Kenya's securities exchange has launched the country's first government bond index, which will help investors to better measure the performance of their portfolios
Kenya's securities exchange has launched the country's first government bond index, which it hopes will deepen capital markets. The news follows the accession of Nigeria and South Africa, sub-Saharan Africa's two biggest economies, to leading global government bond indices earlier this week.
The new FTSE NSE Kenyan Shilling Government Bond Index should allow investors to better measure the performance of their portfolios.
"Fixed income portfolio managers in Kenya have been using equity indices as a performance benchmark, because there simply wasn't an index that they could adopt for their purpose," says Jonathan Cooper, managing director, FTSE Middle East andAfrica.
Kenya's fixed income market is still in its infancy, with government debt accounting for over 90 percent of the total bond market, and outstanding government paper amounting to only around $8bn. But the index should also go some way towards diversifying investment markets.
"Over half of the assets in Kenya are invested in government bonds, but that is entirely done at the mutual fund level. Now there is the opportunity to also create ETFs, structured products, or balanced mutual funds or ETFs that comprise both the equity and fixed income markets," Mr Cooper explains.
On Monday, South Africa joined Citigroup's local currency world government bond index, which is tracked by about $2trn worth of funds. Meanwhile, Nigeria became the second country in the region to be welcomed into the ranks of JP Morgan's widely-tracked emerging markets government bond index.
At around $25bn, Nigeria's sovereign debt market is dwarfed by South Africa's, which measures about four times that amount. But with investors increasingly look beyond beleaguered traditional markets, JP Morgan estimates that the West African country's new membership could translate into $1.5bn of inflows into the local fixed income market.
FTSE says that a partnership with the African Securities Exchanges Association will also result the launch of a pan-African index launch this year, which would help improve the visibility of African equities in ASEA's 20 member bourses.
"The key markets in Africa are evolving from the equity indices that give you a measure of the stock market to inclusion in global indices, as global investors seek exposure to those opportunities," Mr Cooper says.