Thursday, October 08, 2009

Giving NSE some bouyancy

The reasons for the current fall and stale state of the NSE are various and now well known:
  • Brokers' embezzlements
  • Economy messed up by (a) PEV (b) drought (c) bloated GoK (d) public crowding out private sector
  • 2012 and bleak outlook
  • Bonds taking up the liquidity
  • et al
Some of the above won't change unless we see radical moves like UK or Ruto in handcuffs on their way to Hague. I think bonds have some way to go given its the latest kid on the block and corporates are now queuing up to go through this avenue.
However, the NSE can attract attention back to itself in the following ways:.
  1. Share consolidation: while (i) sharebuy back legal stuff is being sorted out and in any case will probably be too expensive in the medium for any firm to contemplate doing (ii)the cheaper share consolidation is easy to do and will give shareholders, brokers and the firms themselves a consolidated cheaper way of managing the quantity of shares. Safaricom being the share that indirectly started the current bear should kick-off the stage by doing a 10 for 1 share consolidation. This would mean 40 shares if you currently hold 400 and so forth. Equity could then do a 2 for 1.
  2. Shorting: a hobby horse of mine where the NSE is concerned. It will probably be the single most educative instrument that can be introduced to the NSE. Because it allows an investor to make returns and take a view whether a share is rising or falling, NSE investors will no longer think of shares as endlessly rising investing instruments. Clearly, brokers will also have two more avenues for revenue generation. How about concerns re margins?Initially, the movement when shorting could be limited to a 20% loss at which point the investor would have to come up with the cash to cover his losses.
  3. Bring up NSSF: UK obviously banned NSSF from new share purchase to facilitate liquidity in the bond market. In the medium and longer term however, its a silly policy to ban one of the deepest pockets in the land from a capital market. An oxymoron if you like.
Saying all that, an NSE at 2,500 is a very welcome re-entry for me.


Samora said...

It's funny that you mentioned the NSSF ive just written an article about the fact that we need to dismantle the NSSF in its entirety on my blog futurecapitalkenya. On another note, shorting would be a good step but the amount of investor education that would need to be done is phenomenal. However for those in the know it would me a money minting process.

MainaT said...

Samora, NSSF suffers from governance issues (as does much Kenya's life) so abolishing it would be akin to using a sledgehammer to crack a nut.
Shorting is not complex. Peeps just need to view it as the opposite of going long.

Maishinski said...

More stringent regulatory and oversight systems would need to be in place.. imagine someone sells your shares expecting price to drop, then suddenly the price shoots up! Person waits hoping price will go down.. it keeps going up and due to lax systems or corruption the person cannot cover the position to recover your shares!

You, the elegitimate owner decide to exit and cash in on your profits... only to hear "kulienda kulikuwa" stories from your broker.. who knows there's nothing in you account... stalling... hoping the price will come down....

After trying for weeks, you give up in frustration. Few weeks later price goes down and the corrupt shorter replaces our shares...

By denying you your profits they have essentially stolen from you.

Believe me NSE is still Wild Wild West and not ready for shorting... Even the western markets which we thought were secure are infested with corrupt greedy roaches.