Chairmen of stock exchanges in Nigeria, Pakistan and Kenya joined EFG Hermes Frontier CEO, Ali Khalpey for a panel discussion on the second day of the London Conference
The panel noted the importance of regulation in driving liquidity into frontier markets
All three markets are expecting active IPO pipelines following a period of political and economic instability
On the second day of the largest investor conference in the UK, the 7th Annual EFG Hermes London Conference, Ali Khalpey, EFG Hermes Frontier CEO, joined by Geoffrey Odundo, CEO of the Nairobi Securities Exchange; Haroon Askari, Acting Manager Director of the Pakistan Stock Exchange and Oscar Onyema, CEO of the Nigeria Stock Exchange, and current President of ASEA, for a panel discussion that looked at measures to enhance liquidity in frontier markets that are looking to grow investment.
Regulators create the framework for investor confidence
Noting the recent development of domestic capital pools in the form of buoyant pension and mutual fund industries across their respective markets, Askari and Odundo pointed to the key role played by regulators in increasing liquidity, Odundo said:
"The regulators have been very supportive. For instance, we recently launched an ETF, for which window has already been created - they've been very proactive in helping with this. The regulator is also very committed to having pension funds enhance liquidity in the market. They are looking at how direct property ownership can be reduced from 20% to 2% to support the Real Estate Investment Trust (REIT) market."
Askari agreed, suggesting regulation was important in creating trust: "One factor which brings liquidity is the perception of a well-regulated market where investors are protected by the rules. Our regulator has done a wonderful job by bringing in new acts to strengthen the legal infrastructure. When you improve the integrity of the market you get new clients and when you get the trust of your clients you get liquidity."
Maintaining a steady pipeline of IPOs is key
Pakistan Stock Exchange's Askari went on to note the importance of a healthy queue of new prospects for investors:
"You have to have enough new IPOs in the region. If you are getting a flow of IPOs, you get new clients and everything that goes with that. If you have a stable market with a high level of integrity and a good pipeline of new IPOs, liquidity will automatically improve."
Technology is opening up new opportunities in the retail investment space
An important element of liquidity touched upon by the panel was the need to increase access and education for retail investors. In Nigeria and Kenya, increased technological capabilities offered by mobile devices were singled out as having drawn in an area of the market currently massively outweighed by institutions. Onyema, of the Nigerian Exchange elaborated:
"Ease of access to the market is very important. We (at Nigeria stock exchange) have automated all our processes. Today in Nigeria, any investor can access the stock market using a mobile device. We're able to provide a high level of transparency to investors with regards to life cycle of the order. By giving open access, providing the right kind of products that investors want, and making sure we have a level playing field in terms of appropriate regulatory surveillance environment, we can drive liquidity through this system."
Odundo highlighted how the Nairobi exchange had been able to build on a pre-existing mobile infrastructure, also highlighting how technology has been used to educate budding retail investors:
"Kenya has a very advanced mobile money platform that we have successfully leveraged. We are encouraging the rollout of products on that platform. This year, we launched a retail mobile bond for the government of Kenya. That's just a start in educating the public on capital market securities.
"The second level is to use the broking network to aggregate these clients. A lot of brokers have now developed online trading platforms to encourage real-time access and transparency. We have a very young population; we encourage simulation trading before even going into live trading as part of an educational, entertaining initiative. Those are the key steps in our efforts to increase retail investors - education and access for the investors."
IPO markets potentially getting back on track following recent political uncertainty
With an audience comprised of 290 international fund managers and 130 EM & frontier companies from 20 nations, keen to hear more about IPOs from all markets, the panellists shared upcoming plans in the pipeline. Despite recent political uncertainty in Pakistan causing delays, Askari looked ahead to a "very vibrant" IPO market within the country, with upcoming prospects from a number of steel companies, as well as significant interest from the buoyant Pakistani pharmaceutical industry.
Kenya's Odundo was also hopeful for the future, stating: "We're hopeful that our own political issues will be put to bed soon and are looking at a couple of IPOs next year. The government is looking at ways to restart the privatisation programme. We believe that if we get two companies from the infrastructure and energy sectors, interest from the corporate side will spark."
Increased liquidity in Nigeria also pointed to an active IPO season ahead for Onyema:
"To date we have raised US$1.2 billion already. A number of companies are interested, particularly big ones in the telecoms space and in the payments space. We think we'll be getting these to market before the election cycle starts sometime next year".