The equity market, which was once considered a passport to instant riches by many potential, and particularly small and retail investors, appears to be slowly losing its luster with signs that the exchange is in dire need of urgent repair.
So strong was the appeal of the stock market that a few stockbrokers chose to run it as closed shop, thanks to the process of demutualisation that seeks to open up the market to the public.
Indeed stock markets are critical to the growth of economies and their role in resource mobilisation cannot be underestimated.
They have created employment opportunities and bailed out businesses in need of capital.
Globally, stock markets have helped turn trading nations into empires, created a multibillion-dollar savings industry and fuelled the growth of 21st-century titans such as Google. But with trade volumes thinning and revenues shrinking at the Nairobi Securities Exchange (NSE) all indications are that things are no longer rosy and it may not be business as usual.
It is certainly shocking to hear that the total profit reported by all market intermediaries (fund managers, investment banks, collective investments schemes, investment advisors, and stockbrokers) for the year ending June 2011 stood at Sh753 million compared to Sh89.5 billion made by banks in a similar period.
This actually shows how small the capital markets subsector is in the entire financial sector and thereby calls for more innovative products to deepen the market.
The subdued activities at the bourse have impacted negatively on trading volumes and brokerage commissions thereby squeezing total revenues for market intermediaries.
Consequently, market intermediaries have been left jostling over limited corporate finance contracts whereby they have even ended up defying ethical business practices while undercutting each other through heft returnable commissions.
Some players try to cash in on advisory/consultancy fees, fund management fees, interest and dividend incomes just to survive the tide of financial hemorrhage sweeping through the equity market.
Stakeholders contend that over the last five years the market has stagnated in terms of growth while implementation of a number of ambitious projects meant to deepen the market has faltered.
The number of initial public offerings (IPOs) has plummeted and now the role of the stock market in mobilising resources for investment is coming under sharp focus.
Private firms, instead, choose to list by way of introduction mainly because of the uncertainty around the success of IPOs.
Retail investors are yet to reconsider stocks as an investment option especially after using borrowed funds to buy into the Safaricom’s initial public offering (IPO), which later fell below the offer price.
new listings
Data from the Capital Markets Authority (CMA) shows that only 10 companies have listed at the NSE through an IPO in more than a decade, raising Sh72.65 billion from the offers.
Consequently CMA and NSE are spearheading the operationalisation of the Growth Enterprise Market Segment with a view to spurring new listings at the bourse and help investors diversify their portfolio.
Although a number of products have been lined up by CMA to stir up market activities it widely believed that delayed implementation of proposals for the introduction of the Over-The-Counter trading of equities, Asset Backed Securities, Exchange Traded Funds and Derivatives Market is holding back the growth of the market.
This is likely to inhibit the capital markets to attain its targets such as raising the level of savings to the gross domestic product (GDP) to 30 per cent and the level of investments to GDP to 34 per cent.
Other targets such as raising the proportion of stock market capitalisation to 90 per cent of the GDP and bond market capitalisation to 30 per cent of the GDP are also likely to be stifled.
Some market players believe that introduction of short-selling, margin trading and online trading concepts including the listing of the Sh29 billion worth of Unit Trusts could revolutionise a market that has in the past suffered from exodus of retail investors.
The capital markets sector has been touted as a key driver for long-term resource mobilisation within the context of the country’s long-term development blueprint dubbed Vision 2030.
The sector is expected to play a central role in mobilising savings and investments required to implement various projects and programmes with the overall goal of contributing to increased and sustained economic growth that will anchor the socio-economic well being of Kenyans.
