Foreign investors alter stockbrokers’ fortunes

The growing presence of foreign investors at the Nairobi Stock Exchange is changing stockbrokers’ fortunes putting into top spots players with the most foreign contacts on their customers’ call lists.

Trading data from the Nairobi Stock Exchange (NSE) for up to December 2009 shows that as foreign investor activity surpassed local participation to hit 61 per cent of total turnover last year, two firms with extensive international footprints - African Alliance Kenya Securities and Renaissance Capital – grew their market shares by large margins to outsmart home-bound rivals.

African Alliance doubled its market share to 13.6 per cent having handled stocks worth Sh10.4 billion in 12 months while Renaissance Capital, a local subsidiary of the Russia-based investment bank, grew its share of the equity market trades to 4.3 per cent from about 0.9 per cent in 2008.

Kestrel Capital, which is reputed to have the biggest foreign investor database, maintained its top market share spot for the second year running having intermediated nearly one in every five deals (18.5 per cent) that were transacted at the NSE. Dyer and Blair which has been among the three top players closed the year with 13.5 per cent of the market, Standard Stocks (9.6 per cent) and ApexAfrica (8.9 per cent) to complete the NSE’s top five stockbrokers in 2009.

Total market turnover declined by three fifths to Sh76.3 billion as jitters triggered by the global financial crisis accelerated investor flight to the safety of Treasury securities.

“We have a good mix of foreign and local investors and this worked in our favour in what was a very tough year for the global stock markets,” says Lucas Otieno, the African Alliance Kenya Securities managing director.

Stockbrokers earn a maximum brokerage commission of 2.1 per cent of the value of shares traded; meaning that the 18 NSE licensed intermediaries split the Sh1.6 billion they earned in commissions amongst themselves.

And for the first time in the history of the NSE, the volume of fixed income securities traded exceeded the total equity turnover clocking Sh221.2 billion – a shift that also helped determine the brokers’ fortunes.

Commission chargeable on bond trades at NSE is capped at 0.125 per cent of sales valued at Sh5 million and below. That translates into a maximum commission income of Sh276.5 million from bond trades in the secondary market.

Institutional investors who dominate bond transactions are known to demand heavy brokerage commission discounts on any trades leaving the agents with even lower commissions. Only a third of the NSE market intermediaries reported positive earnings in the half-year financial statements they published in local newspapers for the first time in October last year.

Strong international investor presence at the NSE this month has fuelled a battle for dealers with good foreign connections causing major realignments in the marketplace.

“Every stockbroker who wants to compete is scheming for a stab in the foreign investor market,” says Bob Karina of Faida Investment Bank.

Buoyed by the highly publicised Safaricom initial public offering (IPO) that even had a special reserve allocation for international investors, foreign investor participation clocked Sh39 billion accounting for 40.14 per cent of total market turnover in 2008.

This figure more than doubled the previous year’s foreign investors’ turnover of Sh16.7 billion (18.81 per cent of market total) – an increase from the 2006 level of 10 per cent of market turnover.

African Alliance, which made the biggest market share leap overtaking three players to become the second biggest player in the stock market, was helped by a strong presence in other African countries. It has operations in more than 18 countries.