managers have now reaped the benefits, enjoying an 11.5 per cent gain in the year to date. The locals have lost out.
“The problem is investors are not dedicated; they follow the fad. When they hear the market is going up, they all follow their friends and troop in and at that point they are willing to queue around the block… and then [when prices goes down] they say I’ll never go back to that market,” he told beyondbrics in an interview at the NSE.
Mwangi blames a cocktail of events – a painful bout of stark inflation, currency depreciation, high interest rates and world market collapse – for the collapse in share prices and investor appetite. “Ultimately the exchange is a barometer of what’s going on, it summarises all those influences and all of them were pointing in the same direction, so it’s not so surprising.”
But he says the real blow has been a massive erosion of domestic confidence ever since punters lost out on the biggest-ever IPO in the region. People queued round the block when telecom operator Safaricom listed in 2008, but they were out of pocket within months when prices collapsed in sync with world markets. No big-ticket IPO since has yet brought the peeved public back to market, although the market still musters 1.5m individual investors.
Mwangi argues many have been turned off – in error – by today’s collapsed share prices, not least because interest rates, still at 18 per cent in an effort to combat soaring inflation, are now higher than many dividend yields, prompting interest in rival real estate rather than shares.
“We have companies with dividend yields in excess of 10 per cent, with PE ratios less than 3, some it’s 2-and-something: I mean it’s a steal, it’s an absolute steal. Good investors don’t invest on the basis of what has happened in the past, that’s not where the return is, the return is in the future,” he says.
Shares in everything from the infamous telephone giant Safaricom to Kenya’s national carrier Kenya Airways are all down, but Mr Mwangi argues that makes now a better time to buy than ever. “Are you buying perfume or are you buying groceries? If you’re buying something fancy – some designer shades and some Gucci handbag, diamonds – then fine, the more you pay for it, the better you feel. But you should shop for equities the way you shop for groceries: these shares are potatoes, man, these are cabbages: if they are cheaper they are better.”
He says the solution is to try again, study company fundamentals and hope for a big high-profile government sell-off, along with a big marketing campaign, to bring buyers back to the market. There are perils up ahead this year too, however. Kenya is due for an election before March next year, which will take place in the shadow of polls in 2007, when election-related violence plunged the country into chaos.
“A lot of people will not see through the fact that actually the election is a non-event, and so they won’t take positions now. But the ones who do will be rewarded for those choices,” says Mwangi. “Although there will be electioneering and some excitement around the whole process, the political risk has shrunk,” he says. “Since 2007, the rules of the game have changed – we have a new constitution, electoral reforms, judicial reforms: if the last elections took place under the current constitution, there’d have been no crisis whatsoever.”
The exchange is also keen to concentrate on grand plans for the year. It wants to demutualise, set up index trackers, launch a bond index and list five more companies before the year is out (it has two slated so far, but they will list by private placement rather than IPO). By 2014 it wants to list 100 companies on the main exchange, up from 58 now. It also intends to start up a new SME segment, akin to London’s AIM market, named the Growth and Enterprise Market Segment, “because we think those guys are gems,” says Mwangi.
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