What CMA Q3 re­port tells about the mar­ket

As at end of June, to­tal as­sets un­der man­age­ment were Sh55.5 bil­lion, up 317 per cent since 2009

Business Daily (Kenya) - - MARK TO MARKET - --FILE Mr Mwanyasi is MD, Canaan Cap­i­tal Lim­ited.

The Cap­i­tal Mar­kets Au­thor­ity third quar­ter re­port is out. A quick glance re­veals some in­ter­est­ing de­vel­op­ments – some good and some not so good. In this ar­ti­cle, I share three ob­ser­va­tions that I be­lieve are key.

One, the re­port shows the as­set man­age­ment in­dus­try reach­ing an im­por­tant mile­stone. As at the end of June this year, to­tal as­sets un­der man­age­ment were recorded at Sh55.5 bil­lion (up 317 per cent from Sh13.3 bil­lion in Septem­ber 2009). There were 17 li­censed fund man­agers.

What’s in­ter­est­ing, out of the to­tal, money mar­ket funds ac­counted for 78.78 per cent or an equiv­a­lent of Sh43.7 bil­lion with only 11 per cent con­trolled by eq­uity funds. This means a ma­jor­ity of the funds are yet to re-al­lo­cate back into eq­ui­ties. It also means that they largely missed out on the Fe­bru­ary-au­gust rally.

What’s also in­ter­est­ing to note is that, the top-five in­vest­ment houses con­trolled 73 per cent of the as­sets with the num­ber one firm hold­ing a quar­ter of the funds. Well, thanks to deep dis­tri­bu­tion

Sa­fari­com of­ten ac­counts for a third of the to­tal mar­ket turnover a good deal of the time

and the big-brand pull, th­ese firms have won the trust of a ma­jor­ity of in­vestors.

Ide­ally, most re­tail in­vestors should in­vest via funds due to their ef­fi­cient struc­ture and the ben­e­fit they get from pro­fes­sional man­age­ment. Per­haps, the only chal­lenge is the high man­age­ment fees that keep eat­ing into re­turns. Oth­er­wise, the next leg of growth should easy come from lower man­age­ment fees. On another point, it was good

to see Shariah-com­pli­ant funds slowly inch­ing up­wards—they ac­counted for 0.01 per cent of the to­tal.

Two, the re­port also showed that for much of this year, for­eign in­vestors were on the sell-side. By close of Septem­ber, this group of in­vestors had off-loaded about three per cent of their to­tal hold­ings (Sh418 bil­lion) or an equiv­a­lent of Sh11.8 bil­lion. Though rush for the ex­its was ex­pected from this group, the

It was good to see Shari­ah­com­pli­ant funds slowly inch­ing up­wards.”

mag­ni­tude of their net sales was rather un­ex­pected.

Re­mem­ber, in the elec­tion

of 2013, dur­ing the same pe­riod ( Jan­uary – Septem­ber), for­eign in­vestors had cu­mu­la­tive net pur­chases worth Sh22.6 bil­lion. In fact, dur­ing the elec­tion month (March, 2013), for­eign­ers were busy on the buy-side pump­ing in a to­tal of Sh1.8 bil­lion. But this time it was dif­fer­ent. They sold-off a to­tal of Sh3.2 bil­lion in the month of Au­gust. Ques­tion is, what pushed them over the wall this time?

Three, our turnover rate (to­tal shares traded against the to­tal mar­ket cap­i­tal­i­sa­tion) is still low (7.4 per cent in 2016, down from 10 per cent in the pre­vi­ous year). This means a ma­jor­ity of com­pa­nies don’t trade at all. What’s worse, only ten com­pa­nies ac­count for over 80 per cent of eq­uity turnover.

In fact, Sa­fari­com of­ten ac­counts for a third of the to­tal mar­ket turnover a good deal of the time. This is why we need the short sell­ing and mar­ket­mak­ing plat­forms ready. The time is now. But then again, why do we have a com­pany listed with just about 100,000 shares in cir­cu­la­tion?

All in all, the re­port shows the mar­ket com­ing of age in many ways. Only the sky is the limit.

TRADE Re­port shows that for much of this year, for­eign in­vestors were on the sell-side at the bourse.

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