UBS wants Africa bourses opened up for foreign inflows

The small size of stock markets outside South Africa is hindering the flow of funds from western to African markets, says UBS, the Swiss global financial services giant.

Head of emerging markets research Costa Vayenas said in Nairobi on Tuesday that this together with inadequate information on available securities and logistical challenges of how to invest were a major barriers to development of markets on the continent.

Dr Vayenas who was briefing investors said while they may be able to get higher returns in emerging and frontier markets than in many western markets where economies have slowed, funds have not been able to freely flow into African markets.

“The stock markets are relatively small. You have liquidity issues and many people do not know how to invest in these markets,” said Dr Vayenas who added that economic challenges in western markets have been accelerating a shift of economic power from advanced to emerging economies.

According to African Alliance Investment Bank, as at the end of business last Thursday, the Johannesburg Stock Exchange topped African bourses with market capitalisation of $824.4 billion followed by Morocco, Nigeria and Egypt stock exchanges which had market capitalisations of $61.8, $40.4 and $36.7 billion respectively.

The Nairobi Securities Exchange had market capitalisation of $10.7 billion while the stock market in Tunisia was valued at $9.4 billion.

According to the World Federation of Exchanges, market capitalisation at the two world’s largest markets – the New York Stock Exchange and NASDAQ in the United States – stood at $11.8 trillion and $3.8 trillion end of last year and $1.2 trillion at the Australian Securities Exchange, the tenth largest stock market in the world.

Apart from the small size of the markets, they are difficult to access because an investor who wants exposure to equities in many of them would either need to travel physically to a country or go through an intermediary.

In the case of Kenya, an international investor would have to go through brokers who have an international reach such as African Alliance and Renaissance Capital.

“We need to find ways to make African securities more accessible to investors,” said Dr Vayenas.

Kenyans in the diaspora also face similar logistical challenges because local institutions have not yet fully adopted the use of technology to make the process of account opening and transfer of funds easier.

This month, Central Bank of Kenya governor Njuguna Ndung’u told an investment conference in Las Vegas that channels such as online investment platforms, Kenyan Missions abroad and Website online application facilities were under consideration.

Roland Schilling, managing director UBS Wealth Management, said that the markets have been slowly opening up and inquiries on how individuals could invest in various African markets have been increasing adding that the international investment bank was looking into ways of facilitating flow of funds into the growing markets.