Investors to gain as NSE plans global bond index

Nairobi Securities Exchange (NSE) plans to introduce a FTSE-NSE bond index by September, a move that will see the role of foreigners in the local bond market expand.

The FTSE index series will allow investors to measure the performance of their portfolios against other global indices and help them decide where to invest their money.

The index will place Kenya’s fixed income market on the global radar and hopefully, help to increase the participation of foreigners in the local market.

“We are expecting to launch the new FTSE-NSE bond index before the end of this quarter,” said NSE chief executive Peter Mwangi.

The NSE boss was speaking last Thursday during the meeting of the heads of East African Security Exchanges to fast track integration of the capital markets in the region.

Fixed income dealers at Dyer and Blair Investment Bank said that the move would allow for price discovery in the market as opposed to a yield curve with distortions.

Global visibility

“The yield curve is not reliable enough since bond issues do not follow any pattern here,” said a fixed income dealer at Dyer and Blair who sought to remain anonymous.

Dealers at the bank said that most players in the bond market are Kenyan and that the benchmarking would see increased activities among foreign investors, who have been trading through proxies.

The index will also allow bond issuers to enjoy global visibility, giving them access to more markets as opposed to just Kenyan investors.

Some bond dealers though say the market may not be ready for such an index since the local market is not liquid enough to allow investors to come in and leave at ease.

Risk exposure

NSE has signed an agreement with FTSE International Ltd, which may lead to the creation of exchange-traded funds and other index-based products.

This, however, will effectively make it a global index, subject to a lot of risks such as global interest rates, oil price- changes, fluctuations in the strength of the dollar, as well as political and currency risks.

The NSE late last year launched the FTSE-NSE Kenya 15 Index to track the performance of the 15 largest stocks ranked by full market capitalisation.