Geoffrey Gangla, CEO, Genghis Capital : Interview

Interview : Geoffrey Gangla

What factors will be driving the performance of Nairobi Stock Exchange (NSE) in the coming year?

GEOFFREY GANGLA: Overall market sentiment is looking favourable after the easing of political tensions, and more activity is expected. In 2018 increased public and private spending as a result of improved investor confidence will have a noticeable impact on economy activity. Various government-led infrastructure investments made between 2013 and 2018 will start to materialise and trickle down to the economy, especially those related to roads, rails and port infrastructure. Additionally, it is also possible that the revision of the interest rate caps will result in an improved credit environment. The housing sector, specifically affordable housing, is expected to experience more activity, driven by the government’s Big Four agenda. Although attracting private sector participation in affordable housing projects might be difficult, investment activity could take place in the form of real estate investment trusts (REITs). It is very likely that real estate developers that are already committed could look at REITs as a vehicle to sell their positions in finished developments using the capital markets.

How do you see the short- to mid-term outlook for the key sectors driving equity markets in Kenya?

GANGLA: When it comes to equities, the main market players are telecommunications companies and banks. The outlook for these companies is positive. Mobile money is a dominant platform when it comes to payments and other players are also entering the sector. Data is going to be a major playing field and the expected network expansion and 4G licensing will play an important role. This increased competition will drive many innovations and major players are poised to profit. On the TV and video-on-demand side, there is a lot of activity under way that could open new revenue streams for new and existing players.

The landscape of the banking sector is very interesting, and not exempt from risk. In the face of increased capital requirements, financial institutions have chosen different strategies. Some have opted to increase their positions in government securities, while others have been growing their loan books, albeit more selectively. Others have increased their presence in technology platforms in a bid to both reduce costs and increase their transactional income.

Overall, both sectors will continue leading the index, and we can expect them to have a decent performance, although key indicators should be monitored.

To what extent can new distribution channels serve as a tool to encourage investor interest?

GANGLA: On the equity side, the market tends to be driven by institutional investors, mostly foreign, who are also active in the bond market. The current level of retail participation is only around 20%. New platforms can play a role in increasing investor interest and facilitating access; however, the real driver is the overall attractiveness of investment options available through the capital markets when compared to other alternatives. Kenyans are investing elsewhere, but not necessarily in capital markets. The typical retail investor tends to be looking for new opportunities and is willing to take risks for short- and medium-term gains. They tend to be active through savings and credit cooperative organisations which have $6bn in assets, that are also acting as investment holding companies; investment clubs, which handle more than $1.5bn in assets; private equity funds and venture capital funds. Other investors are even considering holding positions in more volatile investments such as cryptocurrencies. In summary, the role of capital markets in Kenya can be revamped and reinforced within this broader context, looking at the instruments traded within their boundaries as part of a diversified set of various asset classes. Opportunities include stocks that can be considered somewhat undervalued, and their relevance as an investment needs to be balanced with the overall risk profile of investors.