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There is an article below that misses a number of points about African stock markets. It is so generic as to be meaningless. I have submitted my comments below the text of the article (forgive the acerbic tone):-

Africa has ‘too many bourses, too little liquidity’ , June 28, 2010, By Ellis Mnyandu

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Africa should consider rationalising the number of securities exchanges that are on the continent in order to boost the appeal of Africa’s markets as a viable investment destination.

THE ISSUE IS NOT THE NUMBER OF STOCK EXCHANGES BUT THE QUALITY OF THE EXCHANGES. YOU TRY TAKING AWAY A NATIONAL ASSET – THAT’S HOW THE MARKET WILL VIEW IT. THIS IS WHY THE AFRICAN STOCK EXCHANGES ASSOCIATION HAS NOT ACHIEVED ANYTHING AT ALL. THESE STOCK EXCHANGES ARE NOT CO-OPERATING FOR GOOD REASON. THEY HAVE NO NEED TO.

This view was expressed by Maria Ramos, the group chief executive of Absa – South Africa’s largest retail bank.

“I think we probably need to rationalise the number of stock exchanges on the continent,” she said during a panel discussion at the Fortune Global Forum in Cape Town. “We are currently sitting with 23. Looking at these markets there is not enough liquidity to sustain all of them.”

WHETHER OR NOT THEY ARE LISTED IN GABON OR JOHANNESBURG THE LIQUIDITY / FREE FLOAT WILL REMAIN  THE SAME. YOU MAY SAY BUT ACCESS TO BIGGER BETTER MARKETS WILL ASSIST – THIS CAN BE ACHIEVED TO THE SAME EXTENT IN DOMESTIC MARKETS ALL IT NEEDS IS VISION AND MANAGEMENT. THE EXCHANGES WILL NOT BE SELF FUNDING – SO WHAT? NEITHER WILL THEY BE WHEN FOREIGN MARKETS EXTRACT THEIR RENTS.

Ramos said there had been an ongoing dialogue for quite some time about what needed to happen to integrate financial markets on the continent. But so far there had been no discernible steps to turn the dialogue into tangible real action.

DID SHE SAY WHY? THE BEST THING THAT THE JSE COULD DO IS OFFER A FREE INFO DISSEMINATION PLATFORM TO LISTED COMPANIES IN AFRICA – THIS WOULD BUILD A COMMUNITY AND ENABLE EXPERIENCES IN THIS AREAS TO BE GLEANED OVER A NUMBER OF YEARS. THEN THE ISSUE SHOULD BE REVISITED.

The call for integration comes at a time when developing markets are under the spotlight as the global financial crisis pushes investors to look for investment returns elsewhere to offset sluggish returns in the slow-growing developed world.

Developed economies like the US and Europe have bore the brunt of the global financial crisis, putting developing economies such as South Africa, Brazil, China and India on investors’ radar screens.

But a key hurdle for investors looking to put money into Africa is the continent’s disparate securities exchanges, some of which barely see meaningful trading in each of the days that they are operating due to a lack of liquidity. MANY LISTED COMPANIES SHOULD NOT BE  LISTED – THE FAULT OF THE REGULATORS HERE. EITHER YOU HAVE A PROPER MARKET OR NONE AT ALL.

Although an integrated operational framework might bring such benefits as transparency for investors (IMPLICITLY AGREEING THAT THE INFORMATION DISSEMINATION PRACTICES OF THE EXISTING EXCHANGES ARE POOR), a key challenge might come from regulation.

There would also be an issue of regional harmonisation – bringing east Africa, southern Africa, west Africa and north African bourses under a single framework. Currently some exchanges have tended to band together by each region.POLITICS – WHY DO PEOPLE CONTINUE TO FLOG THIS HORSE? A FRAMEWORK OF WHAT – REGULATION SETTLEMENT, INFORMATION DISSEMINATION?

Trade and Industry Minister Rob Davies echoed the call for integration, noting that Africa had rather small domestic markets in individual countries. There was a long-standing observation that there was a larger potential with markets that had groups of countries behind them, he said on the sidelines of the forum. RHETORIC REGURGITATED FROM THE PREVIOUS 10 YEARS EXPERIENCE. LETS COME UP WITH SOMETHING NEW! DEAR MALAWI – YOU HAVE A “RATHER SMALL” MARKET!!

“The debate is about how we get there,” Davies said. THE DEBATE IS ABOUT HOW WE MAKE MARKETS MORE LIQUID:-

- BETTER REGULATION

- BETTER SHAREHOLDER EDUCATION

- DE-LIST NON-COMPLIANT SHARES

- BETTER INFORMATION DISSEMINATION

In South Africa the JSE Limited operates Africa’s largest bourse, the Johannesburg Stock Exchange, which is among the top 20 securities exchanges in the world and its size dwarfs that of other African bourses such as those of Malawi, Libya and Mauritius.

INTERESTING INSIGHT HERE

The 11th annual Fortune Global Forum, which ends today, brought together heads of state, ministers, and the chief executives of the world’s biggest companies to discuss business, economic and social opportunities arising from the increasing role of emerging markets in the global economy.

It is the first time that the forum has been held in Africa.

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QUESTION:  Job Description’s for IR roles typically have had an emphasis on a financial & accounting background. IR Web Report makes it clear that a new critical string to the bow is understanding how to communicate online effectively. If you were CEO of a listed company and had to choose between an applicant with a financial background and an online media specialist who would you choose and why?

Dominic Jones: Ideally, I’d hire both if I couldn’t get their skills in one person, but since I have to choose I would hire the one with the online communication skills because that is the future and big investors prefer to speak to management rather than the IR staff anyway. The person with the finance-only background rarely is able to reduce demand from investors for time with executives. They often are there to run interference for the executives, but I’m not sure that helps the company.”

The person with the online communication skills can reduce demand on executives’ time by using technology to broaden access to management. We are seeing dramatic changes to the investment research industry and the fund management business. There are going to be more and more smaller research shops and more research will be done internally by the buy-side. And all of these people are going to be seeking access to management. Without new ways to provide access, the demands on management’s time will be intolerable.

Read the full interview here

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Key highlights are sizeable upward revisions in GDP growth expected for this year for:

• Nigeria: now 7.0%, +2pp from October report (closer to our bullish 7.6% forecast)
• Mauritius: now 4.1%, +2.1pp
• Botswana: now 6.3%, +2.2pp
• Kenya’s 2010 forecast moved up to 4.1% from 4.0% (in October).

Inflation is generally falling or stable.

Download the full forecast report here…

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“Ex.Africa will launch an online stock exchange simulation game today called ‘Trading Safari’. The game is a showcase for the company’s technology, and an introduction to the type of services they plan to offer.”

View the article Here. The text appears below:-

Stock exchange trading simulators are nothing new , however Trading Safari is the first one we know of, that focuses entirely on African markets. The two markets that currently seem to be covered by the game are the Ghana and Mauritius Stock Exchanges. Ex.Africa promises that the game will be “open for all African exchanges and markets”.

The game is free and players participate in time-based tournaments in which they play against other registered users, or privately on their own. Tournaments start with an initial portfolio value of 10,000.00 play dollars, and from there on you buy and sell your way to success or ruin until the tournament is over.  The tournaments take place in real time and that means that orders you place to buy or sell stocks take place during actual trading hours. Success is based on how well the stocks in your portfolio perform during the tournament’s time frame.

Ex.Africa touts Trading Safari as “a simple and fun way to gain knowledge of the different African stock markets” and is designed at “increasing awareness to the profit and investment potential of African stock markets.”

Amijai Saragovi, Ex.Africa’s CEO told  The Wadi that the launch of Trading Safari is just one phase in the unravelling of the company’s offering, and although it might seam like a teaser now, aims squarely at the heart of Ex.Africa’s core competency.

I hope the game includes the following options in making investment decisions:-

• The financial results of companies NOT being available
• Companies not disclosing litigation
• CEOs having left but no-one is told
• Material information being released at different times to different players
• A few broking firms going bust – go back to START and do not collect 200

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• Imara Africa Series – comprising the Nigeria, Zimbabwe, East Africa and African Resources Fund
• Imara Global Fund
• Imara Africa Opportunities Fund
• Imara Equity Fund

Imara African Opportunities Fund Limited

Net NAV    USD 12.42

+4.99 % (m-o-m)

The Imara Africa Series Limited – Imara East Africa Fund
Net NAV    USD 8.56
+6.20 %  (m-o-m)

The Imara Africa Series Limited – Imara Nigeria Fund

Net NAV    USD 8.40
+13.06 %  (m-o-m)

The Imara Africa Series Limited – Imara African Resources Fund
Net NAV    USD 16.14
+12.01 %  (m-o-m)

The Imara Africa Series Limited – Imara Zimbabwe Fund
Net NAV    USD 10.24
+4.92 %  (m-o-m)

Imara Global Fund Limited
Net NAV - USD 15.10
+4.14 %  (m-o-m)

Click on the links for more info on the funds.

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“We also addressed MIT’s Sloan School of Management on Wednesday in Boston, and a group of 25 individuals (Public/Private Equity investors, and representatives of the World Bank and consultant community) in tandem with allforafrica.org on Thursday evening. The majority of these (EM, Frontier, and Africa fund managers) maintain African Equity holdings within their portfolios.

The key trends that we picked up (in tandem with other recent client conversations) are;

SUMMARY

• Nigeria remains one of/ if not the most favored African/ Frontier stock-markets
• Investors interested in, but not hung up on Nigerian political situation
• Zimbabwe not as compelling as in 2009
• When will Ghanian and Ugandan oil come on stream, and how will it impact West /  East Africa ?
• Liquidity remains a key constraint to larger funds,  yet appetite has increased over previous 6 – 12 months ago
• Frustration at a lack of IPO’s / Secondary Issuance
• Institutional firms preference for a Frontier trading ‘conduit’
• More Frontier/ Africa funds expected in 2010
• There is no common thread between size and style of Frontier/ Africa fund and their ability to raise capital
• Large student (MBA) interest in African  [Private]  Equity

OVERVIEW

Nigeria remains one of/ if not the most favored African/ Frontier stock-markets

All investors were compelled by the Banking Sector opportunity and expect significant upside in 2010. Most veer towards the well capitalized “good” banks (that  passed the Central Bank’s stress tests) with a slight preference  towards the largest banks by Mkt Cap’, (GTB, UBA, First Bank) versus the most undervalued (<1 P/Bk  - ETI, Access Bank), all of which remain attractive and close to 5 year lows. Banking sector reforms incl. potential consolidation, and the formation of an asset management company, as well as forthcoming FY 2009 results expected towards the end of February 2010 should act as catalysts. Having spoken with the Head of Financial Markets for the leading (London based) IR company in Nigeria this morning, we can expect improved transparency, and detail within these results, whilst continued improvements are necessary and expected throughout 2010 and beyond.

Investors interested in, but not hung up on Nigerian political situation

Many conversations revolved around the Nigerian banks (given their size, liquidity and valuations) which led on to questions about the political situation.  Even before this week’s lower House (of the Assembly) support of VP Goodluck Jonathan [as Acting President in President Yaradua's continued absence for health reasons in Saudi Arabia] investors were generally passive with regards to any political instability, or civil unrest, to which we agree. Whilst not fully constitutional, there does appear to be a return to stabilty within the country’s leadership as supported by Nigeria’s 36 Governors.  In addition, some questioned the Central Bank’s ability to move banking reforms forward since Yar’adua drove Governor Sanusi’s appointment. As you’ll see from today’s news – http://af.reuters.com/article/nigeriaNews/idAFLDERAFS12320100211?sp=true
- reforms appear fluid, well supported, and forward thinking.

Whilst the Kenyan coalition Government was rarely discussed, one client was particularly nervous about potential violence leading up to and during the next election [2011], and the current coalition government’s ability and willingness to act progressively.

Zimbabwe not as compelling as in 2009

The minority of fund managers that maintain an appetite for this end of the risk spectrum appear to have already invested throughout 2008 & 2009. Others appear to view more compelling opportunities elsewhere (see above). Ofcourse recent news, suggesting that President Mugabe will  transfer foreign ownership [to locals], will clearly act as a deterrent for the moment.

When will Ghanian and Ugandan oil come on stream, and how will it impact West /  East Africa ?

An important theme expected to drive double digit GDP growth from 2011 in Ghana and Uganda (and indirectly across the East African community incl. Kenya) are the recent Tullow [TLW LN] oil finds. A common question remains unanswered for the moment;- Will the Governments effectively manage these inflows and their distribution to the real economy.  We expect this to be well managed given the relative political stability, and timeframe to set effective protocol.

Liquidity remains a key constraint to larger funds,  yet appetite has increased over previous 6 – 12 months ago

Nigeria, Kenya and Mauritius are the most attractive markets for many institional funds given their liquidity and inclusion with MSCI’s Frontier Mkt Index – MXFM . The majority of stocks within our TOP 30 report (that trade > USD 500k  per day are listed within these markets) and will remain the go to names for institutional funds and those with an emphasis on liquidity. However, on this trip, versus
last July’s, it was apparent that a greater number of investors were now happy to move down the liquidity scale for a “compelling’ opportunity.  The second tier of [liquid] markets include Botswana, Zambia, Zimbabwe, the BRVM, and Ghana, and remain attractive to the smaller Frontier hedge fund community.

Frustration at a lack of IPO’s / Secondary Issuance

The Equity IPO pipeline has provided scant opportunity since Safaricom’s 2008 summer IPO, whilst we have seen a steady flow of (Sovereign, State, and [less so] Corporate) debt issuance across many markets within the last 12 months. Whilst this has undoubtedly been a factor contributing to the stockmarket [under] performance amongst these [less liquid] markets we foresee increased corporate Equity/ Rights issuance going forward, and the proposed medium term privatization of some of Kenya’s assets.

Some investors understandably remain frustrated at the lack of new liquid, sizable (by Mkt Cap) public investment opportunities.  Whilst a common African stock exchange is a LONG way off we may see potential [cross] listings in South Africa, or London in tandem with a GDR/ ADR program which would increase international appetite, diversify the ownership structure and provide additional impetus for primary listings. With all this said, expect these markets to develop slowly over the short-term.

A positive note is that the relatively small African Private Equity community (lead by large, and well established firms like, Actis, Helios, Kingdom Zephyr and ECP) is thriving and attracting a growing number of talented graduates pushing for roles across African Private Equity. They will help to develop opportunities that should ultimately benefit the public investor in the not to distant future.

Institutional firms preferance for a Frontier trading ‘conduit’

Institutional fund managers on the whole prefer to trade through international firms offering ‘one stop’ access to these markets, such as Exotix. Without dedicated Frontier / African trading coverage the international investment banking/ brokerage community is likely to see the lions share of volumes from the frontier/ EM community due to – , common delays in communication, unfamiliarity with trading protocol, often required hand holding, and settlement delays. With that said, anecdotal evidence suggests that the African stock markets are operationally more straightforward than their Frontier counterparts. This ties in with some managers [relative] frustration at the administrative requirements of setting up [custody] in new African markets. With all this said, day to day execution is well managed in tandem the right trading partners, and focus.

More Frontier/ Africa funds expected in 2010

These are split fairly evenly across the larger institutions, and new hedge fund launches (which are being set up by distinguished (ex instituional) Emerging markets investors). Expect 3-4 more in H1 2010 across the USA, and similar growth across Europe.

There is no common thread between size and style of Frontier/ Africa fund and their ability to raise capital

Frontier funds are in marketing mode,  and are beginning to see investors bite, having awaited a [slow] return of risk appetite. The larger institutional/ hedge funds clearly have a significant [in house] marketing presence, whilst the smaller funds (< USD 50m AUM, which have been performing well versus the MSCI Frontier Index, whilst underperforming the MSCI EM index) are competing within an increasingly congested space (relatively speaking of course) . Are there enough Frontier $’s swishing around ?  I think there will be, as we are seeing a trend of interest develop across the ‘Frontier’ in general, but how quickly is difficult to predict.

Large student (MBA) interest in African Private Equity

As I mentioned in my end of year email (having presented at Wharton, Harvard, Columbia and NYU Stern in 2009), I continue to be inundated by highly capable (often MBA) students looking for opportunities across Private and Public Equity. Whilst corporate opportunities, and the [African] recruiters representing them, offer a great variety of opportunities across the continent, the world of investment doesn’t for the moment given the limited number of established PE (and Public Equity) firms focusing purely on the continent (less than 25 African Private Equity firms).  These PE firms are hiring, so expect the established firms to grow in size quicker than the number of PE firms.

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