Burst of speed on the bourse

Partnership between Shanghai and Nairobi bourses aims to attract Chinese

Two years ago, China and Kenya opened a path to enable a major bourse on the Chinese mainland to successfully collaborate with the African country's growing exchange.

The Shanghai Stock Exchange, which has 931 listed companies, and the Nairobi Securities Exchange, with 62 listed companies, signed a memorandum of understanding by which the SSE would help the NSE improve the marketability of its offerings to Asian investors.

Through the deal, the SSE would help package Nairobi's enterprises in the areas of human resources training, high technology and product development to brokerage firms in China.

Andrew Wachira, NSE acting chief executive, says the relatively new collaborative platform has yet to fully develop, but adds the local bourse will gain significantly from the entry of Chinese investors. The NSE can learn a great deal from the SSE's strategies to design attractive products for Chinese investors, he says.

Apart from attracting investors in China, the agreement facilitates China's transition into Kenya's capital markets.

"Collaboration between our exchanges will mature into a relationship that will encourage Chinese investment and brokerage firms to establish offices in Kenya," he says.

Ideally, if the collaboration develops, Kenyan brokerage firms will also establish branch divisions in China, he says.

Closer collaboration came about after the NSE concluded its demutualization process last year that opened the ownership of the bourse to the public through an initial public offering. The bourse, previously owned by brokers, changed its status from a not-for-profit entity to a for-profit company, and its shares are now traded publicly. Demutualization separated the functions of the NSE to management, ownership and trading.

"Our market is now open to foreign trading partners and hence this year we will be increasing our engagements with Chinese intermediaries to urge them to set up local offices and become direct participants," says Wachira, who was recently picked by the NSE board of directors to serve as an interim executive while the board looks for a new chief executive. The former CEO left in September.

Chinese investors will be attracted to the NSE because Nairobi is strategically located in East Africa, is the biggest bourse in terms of market capitalization (at $25.6 billion) and uses an advanced trading platform, he says. The NSE has regional companies that are economic drivers of growth.

"We aim to become a frontier market that Chinese brokerage firms will be comfortable to trade in and hence give regional companies a direct link to Chinese investors. I know we already have Chinese private investors using global fund managers but direct contact will go a long way into directly benefiting Africa and Chinese economies."

Although there have been calls in Africa to have a single continental exchange, he doubts that will happen because African countries see their exchanges as sovereign identities, though he says there have been agreements that promote cross-border listings and the sharing of information. The Uganda Securities Exchange and the Dar es Salaam Stock Exchange, for example, allow cross-border listings.

Regional integration has been widely pushed as a solution to the development of stock markets in Sub-Saharan Africa. Proponents argue it would bring greater efficiency and economies of scale, attract a foreign flow of funds, foster risk-sharing and portfolio diversification, act as an impetus to financial reforms and lead to economic growth.

But Wachira says most countries are sluggish in aligning their policies that would speed up this integration.

In East Africa, there have been efforts to align regulations on listings, regulations and operational activities to enable brokerages to simultaneously trade in all five countries without setting up additional offices.

"This move will significantly lower operational costs for Chinese investors who want to tap into 140 million people," Wachira says.

Still, he believes Kenyan companies need to step up their marketing campaigns in Asia to gain visibility. They also need to shore up their local investors through public education and promotional programs.

lucymorangi@chinadaily.com.cn

(China Daily Africa Weekly 02/13/2015 page7)