Geoffrey Odundo is exiting the Nairobi Securities Exchange (NSE) after nine years at the corner office, at a time when the bourse is facing one of its worst capital outflows as investors exit to take their money back to the US and UK. Its lowest moment was when it was ranked as the worst-performing African bourse in the first nine months of last year in dollar returns, highlighting the impact of foreign exits and global shocks on East Africa’s biggest stock market.
Mr Odundo sat down with the Business Daily to explain what is ailing the NSE and what it will take to bounce back.
What is ailing the NSE and do you see it performing any better in 2024 given its rocky start?
So what has happened is that with the rising interest rates in developing markets, the allocation to frontier markets has declined, almost nil. So we have lost an international investor in this market, the capital has left us and moved to the US and UK because the bonds there are providing better returns.
We have rising interest rates in Kenya, today the 91-day treasury bill is offering 18 percent so investors are saying let me go for a quick return instead of a slow return in the equity markets, again local investors are not active in the market. Two of our main sources of capital are not there. We are relying on a few retail investors and that has led to price devaluation over time. That valuation has been unattractive for investors to come in thus the market's valuation has gone down.
People’s purchasing powers have gone down due to the rising inflation. The macroeconomic effects have been a big factor.
Is there an end to this?
As a country, the IMF has gone back to a funding programme with us albeit the fact that it has got conditions. But the fact that the IMF has ranked us favourably based on certain things we are doing means that it opens doors for other lenders to come to Kenya. The IMF endorses you, it’s a like a cousin you rely on heavily for decisions, so we do expect more lending into the country and what that will do is turn down interest rates. Once interest rates start coming down, exchange rates start coming down then the markets will rebound.
Also, investors have started to see that the market is so cheap, for instance, today you can buy a share in this market at an average multiple of less than five, it’s incredible. Markets should trade in multiples of ten and above. People are placing bets and saying let’s start going in slowly. So we have started seeing turnovers, last year we were doing 40 to 60 million a day, no we are doing 120/140.
Just how much is Kenya’s market connected to the global markets?
We are taking a position where, as Kenya, we are not a market that is just isolated in Africa, but we are a global market. The Nairobi Securities Exchange and some of its constituent companies are members of the international indices like we are members of the Morgan Stanley markets index that ranks markets according to their positioning and criteria that is required, for instance, market capitalization, liquidity and several products on offer. So Kenya is in that frontier market index, and among the few markets that are ranked globally.
Being a global market you get capital from investors, and when they want to invest they look at the indices and gauge how for instance, Kenya is performing in the frontier markets, I will give them this percentage and if the market is not performing well, I reduce my allocation.
Where are we with the listings that President William Ruto promised when his administration took over?
The critical part that had to be opened was the privatization bill, which has been reformed and now we have a privatization bill and there is going to be a privatization authority. That was the big hurdle, the reason is there were very many steps before you sell even a single share of the government.
Recently the government identified the companies to be listed and that was a big discourse and it is also in place. However, there is a court issue and the matter was taken to court on certain grounds so the privatization process has sort of halted from the government’s side. Until that’s unlocked, we cannot expect the government program to proceed.
But then you are introducing the Sh100 monthly charge on stock market accounts despite the opposition.
I think we did not possibly engage the stockholders more and there was a very big reaction to that, so it was not implemented. So maintaining an account is free notwithstanding the company still incurs costs of software and management, and that’s a matter that has been shelved for now.
More than 5 years and Kenya Airways remains suspended, isn’t this unfair to its investors considering the exchange still has firms that have no revenue but are still trading?
Whenever there’s a material issue affecting a company, we have to engage the company on what the plans are, because one of the roles we have at the capital markets is to ensure sound trading and protection of shareholders’ rights. One of the ways to protect shareholder rights, and one of the ways to protect a shareholder’s rights is to ensure that if something is going on in a company we have to suspend the share to give the company time to realise whatever they are trying to do. We were approached by KQ then that they were undertaking some strategic changes in the company that would require their suspension, to avoid providing risks to shareholders. The risk you have when there are certain changes ongoing in a company and you let the shares trade, you expose it to investor risk.
Now that you are exiting, NSE CEO what are the succession plans?
I have been in this role for 9 years, my term comes to an end at the end of February, it’s been an exciting journey. The NSE has a very clear succession process, it doesn’t start at the end of the term it starts a long time before that and that’s been going on. The exchange is very well institutionalized, it’s not a case of it’s the CEO that carries everything, no. We have very good structures and a strong support team.