Challenges and Outlook for African Exchanges: Where are we heading?
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Transcript of Challenges and Outlook for African Exchanges: Where are we heading?
Challenges and Outlook for African Exchanges:
Where are we heading?
Presented by:
Sunil BenimadhuChief Executive, The Stock Exchange of Mauritius Ltd President , African Securities Exchanges Association
8 October 2013NeMa Africa 2013
Tower Suite, Hilton London Tower Bridge, London
Presentation Outline
The shift in the balance of economic power and Africa’s rise
The changing world economic momentum: A gradual and yet irreversible shift of international asset-allocation in favour of African capital markets
African stock market’s: facts & figures
Challenges of African Stock Exchanges
Overcoming these challenges and setting the scene for a vibrant capital markets space in Africa
African Securities Exchanges Association’s (ASEA) contribution to the African capital markets’ space
Introducing the Stock Exchange of Mauritius: How is the SEM leveraging off Africa’s potential to internationalise its platform
The shift in the balance of economic power and Africa’s rise
Top 10 Economies2011 2050
Country GDP (PPP) ($ tn)
Rank Country GDP (PPP) ($ tn)
United States 15.06 1 India 85.97China 11.32 2 China 80.02Japan 4.47 3 United States 39.07India 4.40 4 Indonesia 13.93Germany 3.09 5 Brazil 11.58Russia 2.38 6 Nigeria 9.51Brazil 2.31 7 Russia 7.77United Kingdom 2.25 8 Mexico 6.57France 2.22 9 Japan 6.48Italy 1.83 10 Egypt 6.02
Source: International Monetary Fund; The Wealth Report 2012
The shift in the balance of economic power and Africa’s rise
The changing world economic momentum: A gradual and yet irreversible shift of international asset-allocation in favour of
African capital markets
Growth in the developed world looks anemic at best and international investors are on the look for superior returns outside of the traditional markets
Emerging Asia and Latin America have benefitted from the first wave of asset-allocation shift during the 1990’s and 2000’s
Africa is the last-growth frontier that will benefit from the second wave of asset-allocation shift
The setting up of dedicated Africa funds, Africa-focused structured products and PE funds is on the rise and will intensify
Fundamental shift to the current static perceptions of African Exchanges being fragmented and illiquid
Global brokers/liquidity providers who, have so far overlooked African stock markets, will growingly turn to these markets as the last financial Eldorado
African stock market’s: facts & figures
Country Year to Date (%) Country Year to Date (%)
1 Ghana 65.682 Malawi 53.08 Americas US - Dow Jones 13.023 Rwanda 37.50 Chile -14.604 Nigeria 29.64 Brazil -17.955 Zambia 28.016 kenya 24.63 Europe London 8.737 Uganda 23.76 France 8.048 BRVM 21.16 Germany 6.459 Zimbabwe 19.53
10 Botswana 12.95 Asia China 13.1111 Namibia 12.77 Malaysia 4.6412 Mauritius 11.41 Sri Lanka 3.3913 Tanzania 8.52 Indonesia -2.8214 South Africa 8.10 Thailand -7.0115 Swaziland 0.41 India - BSE 500 -11.9716 Tunisia 0.3717 Egypt -3.5618 Morocco -10.71
Source: African Alliance Source: World Federation of ExchangesSource: Yahoo Finance
African Markets Developed & Emerging Markets
STOCK MARKET PERFORMANCE (year-to-date)
African stock market’s: facts & figures
Countries No. of ListingsMarket Capitalisation
(USD Bn)GDP @ Current Price
(USD Bn)Market Capitalisation /
GDP(%) Turnover (USD Bn)Turnover Ratio
(%)
Egypt 253 49 257 19 21.90 45
Nigeria 195 70 263 26 4.10 6
Morocco 75 50 97 51 6.30 13
Kenya 61 19 37 51 0.80 4
Tunisia 69 8 46 18 1.10 13
Mauritius 93 8 10 82 0.60 7
Ghana 30 5 41 11 0.14 3
BRVM 38 8 78 10 0.12 1
Zimbabwe 74 6 11 50 0.50 9
South Africa 409 434 384 113 372.00 86
TOTAL 1,297 655 1,224
Source: 1. Standard & Poor's Factbook 2012 2. Internatioanal Monetary Fund (www.imf.org) 3. ASEA Yearbook 2012
JUNE 2013
How do African stock markets stats compare with those of a few emerging markets?
Countries No. of ListingsMarket Capitalisation
(USD Million)GDP @ Current Price
(USD Million)Market Capitalisation /
GDP(%)Turnover (USD
Million)Turnover Ratio
(%)
Malaysia 941 395,083 287,943 137 128,908 33
Thailand 545 268,489 345,672 78 232,442 87
Indonesia 440 390,107 846,450 46 139,618 36
Chile 229 270,289 248,431 109 56,899 21
India 5,112 1,015,370 1,838,166 55 740,177 73
Brazil 366 1,228,969 2,492,907 49 961,306 78
Source: 1. Standard & Poors Factbook 2012 2. International Monetary Fund (www.imf.org)
YEAR 2011
Challenges of African Stock Exchanges
Fragmented nature of financial services sector
Restricted market depth and breadth
Equity-Centric Exchanges
Liquidity issues
Unusually high transaction costs
Absence of an active and well developed domestic investor base (low institutional participation & less than 1% retail
participation)
Manual Trading and Settlement infrastructure
Issues of efficiency and real-time availability of market information
Corporate Governance practices of Listed Companies
Protection of Minority Shareholders’ rights
Accounting and Disclosure standards
Transmission mechanism
Overcoming these challenges and setting the scene for a vibrant capital markets space in Africa
At the micro market-level:
Active stimulation of the four P’s that characterise the Exchange space:- products, players, participants and partnership
Increase the number of local investors from the current 1% to at least 10% of the population
Diversify product base (corporate & government bonds, short-selling on liquid counters, single-stock futures on liquid stocks, introduce index-futures)
Slash transaction fees
Innovate by introducing turnaround trades
Reach out to the rest of the world and improve the availability of updated market statistics. Aggressively put African stock markets on the radar screen of international investors
Overcoming these challenges and setting the scene for a vibrant capital markets space in Africa
At the micro market-level:
Bring the good companies to list on African Exchanges
Successful African companies should contribute to the growth of local capital markets and local economies, instead of systematically supporting the growth of the larger well-established markets
Sensitise listed companies about their role as public companies and improve the quality and frequency of their reporting
Link up our stock markets through technology so as to increase the intra-regional investment flows and broaden the availability of tradable scrips on our Exchanges
Ensure that quarterly reporting becomes the standard
Transform the Exchange’s website as a powerful source of historical and updated statistics
Overcoming these challenges and setting the scene for a vibrant capital markets space in Africa
At the macro market-level:
African economies have so far built up their growth as suppliers of new materials and low value-added goods to western countries
There is, now, a substantial need for African economies to power themselves up to move-up the value-chain of products to become over time the supplier of high-value added products to the rest of the world
Continued improvement in business climate and further opening up of African economies to the rest of the world
Implementation of inclusive growths that propels the middle-class to the forefront of economic activity
Overcoming these challenges and setting the scene for a vibrant capital markets space in Africa
At the macro market-level:
Embracement of democratic principles and good governance at the highest decision-making levels
Substantial improvements in infrastructure ( roads, railway, ports, airports ) linking African markets
African Governments need to understand and actively support Securities exchanges/capital markets in the transformational phase of African economies and in the empowerment of the lower social classes
ASEA’s contribution to the African capital markets’ space
ASEA’s current website (which is outdated) is being revamped to become a key source of daily updated information for the international investment community
ASEA is endorsing the important role of increasing the visibility of African markets at the international level
ASEA has launched an African index with FTSE
This African index should serve two key functions:
1. Emerge as an attractive benchmark for investors investing on African stock markets
2. Be used as a reference for the creation of an African ETF
ASEA’s contribution to the African capital markets’ space
ASEA should ensure that this African ETF is listed on the different African Exchanges tracked by this ETF
ASEA is gradually emerging as the mouthpiece of African stock exchanges vis-à-vis African governments and international organisations like the African Union, the African Development Bank and the World Bank
It is endorsing the role of enticing governments to support the development of vibrant capital markets in Africa
Introducing the Stock Exchange of Mauritius: How is the SEM leveraging off Africa’s potential to
internationalise its platform
1989 2013
No. of listings 6 126
Market Capitalisation (Rs Bn) 1.44 248.6
Market Capitalisation/GDP (%) 4.32 72.15
SEMDEX (End of period) 117.34 1963.67
SEMTRI (in Rs terms) 118.95 6193.02
A statistical overview of the evolution of SEM since inception
Introducing the Stock Exchange of Mauritius: How is the SEM leveraging off Africa’s potential to internationalise its platform
Introduction of a multi-currency listing, trading and settlement platform (USD, GBP, EURO, ZAR)
Introduced a highly competitive and compelling listing framework for
Setting up of a new trading technology that:1) Opens the space for foreign brokers/liquidity providers to connect directly to our trading systems2) Cross-link our market with other markets in the region
Introduce the concept of remote membership to attract foreign brokers, foreign participants to our market and global order flows to SEM’s trading platform
Positioning SEM as an attractive capital-raising, listing and trading platform for African ventures
SEM offers a very attractive stock market environment:
- Junior mining/exploration companies- Global funds -Global Business companies-sponsored/unsponsored Depositary Receipts - Exchange traded funds- specialist debt instruments - Structured products- Derivatives on foreign underlyings
- No capital gains- No taxes on dividends- No exchange control- Ability to open and hold multi-currency accounts with banks (USD,
EURO, GBP, ZAR, AUD, etc.)
Why SEM and what is the SEM’s Competitive edge as a capital-raising and trading platform for African ventures?
SEM is a multi-asset class internationalised Exchange platform that allows African issuers to list a wide spectrum of financial instruments and raise capital through a wide variety of modes ( shares, bonds, funds, Depositary receipts, convertible instruments, Exchange Traded funds ( ETF’s) )
SEM facilitates international capital-raising by African issuers through its multi-currency listing, trading and settlement platform (USD, EURO, GBP & ZAR)
SEM has been a powerful value-creation platform for many companies that have chosen to list on its platform [USD total return range from 3,000 % to 7,540 % for Top 10 companies]
SEM has an Exchange architecture that opens us the global institutional investors’ space to African issuers. 40 % of annual market turnover is from global institutional investors
SEM is sub-saharan Africa’s ( ex JSE ) only WFE member Exchange and was awarded “ Africa’s 2011 & 2012 Most Innovative Exchange ’’ by Africa Investor at the NYSE
Clearing and settlement on SEM done in line with international standards
- Potentially provides a 4% to 8% currency conversion savings to international investors trading in African securities - Hedges the international investors against African currency risks and eliminates need to resort to currency hedging instruments
Why SEM and what is the SEM’s Competitive edge as a capital-raising and trading platform for African ventures?
The SEM is positioned at the very heart of the convergence point of demand-side flows and supply-side opportunities for investments into Africa
The demand-side flows are those of the Africa-dedicated funds, Africa-focused structured products that are and will growingly be established in the Global Business sector (GBS) in Mauritius to invest in African ventures
Demand-side flows can also be boosted by attracting order flows from remote global brokers
The supply-side opportunities will emanate from Global Business companies + other companies incorporated in Mauritius for outbound investments into Africa
SEM’s highly flexible/cost competitive listing framework and its state-of-the art multi-currency trading provide the winning capital-raising platform that enables an efficient interaction of the above demand and supply forces
In a nutshell, SEM completes the value chain process that will position Mauritius as a one-stop platform for incorporation, structuring, listing, capital-raising and trading of African ventures
Recent capital-raising on the SEMCompany name YEAR Amount raised
in USD (equivalent 1 USD = Rs 30)
BONDS Lux Island Resorts Ltd 2010 16,666,667 United Investment Ltd 2012 13,333,333 Omnicane Ltd 2012 36,000,000 Omnicane Ltd 2013 30,666,667 Mauritius Commercial Bank Ltd 2013 150,000,000 TOTAL 246,666,667
IPO Go Life International PCC 2011 9,665,000
NEW ISSUES The Medical And Surgical Centre ltd 2009 5,500,000 Ascencia Ltd 2009 10,279,050 Southern Cross Hotel 2009 274,365 Southern Cross Hotel 2009 6,789,929 Dale Capital Group Ltd 2010 6,086,585 ENL Land Ltd 2010 31,119,009 United Investment Ltd 2010 25,367,112 Ascencia Limited 2010 4,695,298 Ascencia Limited 2011 17,739,078 United Investment Ltd 2011 2,590,565 United Investment Ltd 2011 510,827 Promotion and Development 2012 79,507 Promotion and Development 2012 5,088 Bharat Telecom 2012 333,333 Sanlam Africa Core Real Estate Fund Ltd 2013 45,500,005 Rockcastle Global Real Estate Company Ltd 2012 145,869,970 Ascencia Limited 2012 3,000,021 Rockcastle Global Real Estate Company Ltd 2013 265,000,000
TOTAL 570,739,742
RIGHTS ISSUES Mauritius Stationery Manufacturers Ltd 2010 4,964,933 Lux Island Resorts Ltd 2010 16,666,667 Mauritius Freeport Development Co. Ltd 2010 5,000,000 Tropical Paradise Co. Ltd 2010 4,166,667 Mauritius Freeport Development Co. Ltd 2011 5,000,000 Tropical Paradise Ltd 2011 10,937,500 United Investment Ltd 2011 4,617,634 Mauritius Stationery Manufacturers Ltd 2012 8,782,289
TOTAL 60,135,689
Nearly USD 1 billion raised
The SEM: A powerful value-creation platform for listed companies
Company Date of Total Return (%) Annualized Total Return(%)Listing
The Mauritius Commercial Bank Ltd 05-Jul-89 9,300 20.59 ENL Land Ltd 24-Jan-90 5,119 18.15 Vivo Energy Mauritius Ltd 13-Nov-91 3,720 18.09 Mauritius Oil Refineries Ltd 21-Feb-90 4,258 17.32 The Mauritius Development Investment Trust Co. Ltd 05-Jul-89 4,519 17.11 Mauritius Union Assurance Co. Ltd 14-Dec-93 2,172 17.07 State Bank of Mauritius Ltd 30-Jun-95 1,467 16.25 Rogers & Co. Ltd 27-Jun-90 3,112 16.06 Omnicane Ltd 05-Jul-89 3,339 15.70 United Basalt Products Ltd 05-Jul-89 3,300 15.64
Official Market: Value Creation in some Top Listed Companies( as at 30 September 2013 )
(Usd terms)
Comparative Performance Analysis: SEM v/s a few other markets (2002 – 2012 )
Exchange 2002 2012 CAGR (%)
SEMDEX (Stock Exchange of Mauritius) 340.92 1,732.06 15.92
Bovespa (Brazil) 13,577.00 60,952.00 14.63
S&P / CNX 500 (National Stock Exchange of India) 1,059.05 4,743.45 14.60
FTSE/JSE All Share (South Africa) 10,441.70 40,482.92 13.11
S&P / TSX Composite (TMX Group) 7,688.41 12,443.50 4.47
SSE Composite Index (Shangai Stock Exchange) 1,645.97 2,269.13 2.96
All Ordinary Price (Australian SE) 3,359.90 4,664.60 3.03
Dow Jones (NYSE) 10,021.57 13,104.14 2.47
CAC-40 (France) 4,624.58 3,641.07 (2.15)
Thank You