Kenya: Press Release: Capital Markets Authority Comments on Bear Run at NSE

Thursday, 05 February 2009

The CMA would like investors and the general public to note the following with regards to the condition of our capital market; The stock market in Kenya is currently experiencing a bear run. This is a condition in which share prices of securities are depreciating followed by widespread pessimism. However, this is not unique to our market as this trend is being experienced globally. The Nairobi Stock Exchange (NSE) has specifically experienced similar bear runs in the past. Most recently between October 2000 and September 2002 the share index declined by 50% from a high of 2043 points to a low of 1043 points. Similarly, the market capitalisation declined from KES101.4bn to KES85.7bn. As a result of reduced activity, market intermediaries have experienced low turnover and therefore low commissions. As a result, just like in any other businesses, cost cutting operational measures have to be adopted by market intermediaries including staff layoffs and closure of branch offices. Many investors entered the market during the Kengen IPO in 2006 and later during the Safaricom IPO in 2008 and in both instances the stock market was experiencing a bull run. A bull Run or bull market is a market condition in which stock prices have increased in price for an extended period of time. Investors who purchased shares during the bull run will therefore experience significant losses if they exit the market at this time. It is advisable for investors to have a medium to long term horizon for retaining their investments rather than a short term horizon. Where shares have been immobilized, the securities are held in custody of the Central Depository and Settlement Corporation (CDSC). Immobilisation is the conversion of physical share certificates to electronically held share balances for which the Central Depository has responsibility of maintenance and issuing of regular account statements. CDSC is an independent company established in 2004 under the Central Depositories Act, 2000, and approved by the CMA for purposes of operating a system for the handling of depository of trades in and settlement securities. Investors can use the CDSC SMS service to confirm the status of their share holdings in their CDS accounts by sending the word ‘REG’ to 2372. The CMA is working with the industry to strengthen internal controls in order to mitigate the risks that could arise due to fraud. Fraud as you are aware is deliberate deception for a gain, mostly financial. Fraud is widespread in all industries/businesses and is not restricted to in the capital markets industry alone. The remedy is to identify and mitigate fraud risks. We have identified the implementation of strong back office operations for market intermediaries and the implementation of appropriate risk management systems as the appropriate solution. The CMA is working on major regulatory reform of the capital markets together with systems that will increase confidence in the capital markets. The CMA is aware of a civil case in court involving Suntra Investment Bank Ltd and two other institutions and a client of a listed company but cannot discuss a civil matter as it would be prejudicial to the court process. Nonetheless the CMA is looking into the issue. We would like to assure the public that there is no cause for alarm from the investing public. The Authority continues to monitor the market to ensure stability and safeguard the interests of all market participants. Share this article with others: Comments (0) Subscribe to this comment's feed Write comment Show/Hide comment form Name Email Title Comment smaller | bigger Subscribe via email (Registered users only) I have read and agree to the Terms of Usage. Add Comment