Wednesday, December 12, 2007

2007 Review: Investment Highlights

KCIG highlights:Not to give away too much, we did fulfil Motley Fool's advise on stocks(aim higher than index). However, we underperformed vs. our own very reasonable target for the year due to choices made earlier in the year.
  • Nice surprises: We bought EABL as a defensive stock, but got a bonus issue and the post-bonus price is now around 25% higher than our initial buying price.
  • Greedy surprises: We bought more Equity after it went up 30% within a month and pretty much averaged our gains down. Not clever.
Broadly speaking however, the yr has been a success in other targets that we had set ourselves e.g. membership, funds raised etc. My experience of investment clubs is that coming together is the easy part,staying together is a tougher nut to crack.

Personal highlights: My portfolio has exceeded my expectations by someway with all green's except Barclays which I bought just after the spilt and mistimed courtesy of my broker. Of the greens, the best has to be NIC which I posted about the day I was buying. As soon as Kimunya's budget was out I ordered some NIC shares at then price of Ksh107 ostensibly to take advantage of the sure-fire rights issue only to be awarded with a bonus (pardon the pun) bonus issue. So far, 80%+ (not bad for six months). I also got DTK without quite the same result but then I want to hold both for 3yrs minimum (less if there is a regime change). Of the rest, HFCK was a juggling act. It was clear from a few yrs back that HFCK needed a capital-rich partner, having bought some when dead cheap, I somewhat wiped those gains by buying when it was in the 30s, then had to watch as the share started a downward spiral towards ksh20. At this price, I bought some to balance out the yr and just like that,  Equity/Britak stepped in and thus saved the day for me. Still, NSE for 2007 has one more act to be played courtesy of the Safaricom IPO and this may well wipe some peep's gains.
Away from the NSE, I've also been steadily increasing my exposure to the BRIC nations and that has gone very well so far.

Peeps, thanks for the company in 2007. Merry Xmas, enjoy the elections (a Kikuyu was praying for this the other day and you just had to be there it was that funny).

May God bless your endeavours in 2008. I know 2008 will a be humongous year....

2007 Review: Blogging Highlights

Blogging has been for me just a way of putting down mainly thoughts on the investment world, work, and minimal other stuff like issues appertaining to the motherland. One of the good things has been the ability to put down some of the stuff I research while I am doing my investing and geting feedback from readers. A repository if you like. With the yr coming to an end, I'll take a few weeks off and visit the motherland for some nyama choma with fried matoke and greens, sweet potatoes; introduce MT Jnr to his extended clan; catch some rays et al.

So why not go thru some of the highlights in blogsphere:
  1. Meet-ups: The reason d’etat for starting this blog was to give a then embryonic KCIG some PR so we could get more members. So it was ironic when a blogger posted comments asking us what we were doing at the NSE when we could go to FTSE or AIMS. Months later that blogger was enjoying some chapos at our house but then outdid himself by posting an embarrassing post on the same. I refer of course to the long-monikered Christopher Ssembonge. It was a pleasure meeting you bwana Ssembonge. I’ve also met several others and hope to do so as time goes by.
  2. Reading great blogs: As far as influences go I’d say CT stands out for me because of the passion, knowledge and in-depth understanding of the subject matters he writes about and especially those appertaining to required improvements for Kenya’s economy which are mostly on point. Bankele’s AGM coverage has been very informative and helpful for me as an investor. Riba Capital cleanly presented yet well-analysed and informative posts have been a joy to read (still waiting for the TC prospectus though). Away from investments, I’ve enjoyed reading Kenyaeconomics (still waiting for the his piece on inflation in Kenya), Kenya Imagine (I initially thought they were being typical know-it-all Diasporians but they are objective and have a good variety of excellent writers), Sunny’s column, the aforementioned LovelyMoney (this post was too funny) and Wakenya wa Sweden (one of my favourite countries in Europe).
  3. Bloggers I wish would post more often: Pesa Tu who has done some excellent posts (on Safaricom and Mobilitelea) and Equity vs. Barclays and KenyaEconomics I’d encourage to post more often as both have something fresh to say about investment and economy respectively. And the aforementioned CT who seems to post in peaks and very deep troughs
  4. Bloggers I wish would post less often: Kumekucha wins this category hands-down. To use your blog to disseminate tribal hatred (whether aimed at Giriamas, Kiuks, Luos, Kambas etc) would be the lowest of the low at any time, but at General Elections when temperatures are high anyway is not intelligent in my view. Let me tell you a secret, no politician in Kenya today cares about you. All will fill their baskets (bellies) first and then if the are leftovers will be open the gate for you to come in. Ask yourself where Kibaki has been as corruption has been on a runaway train, what pro-development bill even for Coast Raila has introduced to parliament similarly with Kalonzo. The best way to get ahead in life will be to develop the skills you need, find ways of growing you and your extended family during economic growth times so you can survive during any downturns.

Monday, December 10, 2007

Monday Shorts

Interview with stockskenya's fellows. Its a pity the interview is a bit on the short side and looks like the interviewer wasn't really sure what they did. Kudos to Mugambi and co for their work.

UBS is in fresh funk having now had to write-off an additional $10bn of those lousy home loans. This is equivalent to its 2006 profits and may mean it won't be making
 a penny this yr neither. Luckily for it, those cash hoarders in Middle and Far East will inject some 
of their easy oil money for a 12% stake. To the Americans and other western fascists, thank God for the
foreigners eh? Despite being the world's largest wealth manager with around £75bn in assets, UBS has never cut it in the investment bank world. The Russia/LTCM crisis, UBS had to write-off some serious bn, the hedge fund mess, UBS shut down its proprietary hedge business and now the credit 
crunch mess finds at the top of those writing off. Stick to wealth management.

One of amazing things about the UK-ians is their total lack of context. In the last couple of weeks, you'd have
thought Ricky Hatton was going to fight a jailbird or a complete novice in Floyd "Money May" Mayweather jnr.
The dude has always been rated among the Thomas Hearns and Sugar Ray Leonard's of this world so to
disrespect him as much as the media did here lacked context. Anyway, most papers today were eating massive amounts of humble pie led by Ricky Hatton himself who henceforth will use the words clever and Floyd Mayweather interchangeably.

NIC completes its entry into the NSE. Now let the fun and games begin seeing as these guys already have distribution.

Bring Safaricom already! Cash is awaiting its target.

Friday, December 07, 2007

Kenya's Corruption: an outsider's view pt

This guy is from Sierra Leone (now based in the UK) does very powerful documentaries on issues holding Africa back from fufiling its potential. This one is corruption, Kenyan-style.
  1. Building a shack in Kibera will cost you in bribes. Its clear, this guy was taken to the claeners once word got around that he ahd chumus or maybe he was doing this programme.
  2. This one features Kosgey, Moi's Kroll piece and Mwararia as the presenter calls him on that Githongo tape and scandal of Aids money.
  3. More of the Aids fund scandal featuring Margaret Gachara's Mcmansion. She ate well and of course should still be in jail.
Thanks to fellow blogger Ssembonge for the tip.

Thursday, December 06, 2007

Commodities futures?

I think this is where such a market might work. We seem to suffer surpluses because of lack of storage or transport. So why not get some players who can come in to provide the logistics (storage, distribution) within a regulated framework and trade off that?

UK interest rates: A stitch in time saves nine

Today's 0.25% cut brought some relief to many in the financial & retail sectors who were staring at a possible meltdown in mortgage borrowing, credit card spend, Xmas shopping not to mention higher repossessions. Thus half the economy will be feeling relieved that when the Bank of England find itself between a rock and a hard place (inflation is also approaching the set target of 2%), it decided to tackle the problem that would have wider ramifications of the two. Even with oil prices now well over the psychological barrier of £1.00, expect another rate cut within the next four months.

Someobody that worked in one of the investment banks that has written off around £4bn in subprime just over a month ago was saying that its credit risk team was worried about the issue, 
two years ago. Lakini these guys had to be seen to be playing with the big investment banks, so on they went the purchase of toxic instruments as they are now know.

When TC aka G29 speak about investments, the least one can do is to listen/read. A nice piece in the BDA today. I definitely second their advice on the need for formal meetings (pinting doesn't exactly led itself to great investment ideas does it?). One thing though, how come they've kept their prospectus hidden (ok, apart from fears of political hijackers) ?

How much of the news should you believe?

Jana I watched a newstory on that Delamere case and was astounded by the amount of outright lies that are weaved into "news". Ati this case has dominated the political campaigns in Kenya, that 4 cabinet ministers attended Njoya's funeral (I didn't know Koigi was a minister). That nyamachoma is used as a bribery tool-come again? Ati the political situation in Kenya makes it impossible for him to get a fair trial.

And this was on Channel 4 which is one of only two or three credible news channels in the UK.

Saturday, December 01, 2007

Safaricom is a "made in Kenya", sell it to Kenyans only

Opportunity capitalism needs to be a form of capitalism that Kenya embraces. In every decision, GoK should be ensuring that the benefits, participation of Kenyans 
is as wide as possible.

Its complete horlicks to say Kenya's economy can't handle Safcom OSF. It's like calling you know who the 2nd Mandela. Absolute cobblers.
  • Safcom's OFS might even be a solution to our inflation problem by vacuuming up all the excess liquidity in the economy if there is full subscription.
  • Michael Joseph somehow takes credit for turning the business into a17bn+ profit-taker, but the honest truth is that Kenyans have brought the dough, sugar, water,eggs, flavorings et al mixed up to cook the cake that is now Safaricom. Michael just put it in the oven.
  • The mobile phone sector has invigorated Finland's economy and has seen phenomena growth everywhere even US (despite slow initial uptake due to pagers).Its feeding a necessity that reflects a reality in the world.Today throughout this wonderful world, most families have somebody that lives a distance a way. That means the need for a handy communicator, step forward the mopho.
The 2nd pt as I mentioned is before is that this should be a Ksh60bn float and not Ksh35bn. That way, we'll all get some chance of full subscription. If GoK wants to value the 25% stake higher than that, then we may have to go to to the foreigners.

3rd point, lets do it this year (or at least kick it off) now and keep 2007 business for this year. Next year we can chase up other IPOs. The general election is a one day event. And we had I think three IPO-type events last Dec so the month is a none issue.

Mobilitelea should have been resolved, but somehow nobody went about it the right way which would have been to file a case in the UK as  a Vodafone shareholder.

Its made in Kenya, its our largest product with 8m customers, Kenya's economy needs more investors and 
savers so lets target at least a 1/4 of these customers to become shareholders/stock investors.

Friday, November 30, 2007

Is NSE getting tired of retail investors?

  • A restricted portion of IPOs being reserved for retail investors and subsequent minuscule allocations.
  • Strange allocations for rights issues (NIC had 49% oversubscription thus investors would have expected to get around half of their order, yet anecdotal evidence suggests that most retail investors only got around10% of their order).
There are legit reasons for wanting fewer shareholders;
  1.  Less price volatility-apparently QII are long-term investors
  2. Less admin costs in terms of annual reports, AGMs
Yet, its no coincident that most of the global companies encourage ownership of their shares. The reasons are numerous but here is a few:
  •  Marketing of the brand: if you own Barclays shares, and they are performing, it will be one of the names that resonates when you are looking for banking, employment. Yani its part of your marketing the company
  •  Share liquidity: if a share is not regularly traded, its difficult to see how it will rise
  • Corporate image: being seen to have many stakeholders is good for business especially where it involves mass retail as most do in Kenya
For the brokerage business, high transactions mean more fees so encouraging growth of retail investors is a no-brainer. Yet many have customer services straight out of the civil service.
For GoK, encouraging share ownership is a surefire vote winner. With the proviso,that you know what you are doing in the economy arena.

Bottomline: NSE, encourage Kenyans to the bourse by having preferential treatment of your repeat customers tomorrow and the day after namely the retailer. The NSE and by extension our economy will grow because more of us have a stake in the growth of both. And please define what is a QII (fund managers
pension funds and insurance companies are the ones I have seen so does that mean that Baraka fund  who I know are just an investment group 
(albeit very moneyd one) compete for the same shares as Otieno or Kamau?)

Commodities futures in Kenya

This is a type of product that allows you to leverage your knowledge of agriculture globally or locally to earn some coins by taking a bet on supply-side impact on the price of a given commodity.
EMAC are trying to encourage greater usage of the product and may have something in place soon according to this article...

One problem is that CMA (not for the 1st time), is behind the times. Its next CEO needs to be somebody who either has some solid regulatory experience (CBK) or investment banking experience (preferably outside our motherland), so they can be proactive rather reactive to operational risk ala Francis Thuo or product development e.g. corporate bonds, cds, realtime trading, abs, various types of futures, forwards et al.

Monday, November 26, 2007

Monday shorts

  • The proposal to limit foreign ownership of companies that are NSE-listed to 60% is I think a good one. Most of these pay themselves a high dividend as a way of exporting 
    their profits back to their home nations.
  • Northern cRock's long suffering shareholders will probably get £0.40 for each of their shares under the best rescue deal being offered by Virgin. The share was trading at £12+ in Feb of this year. Mind you, its a 146 years since the last bank run on a UK bank.
  • US probably has a 60% chance of hitting recession next year and UK around 30% thanks to credit crunch.
  • With England (and the rest of the nations that form UK and Ireland) out of next summer's European Championships (its the equivalent of Kenya's General Election being postponed), there have been suggestions as to things the English can be doing in June 2008 ranging from National Moths night 
    to World Championship in Nettles eating (the English have a PHD in eccentricity).
  • What exactly is the point of the Commonwealth apart from reminding us that we once a British colony?

Wednesday, November 21, 2007

Telkom's sale: good business?

51% of Telkom Kenya was sold to France Telecom and Alcazar (owned by Agility) for Ksh26bn.
Before that, its 60% stake in Safaricom was exchanged for Ksh69bn debt (made up of Ksh36.3bn to KRA; Ksh10bn to its pension fund and Ksh5.8bn for a syndicated loan and the rest?). My only reservation on the price would be the stake that FT has been given. This now means that all telecom industry is majority owned by foreigners.

However, one must look beyond the price and ask what TK and France Telecom will out of the deal.
TK gets:
  • An experienced acquirer: FT has owns Orange, UK 2nd largest mobile operator and also has businesses in Poland, Holland and North Africa. Its had its share of faux pas though.
  • Capital: With many projects under way in mobile telephony, landlines, internet et al, TK will need a huge infusion of capital to grow
  • Experienced Telecoms company: With advanced logistics and technical know-how. FT is the number one broadband Internet provider in Europe and 2nd in the mobile sector after Vodafone
France Telkom gets:
  1. A perenial loss-making business with stagnant customer numbers
  2. Access to the high-growth Kenyan mobile sector
  3. Gets in just before fibre-optic cable is about to land on our shores
  4. Crucially, the TK has a unified licence (mobile, fixed and internet businesses)
  5. TK's data bandwith that can usefully be applied in flowing TV and internet content to homes.
Is Safaricom OFSD being undervalued? So far, the 25% OFSD is expected to bring Ksh40bn thus valuing Safcom at around Ksh160bn. With Ksh17bn profits i.e. a proxy P/E of under 10 (average NSE P/E is 20+), I think we should be looking to raise Ksh60bn+ from the stake.

Tuesday, November 20, 2007

More Q3 results

Athi River recorded 85% growth in PAT, aided by with T/O growing at 55%. Note that ARM is now benefiting from increased cement capacity its new plant. Secondly that it also generates  significant chunk of its revenue from building-related materials rather than cement. Its cash flow has improved immensely from prior yr when it was financing its new Clinker and servicing borrowing. Adding to this momentum is the deal in Kitui for coal and limestone. A good growth 
outside of the banking sector.

BBK saw 12% yoy growth for 9 months of 2007 with income growth being matched by expenses.. Hopefully at some point we'll start seeing the impact of its loan hawking activities on its P&L (an worryingly, on its loan loss provisioning). A nice defensive stock if bought under Ksh75.

NIC (one of my four long-term bets in banking sector), saw 44% growth. int Its income breakdown between interest income andF&C remains a puzzle to me. Compared to its half year results, where its income was primarily derived from NII, the 9 month numbers would almost suggest that it made a loss on interest income. I guess there must a lot of latitude on income claissifcation in Kenya. 18% income growth of was strongly supported by flat expenses. With funds in the bank (I expect the rights to have been massively oversubscribed because of the 2:1 bonus issue) and revenue augmenting moves, NIC is a must buy.

DTK, (my other bet for long-term in the banking sector) saw 67% growth with 71% growth in loans and advances generating 57% interest income growth. DTK was in the market again to raise funds (will just about get full subscription because of compe from NIC) as it looks to expand. Another bank that is shedding its traditional image in its hunt for customers and growth.

Nominations last Friday

Courtesy of Daily Nation.

Sunday, November 18, 2007

Unit Trusts in Kenya

The changing workplace

A study of working in London now compared to when I  started 9 yrs ago...
  1. Lunchhour: Used to be a liquid lunch that would be stretched to two hours on a Friday, today you are luck if you get 30 minutes.
  2. Work-life balance: Wasn't required in the old days, now firms are attempting to encourage workers to work less than a 100 hours a week by inviting them to meetings about "work-life balance"-held from 530pm...
  3. Internal communications: Were posted on a noticeboard near the restaurant, nowadays they are even done by videocast
  4. Meetings: In the old days, you got lucky and got sent for a meeting in Cardiff, today you have tele/video-conference with your English-challenged colleagues in Japan, India or even Brazil.
  5. Long-service awards: were given to peeps who had been with the firm for 30 years, today you are given one after 5 years. If you reach ten, you get to meet the CEO.
  6. Feedback from your boss: If you did a piece of work, you would print it and walk it to the boss' office, who'd then write comments all over your carefully prepared spreadsheets,  today he will email you from his blackberry while he is in another meeting.
  7. Internet access: We used to have one standalone PC for accessing internet, now you even set up your own intranet site so you can post documents for all to view
  8. Org structure: The pyramid hierarchical structure has given way to more flat structures. There also also more dotted reporting lines to other divisions outside your own. E.g. if you are a trader in an investment bank, you will have a dotted line to operations and finance and vice versa.
  9. IT systems: Most companies had a trading system linked to a general ledger which then linked into a financial system. Now a IT system architecture map looks like spaghetti on paper
  10. Black co-workers: Having black co-workers was a novelty, the only black people you saw worked in the canteen or were security. Today led by our brodas from Nigeria, every division has one or two. Very few in management though...
  11. Performance management: You were given a list of objectives for the year and if you got lucky, you would sit with somebody at the end of the year who ticked off everything. Today, you have the list of objectives, you also have a list of behaviours. If you are lucky, it will be the same boss you had at the start of the year. If you are a line manager, your list of behaviours will include diversity i.e. how many women, black people etc you've hired in your team; community work i.e. how much voluntary have you done etc.
  12. Boss' office: The boss always had his own office with shutters to keep up out plying eyes. Then came open office plan aka the call centre layout with bosses having to whisper into their phones, today they get their own offices, but the door is kept open and there are no shutters..
  13. Relations: Having relations in the work place was de rigueur. Today its actively frowned on and due to its potential to turn into a sexual discrimination/harassment court case, is a sackable offense if undeclared.
Somethings have remained the same though.
  1. IT helpdesk: The "switch off your PC then switch it" response on again is still a cover all for any problems
  2. The pain in the backside work colleague: Who reaps where they haven't sowed, has jokes that he laughs at but no one else does, always late for meetings etc still exist

Friday, November 16, 2007

Barclays & the Credit Crunch, Political Savvy

Since the credit market started falling apart in May/June time, Barclays has been at the heart of rumours in the financial markets about their losses. Some went as far as to say that its losses were such that it would need Bank Of England's help. Which it did one day as paranoia took hold of HSBC. Its share price has fallen by around 20% since August (with a 10% fall just last week). The reason for the rumours is because BarCap its investment banking arm is mainly a fixed income house and has grown massively in the last few years. So jana, Barclays rushed out an earnings update to confirm a loss of £1.3bn far less than the £10bn that was rumoured. And with a big sigh of relief for its shareholders...

Although many refused to heed warnings about the pyramid schemes and were thus burned, the Sasanet investors seem to be an exemption because the scheme started off as a legitimate business. Fortunately for Mike Chege & his brother, most Kenyans for all the pelepele noise-levels on politics, lack political savvy. In the UK, the investors would have gotten together; roped in a couple of MPs;  done a large million petition and had their pictures taken outside 10 Downing Street (the prime minister's office) presenting him with a petition. The next thing, the Chege's of this world would be in jail for fraud with all their assets attached to claim back investors' money.

Wednesday, November 14, 2007

Kenyan Banking: Even more deals...

The next stage in the evolution of our banking industry is definitely on with bank after bank either recapitalising, chasing new ventures or markets or looking for partners to take them to the next level.
In a major/ surprise/shock/disappointing move, Equity will seek capital help from an outside firm. The move is puzzling because I think the NSE has a lot of liquidity if that was what Equity needed if not just now , next year. My guess is that its partly political insurance and partly a reaction to BBK's
move last week.
NIC has also confirmed the rumoured move for Solid Investment one of the smaller brokers at the NSE. Following its failure to get the Francis Thuo seat, I think this move even more than that of Renaissance will really shake up competition at the NSE at least in the next 6 months or so before demutualisation.

Sasini joined BBK with its own Ksh600m bond. At this rate, Safcon may end up being undersubscribed...not.

Marshalls, City Finance, Interest Rates

Marshalls (of the Ketan Somaia and K Pattni-fame), went up 30% yesterday. I am assuming this was the usual pricing errors that the NSE is prone to, because I know there is a 10% daily limit on price rises.

Two stories in the BDA (best addition in the market by far this year), caught my eyee. The City Finance takeover by Baraka Fund. Hopefully they'll be able to do as good a turnaround as that done by James Mwangi at Equity
and TC at EA Cables. One wishes we had more of these Kenyan funds or TC-type ventures prepared to go risk venturing into non-performing firms that have the potential. Because what usually happens is the firm end having to go to some foreign banks 
or firms for the cash.  The CEO of the Fund had the same position at NSE and was a corporate director at BBK before then. He also part-owns Asbhu Securities which again has enjoyed a turnaround of sorts.

The on-going spat about who is to blame for the lack of corporate bonds in the market is unnecessary, investors go where the returns are. 3 things are also missing. An independent CBK to work on monetary policy (move the 
regulatory arm to KFSA), "headline" recognised and agreed interest rate and stable monetary policy over a period of 5-10 years.  Until and unless interest rates stabilise to within a particular range, it will always be difficult to do fixed paper (preferable for most corporates) and that in turn means investors don't want to go expecting 15% and end up with 8% within a few years. 

Monday, November 12, 2007

NSE roundup

KCB saw 41% y-o-y increase in PAT for quarter 3, largely driven by growth in interest income of 32% and slower growth in expense of 17%. However the time to check Odour's progress as CEO should be Q1 2008's results. I have no doubt he'll perform though.

StanChart, the laggard among the large banks saw flat PAT yoy growth. For your reference, a bank should always be making at least double the economy's growth rate. The pity of it is that this is happening under the watch of its first Kenyan CEO Etemesi.

NBK started seeing the benefits of the bond interest payments from GoK paying off its debt.

Mumias crystallised some of its plans to generate-revenue from power by signing a contract with KPLC. MSC also closed the offer period on its 2 for 1 bonus share issue. For my money, its
 best purchase price given recent share price history would be under Ksh10, that is unless COMESA extension happens first.
TC announced a private placement. The interesting question is why they are doing it so close to an election.
Finally CFC-Stanbic merger is all but a reality as it enters its final stage. StanChart, your days are numbered.

CMA: Some good news at last...

I can't recall ever reading anything positive about Edward Ntalami's stint as CEO of the investment regulator. Hopefully, GoK will think long and hard about the man/woman who will steer us forward for the next 4 years. My suggestion would be to go for somebody from CBK who has a lot of experience or more radically, use this opportunity to launch the touted FSA that will regulate the whole financial industry.

Friday, November 09, 2007

How can we improve the quality of Kenyan education?

A well educated labor force is one of the cornerstone of 10%+ economic growth. It is also a force for socio-economic equaliser and democracy.
  • Social economic equality by giving all the opportunity offered via education to skill up and find jobs they can do. Its also part of trickling down the economic benefits of growth by removing costs that the poor incur.
  • Democracy because a more educated populace will be more aware of their rights.
The envisaged provision of no-fee education from 6-18 years of age in Kenya is a step in the right direction. However, it's a quantitative step and one that needs to urgently be backed up qualitative measures to ensure that Kenya's economy is getting a workforce educated to a level commensurate with its needs. One of the major complaints with the implementation of free primary school is that it has lead to overcrowded classrooms and thus unsustainable teacher:pupil ratios; diminished quality of facilities. I envisage the same issue once secondary schooling becomes cheaper. Thus schooling from primary to university may suffer unless qualitative steps are taken. A couple from me:
  1. Increase funding especially via CDF, LTAF and a special education fund.
  2. Encourage regulated private sector provision of education. They should sponsor 1 pupil/student for every 10 fee-paying ones initially
  3. Raise the cut-off pass marks at KCPE & KCSE. Note that reducing fees means that we'll now be looking at a larger population.
  4. Introduce a core number of subjects and optional subjects at both KCPE & KCSE levels.
  5. Introduce the concept of high achiever academies that will act as feeder schools for the private sector.
  6. Make commercial research institutes the backbone of science-based degrees.
  7. Channel diaspora ideas and funding into education. Not because they know better, but they like the private sector will always have a different take from those on the ground in a +ve way.
Any others?...

Wednesday, November 07, 2007

Financial market developments in Kenya

A couple of interesting initiatives coming out of the woodwork.
  • A single financial regulator would be great because it would enhance consistency in regulation across the financial sectorThe current situation where the banking industry is ahead of the game means systemic
    risk is not adequately covered. It should also be easier to close loopholes such as those seen where by pyramid schemes were registering themselves as saccos. It does however require brainwork in bringing about a cohesive framework of regulation. The original FSA was started by the UK in 1998 and combined 8 sub-regulators. Subsequently countries such as Japan, Sweden, NZ, SA etc have all copied the concept.
  • REITS (real estate investment trusts) will also debut at the NSE. I covered these in previous post. Suffice to say that i think that used in the right-way, they could help finance housing projects across urban Kenya
  • Finally, bank of the decade so far is tentatively feeling its way into Sudan. Surprised it didn't try Ug first. Its model is very suited to Ug where they also have an enterprising culture.

Tuesday, November 06, 2007

Credit Crunch claims Chuck, 2m foreclosures in US

With $11bn write-off of sub-prime mortgages, CitiGroup became the largest victim of of overzealous selling of mortgages in the US. Projected foreclosures or property repossessions in the US are the 2million over the next year or so. This may well lead to a recession unless Fed rates come down considerably which will perversely make the dollar even weaker than it is. This will have the benefit of making US goods cheaper and exports into the US less attractive.

At the NSE, KQ, and tea/coffee exporters will be impacted by this weaker dollar as will our diasporian friends who send remittances back home.

Monday, November 05, 2007

Media Season

The general elections heralds a great revenue harvesting season for newspapers and general media and this one is no different. ScanGroup, NMG and Standard should all benefit from the season. Price is not everything. Many of us when buying stocks will normally look at the price and say, aah, its too expensive. This applies very much to NMG. Despite rarely trading at less than 240 (with exception of brief market-wide blip in March/April) this year, the stock has found buyers impressed not just by its bottom-line, but the future Nation Media Group.  It has outperformed Standard over the last 6 months and ScanGroup over the last two.

 In one year, NMG has moved into UG with TV, brought a business newspaper into the country, launched a cheap newspaper Metro to compete with Nairobi Star, launched daily shorts of its NTV news on you-tube, removed entry requirement apart from its premium content. In any other year, this would have been unprecedented but coming in the same year as the general election, is awesome. In addition to the above, NMG also runs NTV, Easy FM and a publishing house. 90% of its revenue comes from newspaper sale and magazines. It now has presence in TZ and now has a vision for the whole of Africa. Despite some "issues" when new CEO joined, NMG saw 24% rise in its PAT for first half of the year compared to prior year and should comfortably beat its previous 3 years' annual growth in PAT.
Standard Group continues to lag in the shadow of its bigger expansive brother and perhaps some misguided steps. Despite this, the STG saw profits double in 2006. It also awarded patient shareholders 1;8 shares
which seem not to have materialised yet. The group also owns KTN, Baraza and PDS, a publishing arm. STG was upgraded into MIMS in Feb thus making its shares more marketable. STG has also invested in its state-of-the art printing press which should considerably reduce its printing costs. It has revitalised its management.
STG continues to suffer on several fronts however, staff turnover is high and its flagship TV arm recently lost a whole set of its stars to Citizen. Secondly, advertising revenue which it never had a great deal to start with has been reduced by its perceived anti-current regime stance (I wonder why?). However, increased circulation and viewing figures should give it bumper figures.

Lastly, ScanGroup. The group has since its listing gone on a spending spree, restructuring of its staff reward scheme to include loyalty shares aka employee share options and expansion to regional and continental markets depending and widening its product offering. Its shares suffers from nervousness about staff loyalty (very important in the adverting world where clients accounts will be managed by one or two creative-types) and generally too much supply of its stock. Again, this season should see increased advertising revenue and give it a typically bumper second half. Long-term, the group's activities this year should mean increased revenue in coming years though concerns remain on its cashflow.

Friday, November 02, 2007

How much should you invest? Look at your earnings curve.

While many of us concentrate on investing wisely, how many of us ask ourselves "I my investing enough"? And how do you know if you are investing enough?
  1. One way is of course by setting yourself some goals, e.g. somebody wants to make $1m by the time he is 40, another enough to be able to retire at the same age and then working backwards to where you are now.
  2. Another may simply match interest rates or stockmarket indices.
  3. Another way is to match your spending, so every Ksh/$S/£ you spend, you put another in your investment/savings.
  4. You can also set yourself a target that mirrors your earnings e.g. 30% of your income.
One of the ways that you can figure whether you are saving enough is also to look your future income streams based on your age . Align this with research that suggests the earlier you start saving/investing, the more you can expect to reap in the long-term. As this article by Gathunuku suggests, saving higher when you are younger definitely pays.

Kenyan Politics

Despite having an interest in politics, one of the reasons (apart from maintaining the decorum of being part of a group),  that I choose not to pontificate about my position on this candidate or the other can be summarised thus.

The pair of shoes I now wear is durable in various types of the weather but pinches my toes in places and is ugly looking. However, when I consider the alternatives, ones is nice-looking from far, but is very expensive and will definitely pinch worse than this one and the other is expensive and will pinch a little. See the dilemma? The other thing is that very few peeps are unsure about who to vote for and many don't the meaning of the word "objectivity" so how can we have a debate?

Tuesday, October 30, 2007

UK housing prices slow, interest rates decision, O'Neal out

After almost 15 years of continuous upward momentum, UK prices seem to have started slowing down and even fallen in most parts apart from London. The main reasons are the recent credit crunch, OTT income/price multiple (in most places, average prices are 6 times average salary), widening gap between rents and mortgages and the 1.25% increase in interest rates which is now being felt by many who are coming of their 2/3 fixed mortgage terms. The situation is temporary and prices will continue to rise because of demand and supply aspects. A recent report basically says that even if 3m houses are built in the next 20yrs, these won't meet demand. In the short-term however, interest rates will need to come down not just to revive the housing market, but because inflation has slowed down and the economy may slowdown too.
I am a fan of the way the Labour govt has worked the economy no more so than its first big decision which was to make Bank of England independent. This depoliticised interest rate decisions.
I think the next 9 months will see two or three rate cuts to revive the housing market and the wider economy. So don't go buying that house/flat yet.
As anticipated, O'Neal, Merill Lynch's and the only black CEO in the investment banking world, got fired for messing up on sub-prime write-offs. Given that every investment bank apart from Goldman Sachs took a heavy hit, I think the decision is little bit unfair.

On majimbo, Macharia Gaitho's piece mirrors my thoughts.

Friday, October 26, 2007

KQ-where to next?

  1. 19% fall in PAT for the first half after last year PAT fell
  2. Rivals eating into its lucrative EU route
  3. Delta to start direct flights from USA
  4. Cargo revenue being nibbled by Qatar and others
  5. Fuel prices going up so will hit the 2nd half
  6. Costs to repair customer service and loss of staff
Where is the good news for our fine Airline?
  • Africa routes-but we move fast and qualitatively consolidate the routes we've got so far and others
  • Persevere with Far East markets
  • Price smartly e.g. cheaper weekday flights from Europe
  • How has Delta been able to fly into Kenya if US is concerned about JKIA? There is a case for GoK to intervene and get KQ the same status
Price Comment: Price will find its floor over the next 6 months.

BBK's bond-interesting pricing

BBK's impending floatation of its overdue Ksh5bn bond has not elicited as much excitement as I thought it 
would. This is an overdue and welcome development in the financial market and especially so if we are to develop infrastructure funding. BBK plans to draw down on the facility in three tranches with the first Ksh1.5bn  due to be on offer from Monday; Ksh2bn in May and Ksh1.5bn in 2009. The pricing sparked this post because i think its a missed
opportunity for BBK and a puzzle. As far as I can see, its really to entice investors who will always be able to
 make a little bit change over the prevailing interest rates .

A s a shareholder, one should see it s a missed opportunity. Why? What direction will interest rates take over the next 7 years? One small winnable bet is that they won't be that lower than they are now. 

So the way to go would have been to fix the interest rates for each tranche and space them out a little bit more. 

In the short-medium term, one of the biggest concerns of our growing economy is the adverse impact inflation is having on consumer expenditure. The current inflation's causes are three fold, money supply, fuel prices and supply bottlenecks caused by poor infrastructure. Money supply is a short-term issue and can be fixed by raising interest rates (in Kenya, this is still done by GoK going to the market), fuel prices is both medium/long term issue with short-term fixes (price controls, but I think this will be heavily fought by the oil-business which is already suffering from last year's tax changes ) and medium fixes being increasing capacity for Kenya Pipeline and long-term, signing contracts with our EA colleagues. 

 If GoK was to raise interest rates then its quite conceivable that borrowing would fall and with BBK's bond tracking the higher rate, BBK would find itself with a liquidity shortfall. And vice versa.  Thus, a fixed rate would have meant that a period of higher interest rates would see some good upside for BBK. Secondly, its actually easier to offer long-term fixed mortgages if your funding costs are also fixed. For those investing in housing on a fixed product, one can borrow against the incoming rental income with some certainty.

Thursday, October 25, 2007

The bull gets mauled, Dragon's spending spree

Timing is everything in life. Just ask Merill Lynch. While all its peer investment banks reported for quarter periods ending August and therefore only took a partial hit from the credit crunch debacle, Merill with a quarter ending 
September took a full hit. It had to write-off $7.9bn of sub-prime mortgages that are now very very sub-prime which led to $2.3bn losses for the quarter. The added problem and which may lead to the firing of the only black CEO
 in the investment banking world, is that the write-off is $2.9bn higher than they warned about only last month.

The Chinese have now started spending some of those dollars they've been accumulating. In last 2 or so months, they've bought 9% of Blackstone (one of the world's largest private equity groups), bought a small stake in Barclays, another in Bear Stearns (another investment bank caught short by credit crunch) and today announced that's its also buying 20% of Stanbic (largest bank in Africa by assets). Stanbic have obviously just bought CFC and have serious ambitions for Africa. Watch this space...

Finally, for all those who are nuts about planes (stand up Banks), the A380, the double-decker of all planes finally took its first real maiden flight from Singapore to Sydney today. Its built to carry 800 peeps and will have an upper and lower economy so you can walk and down the stairs instead those clamped alleyways on a normal plane. I will wait for KQ, Virgin or BA to acquire one so I can fly on it-which might be a while given all the airports are having to be extended to accommodate it...

Is diversity good for business?

Diversity is a buzzword in corporate UK right now. In theory its valuing differences and supporting an inclusive working environment. In practice, it basically means having your firm's employee population reflect the wider society in terms of gender, colour, religion, lifestyle (actually sexual orientation but also employees who are parents, carers), disability, age etc. Some firms are now performance rating their managers in terms of how well they promote diversity (codeword for how diverse a employee population they have working under heir supervision). Apart from being seen to be  politically correct and not 
discriminate, when done well it makes business sense for the following  reasons:
  1. Staff expense tends to be the highest expense for most firms, so you need to ensure you are paying money for the best that you can get. You can only do that by widening your recruitment net as widely as possible.
  2. Most business ideas (i.e. new products, new markets,  distribution channels) tend to come from employees within a firm. Having a diverse group of employees a firm will in addition to generating many ideas, also generate diverse range of ideas.
  3. It makes good business sense that if the population you are targetting is made up of Asians, Africans, you also have their people serving them
And yet, many firms are failing miserably because of the inherent resistance to change, a fear of different people and also more importantly a backlash against what is seen as political correctness. Lately, this has been in cases of employees taking their firm to court for being compelled to act against for example their religious beliefs.

Despite these challenges, valuing diversity does make business sense. 
In Kenya especially, growing and national firms (not to mention the civil service) must make extra efforts 
to ensure their employment practices reflect the facts on the ground i.e. a nation of 42 tribes ( and more if you include
 other races). After all, the language of business is English (actually its money) and not Kikuyu, Luo, Sikh etc.

Tuesday, October 23, 2007

NSE: A short history

The NSE has survived two dictators, many a cack-handed chairman since its inception proper in the 1950s. In those days, it was a whites only affair headed by the original owners of Francis Drummond. Those who had the ears and eyes open took advantage at Uhuru to maintain the exclusivity. Peeps like the late Francis Thuo were in on this game from early on.

Jimnah alongside the late Francis Thuo, Nginyo Kariuki and others stuck through the stock market-hostile 70s and 80s and thin 1990s so that whipsnappers like KCIG and 650,000 others could mint it at the NSE.

They have changed with the times, reducing settlement times, introducing ATS training system,
 doing away with share certificates, real-time data (heralding real-time trading in 2008/9 or whenever cheaper internet reaches our shores). For sure, there has been fraud, blinkered
 approaches on customer concerns, and while being one of the first to criticise when they go wrong, I for one I am glad that men and women with back-bone have midwifed the NSE to stage that it will go on to become an important financial source for our economy's growth . The NSE will be demutualising in 2008 meaning anybody
can own shares in it and even set themselves up to be a broker.

TPS: One of the stocks of 2008?

Did you know that TPSshareprice has outperformed NMG over the last three years? Of the Aga Khan shares, only Jubilee has done better.  So why do I think it will be a stock to watch for 2008:
  1. It should start seeing the benefits of its regional approach with tremendous improvements in its Zanzibar, Ug and lately Rwanda businesses
  2. Tourism in Kenya is up 36% on year-to-date compared to last year. And projected to explode in the next 5 years (1m to 5m tourists-read Fintrade's article on the same)
  3. The Serena offering in Kenya is increasingly targetting the growing middle class in Kenya with weekend excursions; 2/3 day fairly-well priced offers to go see game at Maasai Mara et al
  4. A lot of administration has now been streamlined-its possible to now reserve your stay online. This has led to cost cuts.
  5. TPS are projecting to double PBT for the year (based on their first half performance) and probably the same for 2008.
  6. TPS is of course the only hospitality/tourism stock at the NSE. Despite a 1 for 5 bonus issue in June, the share price is today back to its pre-bonus issue price.
  7. Interestingly, TPS are offering all their shareholders a 12.5% discount for any bookings this year.
In other stock news, Equity announced its Q3 numbers (with 98% yoy growth, although slightly down on Q2). As did EA Cable (they had a 24% increase yoy, but are getting stung by aluminium prices). Its good to see the effort they are putting into diversifying their revenue from Kenya -its  a good political hedge. It also a bit of a shock to see Kenya Orchard (they produce some very yummy strawberry jam)  announce their results. They do need a decent accountant however.

Climbing the slippery career ladder

The prospects for Sameer Africa may not be that promising given the compe from cheap sub-standard Chinese imports, but the CEO piece in the BDA today is timely. Any of it applicable to me? Definitely,
  1. Diplomacy: having graduated from the school of call it as i see it, this has been a hard one to get into, but needs be.
  2. Indispensable: Try this and it will ruin the period before you go on holidays, the period when you come back from hols and limits career movements within company.
  3. Life-long learning: sound boring, but if one imagines that mobile phones were mass introduced 10 years and today are owned by 40% of the world's population, one has to keep learning to stay in touch with the world around you. I have found that after around 9 months one should everything there is to know about the job role they signed upto, after that its all about learning and applying new skills.

Monday, October 22, 2007

The implications on the share Index by the NSE chairman political affiliation

Many have been quick to politicise comments made by ODM Presidential Candidate Raila Odinga about the NSE. They have singularly associated the share index downward trend to his earlier comments on drug money finding its way to NSE also his concerns of share manipulation by a few well connected individuals. Paul Muite the chair of (Departmental Committee on Justice and Legal Affairs) similarly expressed the latter concerns albeit both politicians did not give details.

On Raila Odinga’s comments many have castigated him as an anti-development, alleged he is a communist, thus he would nationalise the listed companies. Others have even argued that he is a propagandist seeking political mileage.

However, many have overlooked the fact that Raila himself owns various private businesses and has strongly argued against his distracter that he has heavily invested at the NSE

Moreover, many people have glossed over others factors likely to be impacting on the downward trend. Such include, investors disposing of share in readiness to safcom IPO and the Christmas festival.

Other reasons as recently pointed by the NSE board are the rising inflation resulting in disposal of stocks so as to buy basic commodities.

Jittery investors holding back in anticipation of the political transition and uncertainty on the direction that the stock market is taking cannot be ruled out either.

One significant but overlooked factor that might also be contributing to the share index downward trend is that of the NSE chairman’s political affiliation and utterances.

Though as a presidential candidate Raila utterances and policies will have an impact on NSE, so too would the utterances and associations that the NSE chairman makes.

It is worth noting that, apart from being the current NSE chairman, Jimnah Mbaru also owes the largest investment bank/stock breakage firm in Kenya. His firm has won very many lucrative contracts from the current government. He is also a member of the presidential national advisory council on socio-economic issues. Also a member of T.C.L an investment clubs whose members are who is who in the current regime. This club has clinched top notch deals within a short period.

Contentiously, the NSE Chairman is also a staunch support of the current regime and is rumoured to be eying a parliamentary seat. He was recently in London with the president daughter and Equity bank CEO vilifying Raila. Not long ago he commented that an O.D.M win at the general election would cause the market to tumble. It is said that he has the regimes eye and ear.

Above issues may be interpreted by investors as resistance to changes likely to be introduced by and ODM government if it comes to power.

Yet it is clear to anybody that has been investing at the NSE that, just like the Capital Market Authority, both are screaming for revolutional transformation from the gentlemen’s club they are, into modern efficient, effective and transparent stock market and regulatory body.

Other investors may foresee a conflictual relationship between NSE (If led by the current chairman) and a future ODM government when the chairman refuses to be politically neutral.

There are also concerns the chairman has not, as was the case in relation to Raila's comments, come out to strongly condemn recent alarmist and false remarks attributed to the finance minister on the NSE losing 200 billion whilst the actual figure was 57billion.

Ironically, the chairman’s has neither come out to reassure anxious investors about the increasingly politicisation of the NSE

From this, one can conclude that the chairman cannot hold onto his seat and at the same time engage in politics without impacting on the share index. Indeed, his stand is a clear conflict of interest. Therefore, the best the chairman can do in reassuring investors is to stick to one role rather than apportioning blame where it is not due.

Sunday, October 21, 2007

Where are the anti-corruption campaigners?

With the perceived and actual corruption in the current and previous regime, I thought this would be one of the strong points of the election. Lakini all I am seeing is statements about "forgetting the past" ODM-K; change of mind about Kroll Report and the Nd'ung'u Report (ODM's Ruto comment on this is memorable "My name and that of Raila are in the report. How can we implement it?") from the ODM camp. The govt has of course gone quite on corruption.

This is the most serious problem that Kenya has today (apart from poverty) and one that will continue to hold back our economy. So why isn't it part of the General Election campaign?

The weekend was full of sports. Thankfully for those of us living in England, we won't have to listen self-congratulatory and jingoistic (Engerland land of hope and glory, the best et al) news reports. Lakini 
I felt bad for Lewis Hamilton who really messed up his start in his most important race of the year.

Thursday, October 18, 2007

Nairobi's rejuvenation: Gakuo has done well so far

Excellent article from Bankelele on the progress using Made in Kenya methodologies. In the same way that economic growth won't come to your door, neither will the beauty of Nai return without our collective effort.

Wednesday, October 17, 2007

Tuesday, October 16, 2007

Banking Sector Marches On

CFC Stanbic is now a reality. Watch out BBK and Stanchart, these guys will soon be competing for corporate clients with a very portent offering of banking, insurance and investment products.

NIC are in the midst of their right issue-priced at very good Ksh70 with an additional bonus share to come once they are through with the rights issue. NIC are an innovative bank who potentially have a very bright future ahead but need a partner , not necessarily another bank but another financial institution, on whom they can leverage distribution.

DTK are also shortly starting their rights issue again at a discounted Ksh70. This is not as attractive as the NIC and DTB's future lies in two things happening. One, the finance minister doing away with these you stick- to- insurance and you-to-banking kind of divisions so that a bank can
 offer insurance and investment products across the counter. And secondly, their being able to integrate successfully with Jubilee and Habib Bank.
In other news, Equity continue their expansion (how are they doing it?) with opening of branches in Kisumu and likely partnerships as far as Zimbabwe. And as a clincher, have now 
been allowed to take a bite of HFCK heralding the much anticipated Equity-HFCK-Britak
financial institution (possibly buying into some of the smaller brokers?).

And to read any blog you'd think Kenyans ate and slept politics!

Monday, October 15, 2007

Kenyans & their degrees-bugbear

Sunny's current article chimes into a bugbear of mine. Quite simply, everywhere I look now Indians are either doing or running all the IT jobs for investment banks  and commercial banks, they are in all the top consulting firms, are starting to appear as CEOs of CFo of FTSe 100 companies (e.g. ArunVodafone) are usually doctors (and rarel;y nurses) in all hospitals and they still run all the corner/grocery/newspaper shops in the UK. Is that ambition or is that ambition? While part of it (the entrepreneurship and intelligence) is in their genes, its also a family thing. Indians mainly do arranged marriages and most families will look for a bachelor who is a doctor/lawyer/accountant/programmer. Yani they crave success built on solid foundations.

So my blood boils when you hear a Kenyan has been sent abroad by parents to study tourism, education, cookery, arts even MBAs. Kenya needs peeps who will create value for the economy. IT, scientists, doctors, engineers. 

Thursday, October 11, 2007

Kenya TV : But not as we know it

Ati his name is Mungai, but i think i know a citizen of Kenya when i hear one and i think that "fisherman" has some explaining to do.

Njirani: South Sudan & Zimbabwe

Election time tends to be a time we Kenyans concentrate a lot on us and our future. However, it should also be a time of reflection about where we've come from but also us vs. our neighbours.

When the CPA deal was signed in '05, it was a time of rejoicing and despite the subsequent death of Garang, their founding father, Southern Sudanese had a lot to look forward to and many actually started returning home. The implementation of the deal has however been slow and misjudgements about each other's motives have further eroded an initially fragile relationship to the extent that Kiir has now suspended involvement in the coalition govt. Will they go back to war again?

Mugabe continues to visit upon his fellow countrymen the sort of horrors they never imagined about even the awful colonial and minority-rule days. Luckily for him, Zim has no oil...

Let's be thankful for God's mercy upon Kenya.

Kenya National Bureau of Stats

This website has a lot of interesting data on our great nation. I didn't actually realise just how important agriculture still is to our GDP (the single largest contributor by around 21-3%).


Its soaring share price has until two months ago been something to behold but for those who have read C.K. Prahalad, the man who wrote about the 'fortunes at the bottom of the pyramid' this is just proof of a known theory which many players in the banking industry have ignored and snubbed those so called poor unprofitable customers. Prahalad argues, "the word's most exciting, fastest-growing new market is where you least expect it: at the bottom of the pyramid. Collectively, the world's billions of poor people have immense untapped buying power. They represent an enormous opportunity for companies who learn how to serve them. Not only can it be done, it is being done--very profitable. What's more, companies aren't just making money: by serving these markets, they're helping millions of the world's poorest people escape poverty".

Its origins were covered in unbiased account by Microfinance. So I've so far dismissed rumours about its current CEO with a pinch of salt. Despite its current association (foolish and short-term in my view) with the current regime, I am now interested in where it goes next.
It still hasn't gone the length and breadth of the country and its venture to Western Province is good. It also needs depth and hence there is excitement in the likely banca-assurance concept that may come out of its HFCK-Britak integration. It doesn't in my view necessarily need to court big business. The SMEs is where the Kenyan economy will grow.

My limited research of Ug, TZ, Rwanda and Burundi and even further South reveals that its model remains fairly unique in meeting the needs of the majority of their population. And its there that it should be developing its strategy on.
Share Price comment:
Current uncertainties mean that its price hasn't found its floor yet, so hold out for a little longer. Because of the looming additional i supply in July 2008; likely disruptions if there is a new regime, buying now will mean probably holding for 3 to 4 years before one can make suitable returns.

Tuesday, October 09, 2007

The genius of Warren Buffet

This dude is amazing. Even when he sells earlier than his "holding forever" mantra, he still makes 7 times what he bought at (yes 7).

Get into China, the other BRIC countries and East Europe, that is my 2nd mantra for this quarter after get out of the NSE (but not at a loss).

Safaricom in the FT

Thankfully, while the political chatter dominates our press, real life is still going on.

Very good article in the FT on Safaricom. I think its some press exposure for the IPO, but a well-rounded article nevertheless.

Is a REIT right for you?

REITs are real estate investment trust which funnily enough invest in real estate. Given our obsession with owning real estate, I guess the only reason they've just been introduced in Kenya is because of the herd mentality of most businesses in Kenya. And CMA...

REITs are very similar to unit trusts in that you buy units which provide you with both capital gains but also dividends in form of a share of the rental income. As a rule, REITs must redistribute 90% of the rental income or capital gains realised over a financial year. In the West, REITs mainly invest in commercial rather than residential property. However, in the context of our
housing crisis, REITs could benefit by going into the residential market. Like unit trusts, they'll give you access to the real estate market without the hassle of going through dodgy builders architects and the like.

Monday, October 08, 2007

NSE Handbook 6th Edition

This handbook is a superb reference and provides a good insight into the listed companies' market information and financial ratios that makes the decision-making process for any likely investor much easier.

The handbook provides summaries of performance of the capital's markets and key financial information for all listed companies for a 5-year period 2000 to 2005.

Please let us know if you wish to obtain an electronic copy of this issue of the handbook.

Friday, October 05, 2007

China: The march from world's most populous to largest economy

China is one of the oldest civilisations-and in any case, the most continuous one-in the world with history dating thousands of years. Its inventions include paper, printing, gunpowder and even football. And it has its share of  great thinkers including Art of War's Sun Tzu,Confucianism-behind the religion practised in Japan and Korea.

It was ruled by various dynasties the most famous being Qin (from which it derives its name), the Ming dynasty which established modern China entity and the last one being Qing dynasty which collapsed in 1912...

The next 37 years were spent in one form of war either Civil war or externally against the Japanese until Mao Zedong took control in 1949.

In retrospect, Mao's peak came in 1949. The next 27 years under his rule(using the Red Book) were spent in a politics experiment Lab. One month you'd be flavour of the month, the next you'd be denounced by somebody and be heading for execution. One minute, there was freedom to air thoughts (100 Flowers Campaign), the next minute those quick to open their mouths were forced (literally in some cases) to eat their words. Two experiments are remembered not too fondly. The Great Leap Forward(to induce industrialisation) and the Cultural Revolution (a purge of the bourgeoisie a period so bad that children denounced their parents and classmates their colleagues). 

Upon his death in 1976, China was politically exhausted (I know the feeling). Deng Xiapong and the Communist Party decided to get real and inaugurated what they call "Socialism with Chinese characteristics", I call it communist capitalism. Is successive steps there was:
  1. Relaxation of the agriculture collectives so that farmers could sell their surplus produce
  2. Then onto town and village enterprises basically allowing towns and villages to set up and run industries
  3. Strong saving and capital accumulation culture (approaching 50%of GDP according to OECD
  4. Controlled open door policy to allow foreign enterprises into China
  5. Removal of price controls in 80s
  6. Setting up of banking and capital markets in the 90s and consequent controlled entry of foreign bankers
  7. Reduction of NPLs in state enterprises
  8. Encouraging private  enterprise by relaxing property ownership laws
These changes have however had as their foundation, strict adherence to communist ethos, such as listening and responding to issues that pose a threat to its reign (in China, inequality as an issue is being actively tackled); executing the corrupt; maintaining strong oversight on the stock market, exchange rates, interest rates and general economic growth balance to ensure some parts of the population/country are not left behind. And depoliticised the economy.

And the results are impressive. China has averaged 9.5% growth pa since the early 80s and shows no signs of slowing having already recorded that average annual growth in the first half of 2007.

Today, China alongside the US are the two great anchors of the world economy. Most excitingly, according to the Economist China's economy has very few issues that could slow down the 10%+ growth in its economy for the foreseeable future.

Stockmarket comment:
China has 3 stock exchanges (if you include Hong Kong), Shanghai and Shenzhen all having one thing in common. They are powering forward to the extent that the govt there has tried to intervene verbally,introducing capital gains and transaction taxes and interest rates all to no avail. Historic and forward P/Es are now looking very ripe. However, current economic projections are supportive of projected company growth. More importantly no market today has the potential that China has.

Investors should have 20% exposure to China in their investment portfolio either indirectly (through unit trusts-for Diaspora, there is an array of these, if in Kenya, try EMAC or directly (some of the companies are now listed in US and UK).