The last week of August saw many unaudited financial statements printed in the newspapers for the various investment firms, attempting to beat the deadline. If one was to go by the brokerage commissions, it would confirm the reality of what many might have feared. Local investor participation in the NSE is low. The last time this happened to such an extent was in 2009 when the NSE 20-share index hit a low of 3,247 points. Kestrel Capital Ltd for example, saw their brokerage commissions (revenue) nearly half what they received last year for the same period. Just yesterday the market closed at 3,903.72 points which was a high for this year. But when compared to 2006 (5646 points) 2007 (5445 points) and 2010 (4,433 points) the trend is clear.
Decreased participation is the result of lack of confidence in the securities exchange, driven by – among other factors- IPOs. There has been heavy speculation by many intending to make a quick shilling off selling the IPO-acquired shares upon opening of trade. Coupled with small dividends payouts, these freewheelers (who form a larger portion of IPO participants) have no motivation to take part in everyday trading at the bourse. Should this trend continue, the demutualization of the NSE will yield lower investor activity than expected.
Amongst the intentions of demutualization is increasing confidence in the bourse and encouraging participation that would make it more aggressive. The NSE, in comparison to NASDAQ, FTSE and other international securities exchange, is dull. It’s more of a safe play for investors, which is not necessarily a good thing. Never have I seen a situation where a member of parliament or treasury makes an announcement and specific stocks take to fluctuation. Compare this to the various exchanges in Europe where if Angela Merkel for example was to make a statement, stock “A” would be seen changing prices immediately; Samsung and Apple are good examples of this. The recent verdict that saw Samsung ordered to pay $1.05 Billion to Apple saw their prices take a beating while that of Apple rose.
Political risk inKenyais also quite high couple that with obstacles that have significantly delayed demutualization of the NSE, and one can easily find reasons for low foreigner participation in the bourse and decreased brokerage commission revenue for our investment firms.