Tuesday, September 30, 2008

NSE: How long will the bear be with us? How long is a piece of string?

Earlier in the month, I said I thought that the bearish conditions won't last another month. I did put caveats because of inflation and the Coop IPO. Both are still with us. Furthermore, I am thinking that whether its sentiment or actual funds, the NSE movement is not as oblivious to Western markets as I had always thought. For these reasons, I therefore think the situation will remain for a spell.

However as investors, the playing field remains roughly the same except for:

  • Traders: If you rely on the NSE for a living, have a look at what happened to day traders during and after the dotcom burst. Many had to get real jobs. Stock trading in a buoyant market is easy because you can use fundamentals or even charting to predict the next set of events. In a bear market, you need a lot more nous to pick out rallying pts. Not to mention funding. And of course shorting and front-running are only allowed in the NSE if you work for a broker.
  • Fundamentalists: Past performance should be used as a guide to future performance, but this is a gilt-edged opportunity to buy some stocks that look fundamentally good, but have taken a dip due to the bear season. Typically, I use 1 yr low as a buying pt or failing that, a price lower than the one I bought initial holding at. Also, buying in portions may work well if the bear season is prolonged.
  • Market abusers: Crown Berg and East Africa Portland are rarely traded. The waiver of 10% price change during corporate announcements is therefore an opportunity for a dealer to put in a ridiculously low price ; course panic so that you sell thinking the end is nigh. He (the dealer) then holds onto his share portion for 6 months during which the price will have gone back to normal. Stellar was grateful for a CEO job and won’t say boo.
  • Shorters and front-runners: I suspect Equity was partly a victim of someone short-selling. And it won’t be the last. Any mini-rallies such as the one last week will be used as opportunities to front-run if you put in a “best market price” order.

Monday, September 29, 2008

The end is nigh: welcome to freefall city

In around 2000, everybody went nuts and started equating clicks on websites with revenue generation. Amazon and other whizzy websites were valued at astronomical numbers. When the model unrivalled, the flow of tears was as site to behold. Everybody was a day-stock trader with guys leaving work to go and trade stocks for a living. Despite the dot-com burst, that bug has never really gone away, until now. I remember that was the first time I got into stocks, but rather than buy into the dotcom hype, I bought into M&S, one of Britain's real institutions which was then in danger of collapsing. You sensed however, that a deal would come along to save, it got a new CEO and the £1.87 shares I bought doubled within a yr when I bailed out.

This however. Is a different kettle of fish. The banking system underpins the economy. Not to get too dramatic about it. It’s the circulation system of the economy. Once you hear banks are not lending to each other, they are even less likely to lend to you. If you are a business that operates with overdraft facilities or even normal long-term loans, your days are numbered. If you are a bank that depends on that inter-bank lending, your days are numbered (hence the collapse of Lehman Brothers and other ibs; Northern Rock and other mortgage lenders). A lot of insurers invest your premiums in the stock market and even money market funds. The current stock market falls and deviation of money markets mean they are also in trouble. Furthermore, some have also been providing credit insurance (in form CDS, hence AIG's collapse).

Still, if you have some non-credit crunched cash, speculating on some of the stocks keeps things interesting. I am now back at LSE looking for some bargains. StanChart, probably the only UK-based bank with no retail banking presence in West, looks a good bet as does, Barc. For more action, RBS may tempt. Its the sort of gambling that could (has already) leaving you with egg in your face.

Anti-Corruption: Good News

Its good to see GoK occassionally does make use of the public declaration forms. I wish they were actually made public.

Saturday, September 27, 2008


Is the NSE driven by foreign investors? Apart from the bearish conditions due to inflation, NSE's falls and rise over the last week and this one would seem to suggest so. This might partly be due to effect on Diaspora. Either way, it remains a very bearish time at the bourse and the prospect of the Co-op IPO seems to portend more gloom. For me, bring the IPO so at least it can shine some light on the NSE (and hopefully we get full subscription for once).

In the UK, gova is now tightening the rules for Kenyans especially those of us who are underground by
  • requiring everybody to turn up in person at the Home Office when their cases are due
  • leaning on GoK to provide fingerprints yani, they can compare fingerprints-mbayaa especially for those who have taken ids in Kenya.
On one to one basis i.e. energising the masses; tv debates, McCain comes across as 2nd rate and a no-hoper. But the dude is a complete maverick with some good out-of-the-box ideas. Sarah Palin (although the effect has worn off sharpish-just watch this excerpt from CBS) was one. And so was his decision to cancel campaigning to help support the $zillion support for Goldman Sachs (sorry US economy). Again, that kind of backfired given he still turned up for the 1st debate on Friday.

Having tried the newish Google chrome, its disappointing on several levels. For a start, you can't blog on it! When you do a search, you get sent directly to msn live search! Both these two are its best selling products. And finally details keep missing off websites, which you only discover when you go onto Internet Explorer or Safari. Its fast though...

Used to think a lot of Vioja, until youtube came along and Kenyans discovered that they could post their videos on it. Now Vioja has been trying to scare youtube into successfully removing as many of the videos claiming copyright. A couple of those were videos I had uploaded with permission from somebody actually know personally. Saw I spoke to him later and he said he had never heard of Vioja! The pt about the majority of vids is that guys only upload them to give the artists worldwide publicity through a channel whose audience Vioja can only dream of. When are we going to stop this parochial and envy-based BS?

Friday, September 19, 2008

Kenya & Capitalism: Lets heed the warning signs

In the days when parents dished out caning as regular as githeri or ugali, one learned very carefully the reasons older siblings got caned for to avoid the same fate.

Kenya is one of more stronger adherents of capitalism in Africa. And yet, you look and at how many safeguards they have out in countries like the US and the UK then you look at the last 5 years and you ask this. Do we know what we are doing? Do we understand the rules of capitalism? Are we alert enough to learn the lessons so we can avoid the excesses of capitalism?

Because the banking sector is recognized as an important cog in the capitalism wheel, its heavily regulated and monitored. You have to submit regular reports (daily, weekly, monthly, quarterly et al); you regular and irregular supervision that looks not just at the usual CAMEBCOM criteria, but also record-keeping; money-laundering; chinese walls and so forth. And yet with all this, firms have been falling like a pack of cards this year! Partly because of the external environment didn't take cognize of the fact that leverage is leverage no matter what. Its a rubber band and can snap... Look at the situation in Kenyan where banks have been hounding guys to take up loans mostly with some of the loosest form of collateral known to mankind. A pay-slip...

The stock markets in the West are classed as strong because investors are by and large well informed; there is a depth and breadth in terms of products and liquidity and listed forms have strong governance code on structure and reporting requirements. Again, you still have cases like the FSA saying that its own estimate is that upto 21% of all M&A have insider-trading! You then look at our NSE and its almost exact opposite of this.

Above all, capitalism only operates well, where the societal structure is stable and has widely agreed norms and values. We haven't yet agreed on how we should be governed.

What we must do urgently is customise capitalism so that it works for Kenya rather than we working for capitalism.

Wednesday, September 17, 2008

Thursday shorts

Another day, another bank is a gonna. HBOS is UK's largest mortgage lender and deposit taker/holder and the prospect of it going under was too much for the gova. Lloyds TSB will almost certainly get gova assistance so it can take over a much bigger bank than itself.

The US continues to confound. The excuse that AIG was going to cause systemic damage is BS of the highest order because a credit insurer without funds doesn't amount to much and that is what it was in terms of the financial sector. Menawhile, rumours abound that there was a Lehman stitch-up job between Barclays and the Fed. Funny story, ati Man U will now be sponsored by the FED.

At the NSE, its all downhill, demand/supply volumes are such that its even pointless trying to adjudge what is a good price to enter a share. It’s even harder to explain rationally why the fall has been so resolute apart from the reasons postulated. And of-course the ground slipping from beneath the global economy.

The thing about this bearish NSE. Kind of reminds of a remark that Warren Buffet made when everybody was still rolling in derivatives. “Only when the tide goes out do you discover who’s been swimming naked.” We are about to find out which brokers are naked i.e. trade on client accounts regularly because a bear like this will surely mean that we'll be selling at some point. AIB has been mentioned. It has come up with a strange new "CMA-rule". That every time you email an order, they have to call you to confirm the order.

Pity about Mwatela, unlike Githongo, I wish she had stood and fought this thing, but parliament is on holiday (how many whole days is bunge actually in session on an annual basis?) so nobody will really stand up for her and she was probably threatened with zero pension pay-off.

We are good at endurance sport so we should be good at Tour de France? Non? Oui? Lets wait and see... Btw, who is Myangi? Honestly, you'd never see tony brair so why do western guys get it wrong even on print?

Tuesday, September 16, 2008

Moral hazard: gitu gani hii?

In simple terms, economists say that in a perfect market, price will always go back equilibrium except where one of actors in the market behaves in a non-rational manner or when a non-market actor intervenes in an non-inefficient manner. The first is often seen in the insurance market where because you know you are insured, you may become more reckless. The second is where the govt not knowing or having been negligent in its duty flies in with tax money and rescues a firm in a particular sector or market. The hazard is that it now becomes a given that every other firm in the said sector/market will be rescued by the govt if its unable to continue its business. In some countries it become known as the tbtf (too big to fail) syndrome. The second hazard is that at some point, the govt will find that taxpayers baulk at paying for another profit-making firm to be rescued. This typically tends to be a bigger firm than the one the govt initially rescued.

Moral hazard of the non-market actor type abounds everywhere. Kenyan parastatals and partially-owned firms all fall under this line. Most operate like they can always be rescued tomorrow. In the US/UK markets, banks have been behaving with tbtf effect since Bear Stearns was rescued earlier in the year.

Bottomline: Govts either need to acknowledge that moral hazard exists and act appropriately or it doesn't and then be consistent.

Monday, September 15, 2008

The elastic-band theory

What a day!
Have you noticed that the quicker and harder you pull an elastic band, the slower and careful you have to be when pulling it back to avoid injury to self? And you can only snap so far before it breaks injuring self.

In one day, the finance industry has lost two ib-s possibly an insurer and will almost certainly loose Morgan Stanley unless it can figure out how it'll fund itself going forward. GS will survive because the world still needs a specialist deal-maker, but even it will have to withdraw to the hills as it were. I can't see it doing some of the proprietary stuff it does now in a year's time. Interestingly, Hank Poulson was GS's CEO before he became head of Treasury so he'll be loving today seeing two of his rivals go out of business.
No more this... or the green of Lehman Brothers that inspired this blog's color. While many blame the reward system,
the issue is leverage. Interest rates were kept low for an unreasonably long-time until everybody started taking the benign environment for granted. Leverage financed a lot of new products to the extent that some even forgot what underlay some of the derivatives they were buying. And for that we have to thank Greenspan....

Thursday, September 11, 2008

NSE shares I am looking to buy

A general comment. The NSE may fall a bit more, but I don't think the trend will last another month. Unless Co-op comes in and inflation stays flat at 27.6% or goes higher. Its therefore time to start looking at what are the good shares in the market:

  1. KCB-Its annualised P/E for 2008 is around 15. The bank will start benefiting from its regional growth from 2009 and beyond. The only spoiler (which will impact the sector anyway), would be if the economy turned negative because of inflation thus increasing non performing loans.
  2. AK- Fibre optic cable will be with us in 2009 in one shape or form. AK is an established player in the market already and in the first lane to take advantage of the faster, cheaper internet network. If it can't, somebody will buy a stake in a similar vein to ScanGroup.
  3. Equity- The share has been good to me and remains my favourite despite the taking a turn since that announcement. Its annualised P/E still looks high but the bank has 3 more years of 60%+ growth to come all at a lower tax point and it would be churlish to ignore the opportunity.
  4. DTB- Has some of the KCB ingredients (strong and aggressive regional franchise) though not the same balance sheet or branch network. Its slowly standing out in the mid-tier because its able to source funds in different ways from say NIC which doesn't have the branch network or the international connections.
  5. TPS- Having logged out, I might be tempted to get back in should the price go below ksh58 (which would be its lowest for this year). Great hotel business and a bellweather company for its industry.
  6. EABL/NMG- These two are back ups in case the NSE confounds my expectations and continues to go downhill beyond 4,000.
  7. Industrial- Not touching especially those with a high energy cost component (whether fuel or electricity). Electricity price rises will burn margins.

Tuesday, September 09, 2008

Wednesday shorts:

Last days for another ibank? Even the free-spending Oil/Chinese/Korean sovereign funds et al are unable to bring themselves to touch Lehman Bros.
Nd'ung'u is an academician with absolutely no clue as a
CBK governor and if it wasn't Kenya, Jacenta Mwateal would be doing his job and not going off to the wilderness of the North Eastern ministry. Her demotion even sounds like it was illegal.
A lesson to aspiring CEOs courtesy of James Mwangi@Equity. Shareholders are like that line manager who thinks he knows it all. Disabusing him of that notion should only be done if you are going to be his boss. Telling shareholders that another 35% of Equity will be floated in the market will make most of them head one way. Out. In any case, somebody/ies are also selling a chunk of their Equity swiftly and not very subtly. If its one investor, then it must be one of the principals because everyday there has been one huge sale of around 200k shares.
In the midst of all the grief about the
Safaricom IPO, I think the article might put a wry smile on your face.

Monday, September 08, 2008

Investment clubs: Some do's

  1. Recruit members intelligently and professionalism so that they fill all gaps in your club’s skill set rather than numbers. Otherwise you’ll be carrying the numbers.
  2. For commitment and quality purposes, its better to go for a high-one off investment amount e.g. Ksh1m than regular contributions. But you will get fewer potential members.
  3. Think of 10 worst things that can happen. And cover them in your constitution.
  4. Set up intelligent and professional governance that involves assigned responsibilities to as many members as possible.
  5. Have a vision for where you want to end up and bring it back to the present.
  6. Research, research, research before you invest. It'll put you in the 2nd lane after the brokers.
  7. Take risks when you can. Otherwise it'll be like waiting till its getting dusky before rushing out to get some food.
  8. Remember, the early bird catches the fat worm. Don't wait until a stock or market is flavor of the month.
  9. Avoid ostrich-behaviour. Kenya is now part of East Africa. It’s much easier to invest in Ghana, Botswana, SA or even real estate. There is no point in chasing the NSE downwards when you could be investing elsewhere until the NSE finds its feet.
  10. Last but not least, watch Tony Wainaina's video series as he gives all the basics in a very straightforward manner.

Friday, September 05, 2008

Marketwatch: NSE, USE & FTSE

The bear continues to stalk the NSE as GoK continues to let loose bullet after bullet on its grand feet in the economy arena. Inflation remains the biggest issue affecting the market and the wider economy. So what does GoK do? Meet over whether KenGen will need to increase its tariff to KPLC which will of course pass this swiftly to consumers. Recent rises are slowly feeding through the economy and despite optimistic noises, inflation will not get below 20% this side of 2008 unless there is concerted effort.
Equity hit Ksh250-primarily due to this announcement, but I also suspect some of the principals are downloading slowly. There was a low of ksh240 on today.
Crown Berg-I am assuming that all it took was for two guys to conspire as follows. One puts in a sale "at any price" and the other puts in a buy at ksh20. On a 1,000 shares which are then input into ATS at the last minute. Causing price to fall by 50% on the one day it can do so. Why would somebody do this? In the hope that nervy shareholders thinking its half results were bad, sell at throw-away prices. Unfortunately for them, nobody has bitten.
Going by all the threads on stockskenya, CO-OP IPO is imminent. Because its being brought by D&B, expect low threshold values and plenty of shares. I'll only participate in future IPOs on two conditions:

  1. Restrictive thresholds i.e. minimum Ksh50k or more.
  2. DVP

UCL-climbed to KSh200 after the rights issue shares were downloaded. Its P/E stands at a great height of 85.If you held the share pre-rights, you'd be holding 70% gain (before commission) today.
FTSE had its worst week for a while after that
speech by the inappropriately named Darling.

Wednesday, September 03, 2008

Kenya Listed Banks: First Half 2008

Update from this and this. I've removed CFC Stnabic because their numbers don't make sense i.e. no restatements as required.

Some stocks are very cheap. Notice KCB's PE is half that of Equity and then think where both will be at the end of 2009...Supply, number and calibre of investors who hold either stocks may have played a role, but fundamentals have also influenced.

Although I normally invest on fundamentals, this article reflects some of the thinking around some of the stuff I've done so far in this 2nd half of 2008. The world of investing is changing...

Tuesday, September 02, 2008

Is lack of creativity holding back Africa?

If you listen to African (and black people generally) discussions on TV or in public places one of the things we love to pontificate about is the lack of opportunities and more popularly, our absence in history. In other communities, they are busy re-writing history by aggressively providing solutions and ideas to mankind problems. But are there any Africans trying to do so?

Finance Industry:
I can only think of James Mwangi who has at least broken the mould and has really turned over the banking sector in Kenya. Do we have contenders for investment banking innovator of the year from an African-owned investment bank? Where is the guy who is going to come up with the next Balck-Scholes model? Or that paradigm shifting finance engineering idea/product?
Which economy in Africa has gone against IMF/WB orthodoxy successfully? Which economy has been able to successfully deal with corruption using even IMF-prescriptions never mind home-made solutions? Which economy has been able to institute inclusive macro-economic growth on a sustainable basis? Apart from Andrew Mwenda's polemics against development economics, which other development economist has come up with ground-breaking ideas on how Africa can chart its economic path. Which homegrown African company is listed in London or New York? Which African country exports products manufactured from its raw materials?
Yes in Kenya we've experimented with a Grand Coalition, but it was forced on us and is a monster with budget-breaking expense. Which African country has been able to marry traditional forms of governance with democracy? Sierra Leone has copied our wealth declaration idea complete with the same faux pax. They are no public declarations and thus serve little or no purpose for the common mwananchi. In the UK, the register of MPs interests is freely accessible meaning very clean records.
With a myriad of tropical diseases unique to Africa, who has patented a cure for even the most prevalent of these i.e. malaria?
Look at Kenya, no natural mineral resources, but how many innovations in agriculture? We have a fairly well-funded and very talented KARI yet today we still grow maize, potatoes, beans, sweet potatoes, arrow roots they we have done for years come rain, come sunshine. With drought most likely problem for Africa from global warming, which country has successfully mastered food self-sufficiency or even patented drought-resistant crops?
We are the continent that has consistent sunshine so where are the patents for solar-based power generation products?
We have many programmers, but where are the mould-breaking operating systems, internet-browsers, search engines or even africapedia?

Monday, September 01, 2008

Monday shorts

Well, last week ended on a rather sour note for some Crown Berger shareholders. Somehow, the stock fell by 50% on Friday even its though 6 month results were flat. Ama its the old City Trust story? The wider NSE remains depressed and it looks like supply and inflation have made the market a no go area for a while. Great results from EABL. 22% is a good growth number for blue chips like it and Safcom.

After noises from many of us, NSE improved and even refreshed its website. Sadly, things are now going back to where we were. It no longer posts results and even prices to go missing. Wake up guys!

Thinking real estate? Why not Ug?

Some interesting piece on Biwott. Ati m-o-i was his teacher?

Linturi's proposed bill (riking that accent, that is what I call keeping it real) chimes with something I heard, instead of 65, why not align presidential candidacy with civil service retirement age which is currently 55yrs? Also, make sure a MP can only serve two consecutive terms (anywhere in the country)...

I had another peek at the updated vision2030. The first shocker was on page 6. The 10% annual growth rate needs to be maintained for the next 25 years i.e. from 2005...That means we've already fallen on one target. The thing about this vision is that the formulators are not my generation but old men in their 50s and 60s who most likely won't be around to pick the brickbats when its not achieved. Or the plaudits if any. Planning or forecasting or any chore requiring target-setting boils down to SMART.

Talking of target-setting and performance contracts for judges. I have just one that I think anyone who has been through the Kenyan courts would want. Just tell us you'll reduce the case backlog by 20% on a year on year basis. Dank.

Enjoy your week...