The Nairobi Stock Exchange (www.nse.co.ke) and FTSE International (www.ftse.com) are to create new FTSE/NSE share and bond indices. These could be marketed to international investors who monitor FTSE indices, create more revenues for the Kenyan bourse and encourage foreign portfolio investors, boosting liquidity.
According to a report in Business Daily newspaper (www.businessdailyafrica.com), Terrence Adembesa, Product Development Manager at the NSE, said: “We believe this partnership will lay the foundation for the creation of data products, exchange-traded funds (ETFs) and other index-based products and will further attract enhanced foreign investment in the local market.
The NSE recently announced it would introduce a local bond index, starting with treasury bonds.
According to the FTSE Group website, it works with partners and clients in 77 countries worldwide and calculates over 120,000 end-of-day and real-time indices covering more than 80 countries and all major asset classes such as equity, bond and alternative asset classes. It is an independent company jointly owned by The Financial Times and the London Stock Exchange.
The website explains: “FTSE indices are used extensively by a range of investors such as consultants, asset owners, fund managers, investment banks, stock exchanges and brokers. The indices are used for purposes of: investment analysis, performance measurement, asset allocation, portfolio hedging, and creation of index-tracking funds.
“Independent committees of senior fund managers, derivatives experts, actuaries and other experienced practitioners review and approve all changes to the indexes to ensure that they are made objectively and without bias.
FTSE has offices in London, Frankfurt, Hong Kong, Beijing, Shanghai, Madrid, Milan, Mumbai, Paris, New York, San Francisco, Sydney and Tokyo, FTSE Group.
The NSE said they were considering developing the bond index, an equity index, equity sectoral and finally shariah index series and they should be launched during the third quarter of 2011, helping diversify the NSE’s income and enhancing the value of its brand. Mr Adembesa commented: “The agreements have been firmed up within the technical teams for both FTSE and NSE and are awaiting board approvals.” Modalities on the equity and bond index constituents, weighting and calculation are still being worked out. The partnership could work towards developing an East African index series, while maintaining the NSE 20 share and NSE All Share indices.
The newspaper reports that the NSE made KSh35.8 million loss after tax for the year ended December 2009 (compared to a KSh59 mn profit in 2008). Total income was KSh184.5 mn (KSh328.4 m in 2008) of which 89% came from transaction levies, annual listing fees, initial listing fees and application and additional listing fees. Other income was advertising, data vending and sale of publications and merchandising items and this contributed 6% in 2009. According to law, the NSE earns 0.12% of the value of all equity transactions and 0.0035% on bond transactions at the bourse.
Kestrel Capital (www.kestrelcapital.com) executive director Andre DeSimone told the paper that having an international index would add confidence and acceptability among international investors: “Stock exchanges internationally not only make revenue from fees but they also from selling the information. It would also allow international investors to benchmark and compare the performance of other markets with the Kenyan market and exposes Kenya internationally.”
Mr Adembesa said that adopting FTSE’s global index methodology would attract enhanced international investment into the local market and NSE staff would be able to share and knowledge transfer through exposure to FTSE’s calculation systems and global distribution network.