Emerging Africa Capital

Kenya Market Weekly- March 03, 2011

2011-03-03T03:47:00.000-08:00

Insight- Financial Literacy

Atleast, I know a disaster when I see one; Sometime back, I had the opportunity to attend a small gathering discussing matters relating to investing. The unfortunate thing is that even when some advisers will tell investors how wise it is to take positions when prices are down, they do not discuss the fundamental elements of behind their position. There is lack of content and discretion in investment forums. Matter of fact, you cannot brush through a portfolio selection process in ten minutes and expect to leave your audience fully equipped on the topic. They say that illiteracy is the foundation of all financial struggles. But even with information, you cannot succeed without the desire to buying assets and avoidance of accumulating liabilities. Notably, the line between the two is very thin. Please get an Investment Adviser to help you through your goals.

Market

The NSE 20 Share Index recorded strong activity during the previous week. This was mainly due to the of buildup of positive sentiments in the financial sector following the release of FY2010 results. The NSE 20 Share Index recouped some earlier losses to close at 4,269.51 (0.04% higher) while the NSE All Share Index gained 0.32 percent to close at 97.73. The focus, as most banks release their results is the long term income gains as most banks are posting huge jumps in profitability and handsome dividend payouts.

Barclays

The EPS grew by 73 percent from 4.5 to 7.8. The bank declared a Kshs. 4.7 final dividend and a 4:1 share split. Price appreciation past the current levels is very unlikely. Despite this, activity is set to remain high as investors take positions as we head towards close of register to benefit from the dividend payout. The counter closed on at Kshs. 69 on Thursday’s trade. Good long term buy.

KCB

Posted 56 growth in pre-tax profits to Kshs. 9.8bn., closed at Kshs. 23. Counter may not gain much ground going forward owing to high liquidity. It is noteworthy that at the current PE of 8.36x against the sector’s 14x, there is still a substantial upward potential but not in the near short term. The company will pay a final dividend of Kes. 1.25 with the register closing on May 10, 2011.

Kenya Airways

The low price on Kenya Airways (last closed at 39.25), and a very attractive PE of 8.98 makes for a good buy at the current price levels. The counter has attracted a lot of foreign investor demand in the recent past.

Housing Finance recently signed a deal with EADB which will see it co-finance larger projects. The partnership raises HF’s stakes in the mortgage lending sector which KCB has been a dominant player. The co-financing deal will enable the bank to lend upto a maximum of 2billion. HF closed at 27.25 on Thursday up from the previous session’s 26.75. The bank is expected to record an impressive performance following its increased lending in 2010 after a successful bond issue.

TO WATCH

Kenya Airways, Equity, NMG, KCB, HFCK, Centum, Coop Bank, Bralirwa.

East African Markets Week Ending Feb 25, 2011

2011-03-01T04:15:00.000-08:00

Overview

East African Economies are expected to expand by 5.2 and 5.7 percent in 2011 and 2012 respectively. This is according to the UN in a report released earlier in the week. The growth is attributable to earlier gains made in 2010 notably in the manufacturing and service sectors. Despite the progress made, it is noteworthy that the region still falls short of the 7 percent required to attain the UN Millenium Development Goals (MDGs). Perhaps, one great challenge that the region still fails to address is sustainability of measures that have been taken to address some key growth drawbacks. Among them is the food security that has constantly been addressed by offering relief food, call lines and emergency responses via sms. All this has often come when calls to address availability of water, farm inputs and best farm practices have yielded no grassroots effect.

The regional market received a boost after the East Africa Community started the harmonization process for capital markets regulations. This will ease the movement of money across national borders making it easier for investors looking for cash. The first phase will entail the formation of a single financial market to be completed in 2014 with a grant of Kshs. 1.28bln. The second to this is a five year phase which will culminate in the formation of a common stock exchange.

Kenya

This week was characterized by improved activity. On Wednesday, the market closed a few points higher after a 3 week losing streak. The gain was as a result of positive sentiments following the release of FY2010 results by banks. Notably, the NSE 20 Share Index, week on week gained 0.54 percent down to close at 4,284.90 while the NSE ASI closed 0.02 points higher at 96.96. EABL topped the list of foreign buys followed by KCB and KenolKobil. Foreign sales were heavy on KenolKobil, Equity and Kenya Airways.

Barclays Bank released its FY2010 results posting a 51 percent growth in pretax profits boosted by a 3.54bn gain from sale of its custodial services arm. The counter closed Wednesday at Kshs. 69 with very further upward price appreciation expected. The counter is currently trading at a PE multiple of 8.78x from an earlier 13.89x and against the sector’s 17.48x. The company has a forward PE of 7.32x at the backdrop of a 20 percent earnings forecast. One of the key drivers to the recent price appreciation has been the attractive dividend and the proposed share split of 4:1 for every existing ordinary share. The banking sector is set to remain vibrant as other banks release their results.

Airtel and Telkom are set to launch their 3G networks in the coming week. This is likely to set ground for heightened competition in the data services in an industry that has been marred by competition, greatly affecting Safaricom- the listed mobile telephony firm. Safaricom is set to launch its Long Term Evolution (4G Network) soon, a move that is seen to be its only bet in maintaining its foothold of the market where it has 75.9 percent of the mobile subscriber base. Globacom (Nigeria), Vodacom (SA) and MTN (SA) are also testing the 4G network mainly for data backhaul.

According to the CMA, upto 6 companies could list at the NSE among them British American Investment Company and Transcentury. This could increase vibrancy in a market that has had a lot of foreign investor interest but has continued to lack key deals to rev up good volumes. The new NSE OTC market rules are also set to be released in the next 3 months. The introduction of this market will offer a graduation platform for SMEs to later list in the main market segment.

Uganda

Following a peaceful election process last week, the Ugandan shilling shtrengthened against the dollar. Despite the sharp rise in the Ugandan shilling, the stock market still recorded small volumes of trades. As investors get less wary of a looming violence, the sharp rise in the Ushs is mainly being attributed to a calm following the elections and may not hold going forward. The USE All Share Index closed at 1,188 down from the previous 1,215.46. DFCU was the heaviest traded counter moving a total of 202,626 shares at Ushs. 900. Also active was NIC while SBU, UCL and Bank of Baroda moved lower volumes.

New trading rules which were set to take effect at the start of the year will be in effect in the coming week. Notably, trading days are set to change from 3 to five per week. The move could increase vibrancy in the market that has seen little volumes change hands on weekly basis.

Tanzania

This week saw the Nation Media Group cross list 157million shares at the DSE. The cross listing makes NMG the first media company to be listed at the bourse and brings 16 the companies listed at that bourse. The DSEI closed Wednesday at 1,176.38 marking a week since the index posted any change on Feb 17^th when it closed at 1,175.08. CRDB still remained the most active moving a total of 132,296 shares at an unchanged price of Tshs. 135.

Mobile phone company Tigo blames price wars for the current drop in revenues currently being experienced in most African countries. On the larger economy, the drop in calling rates has played out against inflationary pressures as food and oil prices continue to surge amid drought in the region.

Rwanda

This week saw 11,041,400 Bralirwa shares change hands on Wednesday. The shares traded at a stable price of Rwf. 170 and were mainly driven by foreign buyers. Very little volumes were traded on KCB at Rwf. 187.

Rwanda’s biggest lender by assets, Banque de Kigali is set to issue its IPO in May this year. The listing will add to the vibrancy at the newly established RSE which currently has 3 listings. On Wednesday, Bralirwa, the most active counter at the bourse moved a turnover if Rwf. 2,510,100 on 5 deals which accounted for 14,000 shares. The price edged down to close the day at Rwf. 180, down from Rwf. 189 driven by huge supply.

INVESTING IN 2009 AND BEYOND: TRACKING THE ECONOMIC RECOVERY

2009-01-29T03:09:00.000-08:00

Even when we know what is right, too often we fail to act. More often we grab greedily for the day, letting tomorrow bring what it will, putting off the unpleasant and unpopular. ~Bernard M. Baruch

The 2003 – 2007 growth paradigms seem to have weathered from the onset of post election violence in January to the depth of the global financial crisis in the third quarter of the same year. This was demonstrated by the sharp fall in stock prices, the sudden drop in value for the local currency, doubling inflation rates and a fall in the national output. Sum that to the declining remittances by the Diaspora population and the situation can only get worse.

Its true that 90 percent of the times, the best financial analysts don’t beat the market. However, our guesses of the likely future help shape our decisions. When done over time, our accuracy levels increase and we are able to make more fruitful decisions than before. The same does not however hold when decisions are made in consultation, and by team of experts who have mastered the art of using past trends to predict future expectations.

Speculation at the moment is rife that the worst could be over. Even if t was over, recovery will definitely not be within a day, not even 3 months or half a year, We still don’t expect full recovery within a year. Stocks for example will need sound bases to stage sustainable advances. The local currency too needs more besides the central bank’s ‘fixing’. The purchasing power of most Kenyans seems eroded and corruption and red tape seem to spell doom to any small gains being made by businessmen. Politics have had their undoing and the typical investor still has to grapple with poor governance in the investment maze.

Majority of Kenyans are more confused today than they were at the peak of the violence that rocked the Nation a year a go. Even in the local dailies, what seems to thrive is doom and gloom. And whether you are being affected by a loss in stock prices, an eminent layoff, being asked to work for less or asking your staff to work for less, being unable to service your mortgage, or just the simple lack of fuel to get back home, the pain is real.

As citizens, investors, employees, employers, finance experts, lecturers, starters, entrepreneurs or students,we must separate emotions from real facts. We must mve from gloom to more acton oriented thinking, we must think about the actons we take today and how they will affect us in a month, a year, a decade to come- with or without the money to get us there. That means that we have to understand the current situation and use it to project the future.

Emerging Africa Capital in Association with Nairobist Media and Strathmore Business School has teamed up to bring you a one day event that seeks to address your most worrying concerns.

Among the issues to be addressed are:

Where is the money lately
Which Way for the Kenyan Economy in 2009
Investing options in the Current Year, and How to Tap into them
Corporate Governance as a Hindrance to Investing in The country
The Power of Political Knowledge for Strategic Investing
NETWORKING Session

Investment Advisers: Why You Need One

2008-06-10T09:37:00.000-07:00

In our everyday lives, we trust specific duties like medical treatment, educating children, servicing cars, among others to professionals. A wise saying it is, ‘a jack of all trades, a master of none’.

One area in which many people feel they have the expertise to replace a professional is in the management of their own finances. While it seems manageable, saving a shilling by avoiding the efforts of an investment professional, often times creates more problems than trying to stop a plumbing leak with office glue.

It is extremely risky to manage your finances without professional help mainly due to the fact that you rely on sketchy, third-party information (misinformation) to make important financial decisions. This is potentially dangerous because you may lose out on valuable opportunities, spend a lot of time and energy tracking down answers to your specific questions. Further, chances are that you will end up buying current peak performers, causing you to buy high or sell low leading to costly mistakes and loss of opportunity.

The biggest benefit one acquires by hiring a financial advisor is that he/she is backed with extensive knowledge and experience in financial matters. Today’s financial market is increasingly complex and it is very difficult to make financial decisions solely, without expert advice.

The investment process usually begins with the Financial Advisor helping you determine your objectives, goals, risk tolerance, time horizon, and future needs. Next, the Financial Advisor spends time educating you about the investment process e.g. educate you on how securities are bought and sold or how a mutual fund portfolio is structured and managed. You will also get information about specific investments such private or listed stocks, corporate or government bonds, mutual funds, asset management portfolios and unit investment trusts. You will learn about the inherent risks of each investment instrument and the transaction costs or portfolio management costs.

Thirdly he/she helps you, the client, develop a portfolio. While every investor has different needs, no investor can place all of his or her eggs in one basket. The risk of doing so is that if your investment decreased in value, you would face grave losses. Portfolio diversification allows you to spread the risk among various asset classes including stocks, cash and cash equivalents and real estate. Once that allocation is made, further diversification is made, for example, rather than owning one stock, the Financial Advisor may recommend four or five stocks, each within a different industry.

The Financial Advisor next recommends specific investment alternatives within the agreed upon investment strategy, allowing you to make the final decisions.

Any Investment advisor of Emerging Africa Capital is fully competent, acts with due diligence and has high ethical standards. Each portfolio is continually monitored and periodic meetings are scheduled to discuss performance with you, the client.

When you work with our financial advisors, the focus will be on you. Your needs. Your goals. Your life. Every one desires a successful long-term investment strategy, you deserve the personal insight, guidance, and support that only your financial advisor can provide.

Real Estate Investment Trusts: Are They For You?

2008-06-10T09:35:00.000-07:00

If you once invested in the Nairobi Stock Exchange, chances are that you have made excellent returns over a short period of time. Sadly though, you stand the risk of exposure to an array of factors characterized with investing in non diversified portfolio. If you have considered diversifying your investment portfolio but didn’t know which one to go for, then Real Estate Investment Trusts may be an option to consider. But again, you may ask; are they really right for me.

Majority investors today consider investing in real estate as the ultimate investing goal. To the wealthy individual, it is merely an investment like any other; buy today, cash in tomorrow. That just goes as far as direct real estate investing is concerned. But now, there are the Real Estate Investment Trusts, commonly known as REITS.

Simply put a REIT is a pool of funds that is invested in real estate. Funds are drawn from investors and put under the management of a fund manager who then decides on the kind of real estate investment to go for based on the amount raised by subscribers for the trust. REITs will typically invest in real estate or real estate related assets. These can vary from shopping centers to office buildings, hotels and mortgages secured by real estate.

There are three types of REITs but the most common one is an equity REIT. The REIT basically entails having investors’ pool funds by way of buying shares of the REIT and getting an income out of it. This income is mostly paid on an annual basis.

The other type, a mortgage REIT basically entails lending money to owners and developers or investing the money in financial instruments secured by mortgage or real estate.

A hybrid REIT combines both the features of a mortgage REIT and the equity REIT. An investor in this category has his portfolio well diversified against the downturns in each category.

The United States has the most developed REIT market in the world. Other rapidly expanding REIT markets include Australia, France, Japan, Canada, the Netherlands, Singapore and Hong Kong. In Australia, the REIT concept was launched in 1971 with the General Property Trust being the first REIT to be listed in the Australian Stock Exchange (ASX). There are over 60 REITs listed today and Australia has the largest property trust in the world after the United States. Germany planned to introduce REITs in 2007 but the legislation is seemingly yet to be passed. There are already 7 REITs in Hong Kong. In the United Kingdom, 7 companies converted into REITs in 2007 after the Finance Act enacted a legislation allowing them to do so.

In Africa REITs are also gaining popularity in some key African nations where financial markets are well developed. Key in Africa is South Africa which, according to Ernst and Young was the top performer in the world in terms of total return over three year period giving a return of 34%. The number of public REITs in South Africa was 7 by end of 2006. However, the market had the lowest leverage among the key markets in the world.

Kenya’s market is slowly coming of age. Bora Real Estate Investment Limited (BREIL) was launched late last year at a point when Kenyans felt that the property market had completely sidelined the starters in the investment maze. One of the reasons behind setting up BREIL, according to Joe Macharia, the CEO of Bora Capital (the company behind BREIL) was to provide an investment option that works for small savers who cannot afford to put up a payment to acquire property or build a house.

The BREIL structure is a hybrid REIT but private (not listed in any market). Investors invest in the fund by subscribing to shares of BREIL and getting a regular income on an annual basis.

One of the advantages of investing in REITs is the tax advantage enjoyed by the investors. This is so because REIT investing allows for tax rebates on gains.

There is the old saying that you can never go wrong on land. Same applies to property as it can only appreciate in value. An investor therefore looking for gains over the long term would benefit from investing in REIT as it offers stability over ones investment.

One challenge with investing in REIT is that the target groups, mainly those within the age bracket of 25 to 45 are excited about short term gains. This is not a common feature with REITs which are illiquid and have an investment time span of more than one year.

REITs may just be what your investment portfolio needs. However, do observe caution in taking on REITs, contact your Investment Advisor for more information on the risks and benefits to your investment portfolio.

Investing In Stocks: To go Short or Long Term? The Right Way Revealed

2008-06-10T09:32:00.000-07:00

To say either one of them is the best solution is definitely being biased. This is because every individual is unique. The decision on which way to go really depends on an individual’s investment personality and risk profile.

There are risks in both long term and short term trading. The latter exposing an investor to greater risk. Generally, volatility and risk diminish over time. The longer you hold on to your investment, the higher the probability of you earning a profit.

With short term trading, you have to speculate which shares are going to be most volatile. In this case you see profits immediately but if you speculate on the wrong stock, you might end up losing part of your investment capital. If the company you are vested in is fundamentally strong with a strong upside potential, you will lose out on big potential gains if you were to cash out too early.

When thinking about long term investment you can take advantage of dividends payout. Many stocks can pay out dividends to their shareholders month after month. This could produce a monthly income for you.

With long term investing, although there is a higher probability of earning a profit, you would need to be particularly patience. Many times, it takes over a year to earn a significant gain.

You do not have to do much with a long term investment. Long term investors are proactive while short term traders are reactive. A long term investment plan requires much less time to set up, manage and evaluate than any other form of investing.

With short term investments you would see more instant returns. In this case, however, you require quick action on information as this is one variable that changes a stock’s price in the short term. If you read into information fast enough, profits would usually not be far behind.

One of the advantages of short term investing is the compound effect. If you need your investment to grow, reinvest what you make in the short term and reap even greater returns in the long term (if you maintain your good speculative run).

Most importantly, when considering short term investing, you need to realize that you will be paying more commissions and hence to make actual gains, your sell and buy prices must reflect profits even on deduction of commissions.

Both short term and long term trading depend on how you trade. The things to consider in deciding which way to go include;

What system fits with your personality, are you a risk taker or are you risk averse.
What is your level of knowledge on the market?

These questions, once answered will reveal ‘the right way’ for you. Invest, long term or short term. The choice is yours.

Escaping The Debt Trap

2008-06-02T21:44:00.000-07:00

I once met a colleague’s friend, introduced to me as Miss. Wheeler Dealer. After a chat with her, I later came to learn that Miss let’s call her WD buys and sells money, a trade that most people today refer to as shylock. However, Miss WD is not the ordinary shylock you hear being discussed in downtown Nairobi. The type that auctions cars, property when the borrower is unable to pay. She calls her business a professional shylock.

That aside, when one listens to her, she has a great success story to tell. Every day, she has borrowers looking for as little as Kshs. 1,000 to as much as Kshs. 50,000. Majority of her clients are aged between of 25 and 35 and none will borrow money to put into business- 99 percent of the times, its for personal use.

The reason that she is doing booming business is because majority of us within this age bracket are living way beyond our means. Having interacted with over 5,000 investors on a one on one basis since May 2006, I have learnt the art of reading a person by the way they talk and behave and not the cars they drive. If you walk across the streets of Nairobi just after dark, you see many young men driving all sorts of cars. And there is nothing wrong with owning a car. But it worries me when one buys it to fit in, spends all his salary paying off for the loan, borrows more from a shylock and at 35, has not a single investment.

What complicates the whole equation even more is that most get wooed to investments that do not meet their objectives with the hope that quick money will come their way in due time. How many times for example have friends confided in you that they borrowed money and gave it all to a pyramid scheme with the hope of doubling returns over a short period of time?

My experiences in the past few years have taught me what I need to do and what I need to avoid to excel in my financial goals:

The first and most important one is never to borrow unless I am doing it for business. My lending friend, Miss WD always gets most enquiries on Fridays because majority of her clients want money to spend during the weekend. The temptation to hold money we have not worked for has driven many to acquire credit cards.

The second is that the most important bill that counts is that of my well being. My medical insurance is the number one priority, then the insurance of my assets. For the salaried, this never comes in as a priority; after all, your employer automatically deducts the bill at the end of the month. Just think of it, if everything burnt down today, what would you do? Take a loan to start over again or run to your insurance company? It’s less stressing to do the latter. But it starts now.

Thirdly, you will never have enough capital to do any business you have ever wanted to. There will always be bills to pay, things to buy, and basic needs to be met. Focus should be on developing the idea, getting it to work and leveraging on the little resources available.

Fourthly, and a link to the previous point, work your math right. You cannot borrow money from a bank to repay Kshs. 200,000 per month if you only make Kshs. 200,000 per month. This will kill the business after one month or get you into a borrowing cycle; Borrow from Sam to Pay the Bank and from Peter to Pay Sam.

Finally, you must be financially literate. In the five years of my banking career, I learnt that it is one thing to have money and another to utilize it productively. How many times have you seen people take loans to invest in property even when the repayment lags the monthly income, or bankers venturing into transport business, an industry they know little about? Majority end up losing their money. Not to mention the number of people using credit cards without making enough to sustain their repayment.

What you do now is a reflection of what you will be doing ten years from now, unless something changes. The only person to make that change is you. Take charge.

Great Lessons From Great Company Leaders

2008-06-02T21:42:00.000-07:00

Warren Buffet, one of the most celebrated equity investors in the world, in one of his featured presentations advises people especially the young to start investing early. He gives himself as an example having started investing at the age of 14 and regretting that he never started early enough.

Very few of people in this world are naturally awarded millionaire status. Majority have struggled through multinationals whose modus operandi were set while they were still in business schools. To them, promotion meant sleepless hours in their offices and results were defined by their supervisors’ expectations. Through hard work, they made their way up the organization to finally achieve top levels in the corporate ladder.

On the flipside, we have the few who the society always labels the risk takers. The few who quit school or their employment to nurture their noble innovations. At some point, the society will not absorb their idea because they just don’t see it work. Through persistence and an unusual determination, they pursue their dream until they set their hand on anticipated results. Evidently, its only the strong that survive; the reason why most of startups never make it to the second year of operation.

The two illustrations above basically explain why we have different personalities who can never be measured on an equal scale. Take for example Jack Welch who turned the struggling giant company, General Electric, into a dynamic company that everyone came to admire increasing its value from a few billions to hundreds of billions. All this, he did as an employee. On another hand is Steve Jobs who created a company out of a noble chip idea.

Although one of these had shareholders to satisfy the other had his dream to realize. Both are examples of success through hard work.

There are a few amongst us who are able to turn their noble ideas into great businesses. At the same time, there are those who can turn good companies into what Jim Collins defines as “Great Companies”. To me, there is no written rule in achieving any. It perhaps entails following ones instinct and not a written rule. To Steve Jobs, it was persistence, persistence, persistence. For Welch, it was a no nonsense leadership model which gave the company a competitive edge.

University teaches us to get jobs, and more often than not, we all get good jobs, earn great salaries and life goes on. But what gets us out of the great job we have is our determination, our desire to settle for more than the ordinary.

In my career, once in commercial banking (employed) then later in private banking (self employed), I have learnt that we do not all need to start our own businesses to be a success in future. Locally, we all consider Titus Naikuni as a great success as the CEO of the national carrier, Kenya Airways. Still on an equal footing, Jimnah Mbaru is a success, not under employment but running his own company.

Bottom line is, we can all achieve success whether as employees or entrepreneurs. The true measure of each is the degree of energy, commitment and willpower we put into it.

Safaricom Announces IPO Allotment

2008-06-02T21:38:00.000-07:00

The Safaricom IPO outcome has been announced. The IPO was oversubscribed by 532%. Allocation was on a pro rata basis. This means that for the number of shares an investor applied for, one gets 21% of the number of shares.

With such a rate of over subscription, we propose taking positions in the counter and holding on to the shares for a period of time; at least until all excess demand is absorbed and speculators exit to give room for investors.

While it is hard to tell what price the stock is to finally stabilize at, in our opinion, Safaricom is bound to remain profitable at least for a period of time.

Investor Update- May 30th 2008

2008-05-30T05:16:00.000-07:00

Licensed by the Capital Markets Authority as Investment Advisors

May 30^th 2008

EmAC Investor Updates

Its five months gone since 2008 kicked off and just few weeks before we get to know what the Treasury has for Kenyans for another 12months. With the proposed miscellaneous amendments for regulated financial service companies set to form a house agenda in parliament, the players will be keen on knowing what this could mean for their business. To investors, it’s just a step that was long overdue as corporate governance has cost investors heavily in the past. For foreigners who were eyeing the frontier markets, there has never been a better time to invest in the country.

With slow developments on regulations, something is keeping the market unusually keen. One of the occurrences is the opening of Safaricom Shares for secondary trading at the Nairobi Stock Exchange (NSE) on June 9^th 2008. Majority of investors did not expect an oversubscription to that extent this was owing to the fact that inflation was at almost 20 percent. Come the opening date, majority of investors will be faced with the challenge of deciding on whether to sell off their shares or hold for a period of time. And even more headache will be what to do with the huge refund check.

In investing, there is always an investor and the speculator. There is nothing wrong in being either a speculator or an investor. It always boils down to the amount of risk one is willing to absorb.

For the local market, there may not be any better time to invest in equities than investing within the next ten days. This is a time when the market is most cash strapped. Besides, the market will be awash with cash once the refunds check in to clients accounts.

Of all the products EmAC offers, we would highly recommend stocks for the short term. Anyone investing now should expect to reap out good returns by September 2008.

For people willing to take on short term counters, we would recommend CMC Holdings, Mumias Sugar Company, Centum Investments, Barclays Bank and East Africa Breweries which closes year in a month’s time. I still have my reservations for Equity Bank and Access Kenya whose prices seem to be on the extreme highs. Anything above Kshs.280 for Equity or above Kshs. 30 for Access seems too ambitious considering that their PE is at 10 and 34 respectively.

On the basis of affordability and who will be investing in two weeks, I see counters like Mumias, KCB, Kengen and Safaricom being the key beneficiaries of the refund cash.

EmAC Now Investment Advisers

2008-05-14T09:53:00.000-07:00

Emerging Africa Capital is now an Investment Advisor Licensed by The Capital Markets Authority in Kenya.

Thanks to all who supported us. Check our new look site from Monday May 17th 2008 for more.

www.emergingafricacapital.com

OWNERSHIP OF Financial Service Firms

2008-03-26T10:25:00.000-07:00

Came across this...

OWNERSHIP:

The Company is wholly owned by the Ngenye Kariuki family. The 3 directors comprise Mrs. Bertha Wanjiku Kariuki (mother), Mrs. Lois Nyambura Ngenye(Executive Director) and Mr. Ignatius Ngenye Kariuki (Executive Chairman).

http://www.ngenyestockbrokers.co.ke

Not to worry, its Kenyan investment banking for you.

A Deal at Last But Many Questions Unanswered

2008-03-01T03:16:00.000-08:00

To many Kenyans, Thursday February 28th 2008 will go down many Kenyan's minds as the first day of a prolonged year end. The new power deal signed between Orange Democratic Movement’s (ODM) Raila Odinga and Party of National Unity’s (PNU) Mwai Kibaki brings to an end to what most Kenyans have been yearning for almost every passing minute.

This is apparently the first time in Africa when such a deal has been brokered by opposing politicians. And especially so in a continent where greed for power is the order of every election.

The deal is setting in a new chapter to Kenya’s beaten economy which has had all sectors of the economy affected. Tourism for example requires at least US$. 20million to achieve the growth it had experienced in the third quarter of next year. The stock market, where I earn my daily bread, and at times butter lost over 5 percent in three months.

Yesterday, a day after the deal was made public, the market gained on all counters at the Nairobi Stock Exchange (NSE). The president is quoted as having said, ‘sasa wageni waje wajienjoy’ (visitors can now come and have fun) while referring to the tourism industry. The ministry of finance has quickly moved in to cut down on costs by 40 percent on all ministries and further freeze all projects until the next financial year. Good start indeed.

With that in mind however, a number of questions rise; for one, how sustainable is this deal? And even worse, what repercussions would a disagreement on either of the particulars on the agreement have? With the parliament set to reopen on Thursday, who takes on as the official opposition? On another note, how would the powerful ministerial positions be split owing to the fact that majority of them had already been allocated to PNU members of parliament (Kibaki’s Party).

Adding to the complexity of the matrix is the third party in the previous general elections ODM-Kenya’s Kalonzo Musyoka who had already been given a Vice President’s post after getting into a coalition with the alleged winner, Mwai Kibaki. With a President, Prime Minister and two deputies, the Vice President’s post is purely a shell. Could that mark the beginning of a new opposition? Only time can tell.

For now, optimism will win the race. The prayer of every Kenyan is that peace prevails, that any arising tension is sealed off from the public, that the constitution can be amended very fast to accommodate all changes proposed, that there will be an automatic opposition, that Hon. Raila Odinga, Mr. Michuki (the Public Works Minister), and Martha Karua (Justice and Governance Minister) can one day sit on the same table and discuss key issues of interest. And if the ministries have to be shared on a 50/50 basis, if Mr. Amos Kimunya can step down from the Finance Ministry for a Mr. William Ruto of ODM.

Jendayi Frazer, US Deputy Secretary of State for African Affairs warned of complexities in the power sharing deal. Same sentiments are being expressed by a few Kenyans. But the urgency in which a solution was desired is leaving out a perfectionist approach in sealing a lasting deal.

For now, optimism could win the race. But can only be in the very short term. A mistake from either side could be disastrous. However, it’s important to believe that all will be well. And for business men, the most one can do is reap while the situation is favorable. Because you never know when the craving will strike. After all, a politician is always a politician. It remains true of an African president. Can always hold power ‘until death do us part’

Michael Musau
Emerging Africa Capital
http://www.emergingafricacapital.com/

Crossposting from http://www.emergingafricacapital.com/

2008-02-26T23:47:00.000-08:00

Kenya: A Deal Gone Sour
And as the key parties in the talks move back to the drawing board, youths in various parts of the country are arming themselves to fight back. Gangs seems to be forming on both extremes ready for a revenge war of some sort.
In the long run, the businesses are the ones to be affected most save for the retain outlets and airtime vendors to who business runs as usual. The financial services segment is facing the brunt of the chaos with those in private banking being most affected.
Investors in the recent past have closen to hold on their cash than invest in in worthy ventures uncertain of the direction the crisis is to take. The NSE 20share index should have taken an upturn to close in the levels of 6000 as was earlier predicted. This was never the case and with the situation unlikely to be resolved, the index could lag below 5000 for quite sometime.
Media reports in the past had it that investors had taken advantage of the current situation to accumulate stocks for the mid to long term. Most counters have shed their prices as evidenced by the main market PE which has lost over 3 percent to the current 18 percent in a period of three months.
For five years, in a row, the Nairobi Stock Exchange (NSE) had grown in leaps and bounds. This was between 2003 to 2007. The trading volumes on a normal day more than halved. The key stock brokers still continue to post record breaking income while those in the lower tiers are almost closing shop.
Currently, it feels like a deal gone bad for all those in business. Its even worse for the SME's that if the situation persists, they could be wiped out for once and for all. It reminds me of the many offers we have received to buy out existing businesses in the recent past. Some of which were very profitable ventures set to reap big returns over the short term.
Just 5 months ago, we keenly monitored the NSE 20 Share Index to make judgements on market performance. It is no longer the case anymore. Our economy barometer has become what Martha Karua, Kofi Annan or Mutula Kilonzo speaks in the media. A positive statement drives the nation for the better part of the day until 1pm when a lunch time bulletin at times changes all.
How long can we hang on to the current situation. Should focus shift from doing business to monitoring political cut crap? Should we forever watch wait to make key investment decisions for the year?
A colleague I havent spoken to this year told me, "I am still waiting for January 2008 to invest my cash with you."
Are we all waiting for January 2008?

Down But Not Out

2008-02-22T23:49:00.000-08:00

After a long break, I'm finally back. With more to wish for, a lot to hope for and everything to make the most of.

Its been 3 months of struggle, with the markets falling (except for a few good deals) and the local currency losing heavily against all major currencies. Several weeks into post election violence and reconciliatory talks almost at a conclusive end, we all watch to see what every passing day brings. A favorable outcome could mean a lot. Word on the street has it that the opposing sides have a lot to lose if the talks collapse. As much as they realize this, the same have a lot to lose if the demands on either side are not met.

Amid the hopes and optimism, the most that we all wish for is a breakthrough and return to normalcy.

Emerging Africa Capital Ltd. (http://www.emergingafricacapital.com/) has spent most part of the crisis period to structure its operations for the next 3 years. Among our key goals was to create a regional presence expecially in the Emerging and Frontier markets. We will heavily base our operations in Kenya, Rwanda, Tanzania and Uganda. We still continue to trade in Eastern Europe, Asia and Latin American countries.

A new addition to our portfolio is the SME Financing and an SME Incubation Center. With the first quarter almost drawing to a close, we are upbeat that the second quarter will be a huge success for investors in all segments of the economy. And a primer to this will be the Financial Services.

From now on, this blog will be up and key to my postings will be developments in Africa's frontier markets and emerging opportunities within the continent.

Hedge Funds: An Uncharted Goldmine

2007-09-28T22:46:00.000-07:00

- ADVERTISEMENT -

In today’s investment maze, guaranteed low return is good enough, and that explains why most investors will opt for speculation at the equity market to any other investment option. In the larger world of fund management, big enough is good enough. Most investors will opt for managed funds that are diversified to the extent that market volatilities as often as they strike, do not spell doom on the client’s investment.

Typically, a majority of high end investors in the market today are more familiar with mutual funds. Although mutual funds offer the advantage of expertise in composite selection, the return may not be guaranteed and the approach is more pegged to the long term.

Hedge funds, which are similar to mutual funds, have turned a couple of millionaires around the world into billionaires. Hedge funds are aggressively managed and use advanced investment strategies such as leverage, long, short and derivative positions in both domestic and international markets with the goal of generating high returns.

They are mostly set up as private investment partnerships open to a limited number of investors and require a very large initial minimum investment. If Emerging Africa Capital (EmAC) for example was to set up a hedge fund valued at USD 10million (Kshs. 700million), the firm would be required to do a private placement to roll out the fund. This, as per the Kenyan laws, would require the company to place the product not to more than one hundred single applicants (whether individual or corporate). If numbers go above the one hundred, is considered public and therefore done through a secondary market with the approval of Capital Markets Authority (CMA).

Hedge funds mostly comprise of the principal person investing huge amounts of cash in the fund. Typically, the principal firm will invest over 40 percent or an anchor investor puts in a similar amount. Hedge funds are very illiquid as they require investors to keep their cash for at least one year. This is however similar to the mutual funds whose investment approach is geared towards the long term.

Normally, hedge funds are not regulated as they cater for sophisticated investors. One need not get a license from the CMA to set up a hedge fund in the country. However, the fact that they have previously not operated in the country would call for close monitoring mainly by regulatory authorities - CMA and the Central Bank of Kenya (CBK).

In the United States (US), law requires that investors in a hedge fund be accredited, that is, they must earn a minimum amount of money annually and have a networth of over $1million along with a significant amount of investment knowledge. Think of hedge funds as mutual funds for the super rich.

In Kenya, some investment schemes claim to give a monthly yield of over 10 percent. Most of them claim to be investing in equities locally and internationally (that is yet to be confirmed). Such a formation is an ideal set up for a hedge fund. In such a case, investors would invest a minimum of say Kshs. 5,000,000. The investment would then yield over 100 percent per annum but also with the risk of -100 percent.

Hedging is typically the practice of reducing risk. The goal is always to maximize returns. The risks involved stem from embarking on a very speculative strategy. If a dealer takes Kshs.5,000,000 and trades the amount, alongside 5 other similar amounts from different clients’ money, would that be called a hedge fund? Although the trading may not be defined as a hedge fund due to lack of a legal framework, the practice qualifies in its nature.

Sadly though, hedge funds have grown at the expense of mutual funds. In Kenya for example, where we have close to 15 fund managers, the annual return for most mutual funds stands at between 12 percent and 25 percent. This is very low compared to a speculative strategy applied on an equal amount of funds. The expertise in a hedge fund is higher and degree of risk tolerance very high.

It’s because of this that experts have argued that mutual funds should be managed by people who also manage hedge funds. The motivation for this is that fund managers receive a lot more pay when funds perform very well.

As a way of comparison, mutual funds unaffiliated with hedge funds perform better than those that operate side by side with hedge funds. Please note also that side by side mutual funds generally receive significantly lower portion of low priced shares of IPO's than hedge funds.

If initiated, investors, especially the high net worth will need to seriously consider on what to opt for hedge funds or the mutual funds. Given that the hedge fund will generate more return; one will rarely go to his fund manager to ask for a current statement of ones investment composites, except on the aspect of insider information. There are also greater risks over the collapse, and in this case, neither your principal investment nor the returns are guaranteed. In addition, one could argue that the current mood in the economy marred by multiple pyramid/ponzi schemes and broker malpractices does not warrant a hedge fund.

But again, the market is ripe for a hedge fund and the experts have what it takes. Perhaps the packaging counts, and as far as that is concerned, we already have a package. This could be the new route that will shape the size of our transactions at the bourse.

Opinion on Stock brokerage Firms in Kenya

2007-09-09T23:30:00.000-07:00

www.emergingafricacapital.com

www.smartbizafrica.com

Opinions expressed below are those of the person and do not constitute the offer to buy or sell investments through the names companies. Information on the performance on any brokerage firm in the country is unavailable and there is no supervision, due diligence or research report that is publicly available on the mode of operation or conduct of the member firms of the Nairobi Stock Exchange (NSE). Most investor decisions are made based on non factual conduct and mostly public perception of stock broking firms. Our report is based on these sentiments which have come to define the general mood and feel of the market.

1) Suntra Investment Bank

Suntra is believed to be among the largest players in the Kenyan capital market. It doubles up as both a stock broking firm and an investment bank. It boasts of being the largest in dealing for fixed income securities. On stocks, they have an average rating from the retail investors most of who find them too large for them.

It would be a good recommendation for a corporate institution that wants to do a placement in the local market (whether public or private.

2) African Alliance

African Alliance, just like Suntra Investment Bank doubles up as both a stock broking firm and an Investment Bank. They have operations in both Kenya and Uganda but that besides; they can hardly place any good deals across the border in good time- back office woes.

However, they have been very popular to the high end investors. They have a minimum deposit which stands at Kshs. 250,000 or USD. 3,700. Their other major clients are mainly institutional.

They will probably outsmart any company's research department as far as regional company analysis is concerned. Their research reports on companies have been accurate and have shaped market direction on many occasions. A keen observer would remember them negatively for having once changed their recommendation on Uchumi Supermarkets Ltd from a buy to sell not long before the company closed its doors.

One would consider them if investing from outside the country but not the ordinary speculator- long term, serious investor.

3) Ashbhu Securities Ltd

Not popular but has a good retail outfit. Investors claim that the company changed a lot the last half of 2006 and must have undergone a management change. The small starter, this could be a good place for you.

4) CFC Financial Services Ltd

CFC is perhaps the corporate entity in the stock broking world that fits on both extremes. They have a good name both for the corporate and retail investors. They understand the rules and that gives a limitation to the day trader/speculator. Chances are, if you want to sell, you must present yourself and sign proper documents- no shortcuts.

Good for the long term investor and people who understand the market but want first class professional service.

5) Dyer & Blair

This is the most talked about Investment Bank/Stockbroker. They have a good name in as far as underwriting of large entities especially the pre-government entities.

Bloggers in the past have had debates that have had long strings of clients complaining about their slow service. They could do well if they packaged themselves entirely as a Corporate Finance Entity for the corporate.

6) Francis Drummond

Not very popular and hardly get anyone in the streets who invests through Francis Drummond.

A report carried in a blog late last year had it that they have a feed to the UK markets. That makes a good firm for the local investors interested in the European Market. However, at a time when African Markets are yielding returns that far outweigh those of the first class economies, is there need to think far West?

7) Kestrel Capital (East Africa)

Kestrel mainly serves corporate and the high net worth individuals. Their research reports are also well presented and at most times, give a true picture of the market direction.

They represent a large number of investors who are based outside the country. They have however not done much in the corporate finance scene.

8) Ngenye Kariuki & Associates

Ngenye Kariuki is a retail stock broking firm that has positioned itself well across the country through stock agents and branches. As far as the 'everyone can buy shares' mentality runs in the market, they would fall second after Nyaga Stockbrokers.

Their back office research has nothing to show. This makes them a recommendation only for the retail investor who operates his/her account through an agent.

9) Sterling Securities limited

A client remarks, 'they are not the same anymore'. Sterling has had a good name in as far as execution of deals at the NSE is concerned. They have for the better part of last year and past two years grown to encompass a large retail and corporate client base. With the numbers increasing so fast however, focus seems to be slowly changing to a corporate structure. The company has a good front office and accessible research material from the research department.

10) Apex Africa Investment Bank.

Stereotype never parts its way from the corporate scene. Apex Africa Investment Bank has an Asian outfit. They can be defined as 'trying' due to their efforts to enter the corporate finance market. Can be a good try for the corporate investor who is ready to grow with the companies that are trying to position themeselves in the region.

11) Faida Securities

A retail investment house with huge deals and nothing for the small investor. If one can stand the queues, this will work. If not, you've got to know someone at back office.

12) BOB MATHEWS STOCKBROKERS

Very new firm that is almost positioning itself in online trading- however, very slow. They just received their license but telling from their office, a lot is desired considering that this is a market with little competition.

13) STANDARD INVESTMENT BANK

This is perhaps the most popular retail entity in portfolio management. Their managed portfolio accounts have been quite popular since 2004. However, this has created a niche leaving normal operations of the firm a bit undesirable. Being an investment bank has not won the firm many deals. Would highly recommend their portfolio accounts but don’t expect rocket science or black magic.

Solid Investments

Poor office set up, disorganized front office and unmotivated staff. Not your typical stockbroker. Their agents have better offices. Management also slow and evasive.

Reliable Securities

Good retail broker with a conservative market approach. Never get to hear about them unless you know their dealer

Discount Securities

Average retail broker with a very conservative market approach.

Rennaisance Capital

Yet to start its operations but positioning itself properly in IT prior to their official launch. Would be interesting to see how they organize their client management- both front office, research and back office operations.

Comment on Francis Thuo and Partners and Shah Munge and Partners

Francis Thuo and Partners was suspended from the Nairobi Stock Exchange following mismanagement woes and loss of clients funds. The CEO and founder, Francis Thuo, the Managing Director had just passed on a few months before the Stockbrokerage firm was declared insolvent. It was the oldest stockbrokerage firm in the region.

Shah Munge was the largest and the best stock broking firms in the 1990’s. That was until they were charged with corrupt practices and involvement in financial crimes. The firm was suspended and to date, the suspension has not been lifted.

Nyaga Stockbrockers, who have also been accused of malpractice including trading in clients shares, have a policy of high secrecy. They even don’t have a website and thus every hard to gather info on them.

The Market as It is today

Brokers have tried to flex their muscles to win corporate deals in a very non-competitive market. New entrants include Sterling Securities and Bob Mathews Stockbrokers.

The biggest players in terms of underwriting deals include Dyer and Blair Investment Bank, Standard Investment Bank and Suntra Investment Bank. Corporate deals at the local market are also dominated by the same companies and in addition Kestrel Capital and African Alliance which have positioned themselves as a corporate stockbrokers.

Charges

All brokers charge a standard fee which is regulated by the Capital Markets Authority and the Nairobi Stock Exchange. The fee is based on a base rate of 2.101% for a single transaction of below Kshs. 100,000 and 1.8101% for a single transaction of below Kshs.100,000. Out of this, only 1.5% is brokerage commission while the balance is apportioned to CMA, NSE, Stamp duty (KRA). Sometimes, brokers give a rebate out of their 1.5% slice on high net worth investors.

For a Comprehensive report on Kenya's Financial Service Providers, write to editor@smartbizafrica.com

Kengen: A Sweetheart Deal

2007-08-04T23:22:00.000-07:00

Sweetheart deal that makes KenGen a darling stock

After a record breaking success during the IPO, KenGen still rings the minds of many Kenyans as the darling company with over 200,000 shareholders. That however did not go well with corporate investors. What disappointed most corporates was the fact that the company had to spend over Kshs.80million hosting shareholders in an annual general meeting. Critics argued that such cash could have been used to top up to the dividend payout.

The famous 'peculiar habits' well identified with mobile phone users synchronises with the KenGen shareholders. They 'keep buying and selling'. Due to the number of retail investors interested in the counter, the price got too depressed to trade at below Kshs. 20.00 which was a drop from the post IPO price of Kshs. 66.00.

Technical analysts were concerned about the government's plan to offload more shares to the public. This was to many meant to be the cause of a major drop. However, in the 2007 budget, the government seemed to have a good plan for the interested parties, the shares the government intended to offload were put on hold.

Besides that, the government stressed on its point by adding that they would not make the counter more liquid than it was until they (the government), were convinced that the stock waas trading at its actual value.

Now, our part of the story is even sweeter, an it is a prediction. The masses own Kengen. And there is an underlying tariff war between Kengen, the monopoly power producer, and Kenya Power and Lighting Company (KPLC) the only client that KenGen has. The government was meant to settle around Kshs. 0.26 that KPLC was unable to pay. This is an election year and the government may opt to drop their waiver and force KPLC to pay up the Kshs. 2.76 per megawatt of power. In lieu to this, Kengen is according to our opinion the stock to own while KPLC, despite its high EPS is the stock to ditch; no market works on fundamentals.

The company is currently trading at an EPS of 1.71 and a P/E ratio: 16.96

Hot stocks that can easily burn your fingers

2007-07-12T09:35:00.000-07:00

We all knew that equity was heading north. It started with a Kshs1 billion Kenya in profits, then the client base hit one million, then the staff numbers went to 1,000. We don't say that this is wrong, but one of the financial shenanigans that corporate finance has taught us is that results of any company will always be predictable when they really are 'fabricate'. But what is wrong with a company posting 50 percent quarter after quarter?

On July 11, 2007, a big debate erupted at the National Assembly (the Parliament) over alleged involvement in the largest financial scandals in the country - the Goldenberg Affair. Critics allege that the current CEO, Mr James Mwangi, took off with a collapsed entity, Trade Bank, and later used the cash as part of capital for Equity Bank. Whether that is true or false, only time will tell. The government has however taken a very protectionist stance and absolved Mr Mwangi of any involvement in Goldenberg and Equity should be left alone.

As if that didn't matter, the bank on the spotlight was in the news, this time with speculations that they are negotiating a deal to buy the largest mortgage firm in Eastern Africa, Housing Finance. The same company had other suitors from South Africa bidding for the same deal. One may win in this competitive bid and chances are, Equity will.

Reputational risk, the world over, is the worst risk that any bank can face. This is because the bank's deposit liabilities, ironically the biggest asset a bank can have can all be lost within a second if faced by a bank. Remember the queues at Charterhouse when Central Bank announced the shady dealings? There is nothing that you as an investor can do when the story gets political. Just keep off. 100 percent of the decisions in the market are executed based on investor sentiment. And that drives the market. Let it drive you for now. Just as long as the drama heads to a climax.

And whether they win the deal to acquire Housing Finance or not, the decision is being made in a turning phase of the presidential cycle, and can really be detrimental to your portfolio. Don't hold on to a company that is likely to be hit by reputational risk. And on the other hand, HF is trading on very low EPS, and there are possibilities of declining cash-flow if the company hits an innovation glitch in the highly competitive market.

Verdict

HFCK- 'Take profits'

Equity- 'Cautious'

The Q2 Earnings Craze

2007-07-09T00:28:00.000-07:00

I still hold a positive view of the banking sector with returns in all the 8 listed banks expected to grow. The growth is mainly steered by high economic growth rate (6.1 percent) which has a positive correlation to the loans issued and the increase in deposits. The lower yield on treasury bills is also a positive contributor to the aggressive lending by most banks.

As at April, loans from the banking sector amounted to Kshs. 440.9 billion while deposits stood at Kshs. 672.9 billion. Profitability was at Kshs. 10.8 billion. This is set to increase as the literacy levels increase and lifestyles of many change. Steering this growth are the LATF and the CDF, the Womens Fund among other government efforts to boost growth at the grass roots.

We hold a positive outlook on Equity Bank, Barclays Bank, NIC and CFC banks. Kenya Commercial Bank is a good buy but other fundamental and technical factors do not make it an immediate buy. Watch its performance for the next two or three weeks and only jump in when the excess liquidity has been absorbed.

There is still no tangible gain on National Bank even after the government committed to paying part of its NPL's. Housing Finance still has a long way to go. It still has a weak fundamental value but its strategic positioning has gained it a lot of suitors. Of importance to note is the fact that Asset Backed Securities (ABS) will soon be coming to our Nairobi Stock Exchange and that makes HF a major player.

Standard Chartered seems to have been left out of the expansion hype. They seem to be taking a more conservative approach compared to Barclays whose plastic money seems to be landing in the pockets of even the lowest income earners. StanChart however still continues to pay a modest dividend and therefore appeals to the income investor. Diamond Trust still has a lot of loans to repay and is bound to incur more as they seek to grow out their branch network countrywide. It therefore pays to take a cautious short term approach and a positive outlook in the long term.

Eyes now seem to be on CFC after their strategic merger with Stanbic Bank (a subsidiary of Standard Group). Their asset base and market share is set to drastically improve and this makes it the fourth largest bank in the country. Its likely going to be the bank to watch in the coming year.

The banks half year results will be out soon and as we wait to see how they performed in the past three months, there will be counters you will want to say, 'I'm happy i jumped in on time'

For more please log on to www.smartbizafrica.com

Why Insider Trading Is Good For the Market

2007-07-04T23:06:00.000-07:00

Why Insider Trading is Healthy For the Market

There is an unwritten rule in power that says, "You can get away with everything... just as long as you are a who is who in a country (read, Master of the universe). This reminds me of a cartoon that was in a local daily in Kenya (East Africa's largest economy) which was a true depiction of our brokerage firms and how they have turned into a casino, or a club for the 'players only'. The cartoon seemed to give the disguise that most retail investors have had to go through at the expense of the high net-worth investors..

That is one of the sad realities of the stock market. Fortunately, there is always someone who benefits at those worst moments of stock market performance. Early last year, for example, someone was confident that East Africa Cables was due to take a flight. So were Kenya Commercial Bank and Housing Finance. All these stocks defied all fundamentals and still made investors three, four or five times richer.

Insider trading entails use of non-public material information to make a buy, sell or short decision. This information is usually set to give undue advantage to an investor. Insider trading is likened in Kenya to stealing from the peasants. And the retail investors in the market have reacted to such allegations with a lot of outrage. In actual sense, it should be directed against the economic ignorance of those who would restrict voluntary trades in the financial markets. Just think about it, how many times you have pried on the big shots at the stock market or tried to befriend a stock dealer because you believed that he had some non-public material information?

Who said that information holding is wrong? The learned get jobs in today's world while those without knowledge forever search. Information distinguishes one company from another and it makes one media house larger than the other. Information determines the direction that companies take and the ones that stall. It keeps Bill Gates on top of the rich list until Carlos Slim the Mexican silently learns some new art in a similar industry.

It was once alleged that the case of Uchumi's insider trading allegations were valid and that actually one high net-worth investors sold out his stake before the retail chain closed. The same was said about the jump in East Africa Cables price from Kshs24 to over Kshs600 in less than six months. Same once happened to Kenya Power and Lighting whose rise from Kshs12 to Kshs350 was precipitated by the buyout by Transcentury group that acquired less than 5 percent of the company.

Take the cue from Warren Buffet

Insider trading has a lot with the inefficient market hypotheses that states that all market information is not always absorbed in the market. There is always an information asymmetry between the investors in a market. Warren Buffet once said, "I'd be a bum on the street with a tin cum if the markets were efficient."

Useful insider information can either be good or bad news. The information can be used to make one of the following decisions; buy, sell, or short. If, for example, one knew about the suspension of Uchumi days before it closed down, he would have sold the stock before the final decision was reached by the creditors to shut down the retail chain. The information can also be on anticipated good news that is likely to push the stock price up. People at one time argued that Barclays was not a buy when the stock was trading at Kshs198.00. When the bank, which is also listed in Botswana, split its shares, the stock went into a rally rising to over Kshs480.00. News in the market was rife that the company was headed for a split. Asked to comment on the same, a senior staff said, "With or without split, the company should still trade at a higher price than that." True to his word, the stock rose three times to finally edge at around Kshs660.00 before the split.

The good side of it is that we, the investors, made money, irrespective of where the news came from or at what point of the market information absorption we got in. On the contrary, however, it is important to note that in poorly structured markets, it can be hazardous if somebody shorts his company stock thus causing disaster in his own company. For example, the case of The Great Lakes, a telecommunication company that was listed at the Nairobi Stock Exchange (NSE) and London Stock Exchange (LSE). The director inflated the share price and exited with a cool return leading to delisting only a few weeks later.

This, however, doesn't make insider trading a bad thing. The law can easily handle this by making use of the employment contracts. The directors can be made duty-bound to the companies they head. Laws against insider trading are powerless against half of the possible cases. It is not only victimless but it improves the economy as a whole by increasing the efficiency of the financial markets.

For this story and other business news, please log on to www.smartbizafrica.com

The Next Big Biz News

2007-06-23T04:18:00.000-07:00

Ever wondered how a blue chip mobile communications company with profits after tax of over Kshs. 17billion can have its site hacked into? Or why a gorilla in West Africa needs a name? Ever wanted professional start up advice but feared visiting the experts in posh offices? For this an a lot more, join our online information and business data bank and find commentaries, business tips, financial news you can grow with.

All this is available for free. Send us your queries and we will always get back to you.

African business has never been uncovered in a better more comprehensive way.

Visit www.smartbizafrica.com

Updates and Changes

2007-06-15T01:40:00.000-07:00

For related stories, features and financial news from around the world, please log in to our information site and get a lot MORE.

www.smartbizafrica.com

Check out also our updated website for more information about us and our latest products:

www.emergingafricacapital.com

Suspended

2007-05-19T03:21:00.000-07:00

Saturday Morning Shock

Rumor has it that Nation had contracted an editorial consultant in the UK to register the Domain in her name. When her contract was terminated, she decided to block the site (www.bdafrica.com).

One would wonder, how can such a large media house let such a thing happen.

www.bdafrica.com

Business Daily Africa Domain Suspended

2007-05-19T02:12:00.000-07:00

http://www.bdafrica.com/

Thre was a recent article in the media about the way people are registering domain names that they do not need and putting them up for sale. You can surprisingly click on your two names nowadays and find the name already taken.

What then do you do if the name you registered for with the Registrar of Companies already exists in the internet?

To most companies, buying such domain from the initial owner may be the only way out. It gets more complex if the owner gets clever and asks you to bid higher than your anticipated price.

Could such have befallen on BD Africa? The website, less than a year old seems to have gone down in what could have been a dispute over ownership.

It would be wise to concurrently register your domain name and company at the registrars to avoid the inconveniences that could arise from losing out on one.