Thursday, October 16, 2008

Ignore the financial news

Retail investors should ignore the financial news – and focus on their stockbrokers competence instead

The Nairobi Stock Exchange (NSE) is at a low point the year, yesterday it was the US markets, and today its markets across Asia (Japan, Korea) that have all dipped more than 5% in a single day. This is a concern for fund managers, pensions, and insurance companies, large local and foreign investors who actively trade to make profits,, surpass peers and meet targets [e.g. NSSF (bought KCB, stanchart) Kenya Re (bought KCB) ICDCI (bought KCB , sold EABL), ICEA (bought NIC, sold ARM, Total), Heritage (sold ARM, Serena), Old Mutual (sold NIC, Stanchart, EABL)]

But does it affect the average investor and should they even care about the NSE up’s or down’s? This is the retail investor crowd; The people who queue around the block for each IPO, who often make their first foray to the NSE on the back of IPO’s like Barclays, Kenya Airways, Kengen and Safaricom?

Through recent first time investors have gone into IPO’s with some unrealistic expectations (and which have perhaps fueled the sour mood in regards to Safaricom), retail investors are still largely buy and hold investors, who don't watch CNBC or read blogs or the financial press.

They don't actively trade in and out of their shares. They value dividends, splits, bonus shares, and of course goodies that are dished out at annual general meetings (AGM’s) like t-shirts and umbrella’s. A share looks good the first time they buy it, and they will stick with it. Year to year performance, sales and profits matter less than a consistent dividend. They are concerned about costs, but often in an us versus them scenario where a company should be able to pay more dividends if it cut its management/employee or administration costs.

The NSE companies they invest in are not dependent on their shares for borrowing, and so a drip in price ala Safaricom does not make their banks come calling. So just as bad news should not concern retail investors, neither does good news unless it involves a dividend or split.

Broker Issues:
(i) If Discount Securities (with 20+ branches) and other brokers who opened offices to serve (Kengen, Mumias) IPO crowds, then find later that these customers don’t trade (and generate commissions & income) how long would this position be sustainable? Brokers were better off using banking halls, supermarkets and other abodes to process IPO applications (as happened with Safaricom)
(ii) Went to my broker yesterday, and they are now marketing the Mabati Bond which has projected income of between 10 - 12% p.a. from the bond, but the minimum application amount of Kshs. 1 million ($13,700) is out of reach of most individuals, and not as affordable as the earlier Barclays Bond
(iii) Initially the regulators (CMA/NSE duo) attributed the problems at Discount to the global market collapse. But new media reports blame owner disputers for problems at the broker and a leading agent.


propaganda said...

When Chairman Isaac Awuondo left Centum's board, he claimed kazi mingi elsewhere. I thought he was muscled out as Kibuga Kariithi came on board. Now CEO Peter Mwangi is out with much of the company's quoted portfolio underwater. What's the inside news to ignore here?

coldtusker said...

Please send me a link where CMA blames the 'global financial meltdown' for DSL's demise?

bankelele said...

Propaganda: Strange turn of events, could be board disagreements


coldtusker said...

banks: The CMA (to its credit) does not blame the global financial crunch to DSL's problems.

That said the press statement is poorly worded...

And where was the CMA when we know DSL has been trouble for a while... and there is another broker about to go down...

Auto Parts said...

dont ignore it

Auto Parts

Maishinski said...
This comment has been removed by the author.
Mashatall said...

Stockbrokers have not been innovative enough to come up with new products for investors, which would have seen them diversify their revenue base. All they do is churn clients accounts so that they can earn commissions, which is the only way they are able to generate any revenue. CMA needs to act fast and introduce new products into the market, otherwise any time we have a downturn the story will be the same, and DSL management has to be blamed for having undertaken an expansion which was ill advised in my opinion.


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