Interview : Geoffrey Odundo
What are the impacts of monetary policy on the performance of the stock exchange?
GEOFFREY ODUNDO: The bourse has established a number of tax incentives to stimulate participation in the market. For instance, our exchange does not enforce a tax on capital gains realised from share sales, and we are advocating for additional benefits that will encourage more firms to list. The activity at the NSE is driven by not only incentives and product availability, but also the broader economic context, which is partly reflected by the movement of the monetary policy rate. An upward shift in the rate results in investors moving their assets into money markets. In addition, such a shift increases the cost of credit, which has an impact on the performance of some listed firms, which in turn affects the market’s overall attractiveness.
How can the stock exchange encourage greater participation from local investors?
ODUNDO: The NSE is open to international investors, with trading from foreign markets constituting approximately 70% of daily turnover. We receive large inflows from the US, Europe, South Africa and countries in the Middle East. The main ways to promote local participation in the exchange are to increase financial literacy and provide tools that afford better access to the market. One key initiative has been the mobile platform M-Akiba, which has helped drive fixed-income investors across a wide geographical spread.
Kenya also has a well structured and regulated pension sector, which provides an avenue for institutional investors to buy into listed securities, including derivatives, real estate investment trusts and exchange-traded funds. Financial literacy is a key enabler for the successful launch of our products. The NSE runs a flagship education programme for students in tertiary-level education, known as the NSE Investment Challenge. In this simulation competition, participants are given $30,000 in virtual money to invest using live market information. The latest edition was open to the general public, and among the participants were business owners who interacted with the platform and improved their skills in trading on the bourse while enhancing their knowledge of saving and investment. In addition, the NSE is leveraging mobile platforms to roll out educational content and broaden its public reach.
Relative to its counterparts elsewhere in Africa, how competitive is the NSE?
ODUNDO: The NSE was the second exchange to demutualise in Africa, after the Johannesburg Stock Exchange. This was accompanied by the need to change the NSE’s governance structure from that of a member-owned organisation to that of a publicly listed company. These efforts have helped place the NSE among the top-five exchanges in Africa in terms of performance.
Why is the NSE planning to issue a green bond, and what will set it apart from other assets?
ODUNDO: The Kenya Bankers’ Association, NSE and other stakeholders have come together to develop the green bond market, and the industry’s capacity is expanding to support the issuance of this type of security. From the perspective of the NSE – and as a partner exchange in the UN’s Sustainable Stock Exchanges Initiative – we have a responsibility to serve as a centre for best practices and innovation to move our markets forward. Kenya and the region have many green finance opportunities, and considering the expanding pool of impact investors, we expect it to be a key growth area.
We are working with our partners to build an inaugural bond programme to help the transition to a new, green economy. We are confident that institutions financing green projects can tap the growing investor interest in green bonds, thereby accessing long-term capital. Those that come to market will also be first movers in terms of green bond issuance in Kenya and East Africa, further driving the market’s development.
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