Encouraging developments in Africa’s capital markets

  

In recent times, we have witnessed several initiatives across African capital markets aimed at broadening and deepening them.

Some interesting news coming out of East Africa with regards to the launch of an expanded regional bond market came to our attention last week.

During an interview with the Business Daily, Credit rating agency Moody’s confirmed that the Kenyan, Ugandan, Rwandese and Tanzanian governments are expected to kick start cross-border sales by floating the first Treasury bond issues.

“In the immediate term, we are anticipating companies involved in banking, telecommunications and especially infrastructure, who are already active in their respective domestic bond markets, to be the main beneficiaries of an expanded regional bond market in East Africa,” said Weyinmi Omamuli, vice president and senior analyst with Moody’s Investor Service.

While the five EAC member countries have opened up their stock markets to investors wishing to trade across borders, the sale of government and corporate bonds remains localised.

Companies operating in East African countries with relatively small domestic markets will thus be able to take advantage of the availability of a larger pool of funds on the regional market.

We are also informed that the East African Securities Regulatory Authority through the Kenyan Capital Markets Authority (CMA) has already issued draft regulations that set the stage for companies and institutions willing to raise funds in Kenya, Tanzania Uganda and Rwanda through regional bonds.

Developments in West Africa are also encouraging given that the second largest bourse in sub-Saharan Africa after Johannesburg, the Nigerian Stock Exchange (NSE) is set to install a trading platform from Nasdaq OMX and launch equity options as it prepares for demutualisation.

The exchange has also won approval to hire 60 extra staff to help it develop new products and diversify beyond reliance on share trading.

In South Africa, the JSE is set to become the first African exchange to offer co-location services as it seeks to boost its equities and derivatives operations. Co-location services allow traders and institutions to place their routers and servers as close as possible to the exchange trading engine, often within the same data centre so as to reduce the distance an order must travel. In doing so, it attracts new customers, particularly high-frequency traders to the exchange.

The introduction of co-location services has been made possible by its adoption of trading technology from the London Stock Exchange (LSE). The new technology will also allow the JSE, operator of Africa’s largest exchange, to move its equity market trading engine from London to Johannesburg in the first half of 2012.

Overall, we think that governments and regional trading blocs such as COMESA and SADC have a critical role to play in as far as the development of African capital markets is concerned. Adopting new technologies and embracing international broker link-ups should also help develop the markets.

We therefore expect these initiatives to boost investor confidence on the African continent and also offer diversified investment avenues for global emerging market investors.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.



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