As millions of people continue to rely on video-conferencing amid the coronavirus pandemic, Zoom is benefiting—shares of the e-video company surged by over 40% on Tuesday morning, a day after it reported blowout second quarter earnings that easily topped analyst estimates.



KEY FACTS



The tech company&nbsp;<a href="https://www.globenewswire.com/news-release/2020/08/31/2086444/0/en/Zoom-Reports-Second-Quarter-Results-for-Fiscal-Year-2021.html" target="_blank" rel="noreferrer noopener">posted revenue</a>&nbsp;of $663.5 million last quarter, compared to the $500.5 million forecast by analysts, and profits of 92 cents per share (versus 45 cents per share expected).



Revenue more than quadrupled from last year, growing 355% on an annualized basis.



Zoom added nearly 105,000 new customers in the second quarter, with new customers’ subscriptions delivering&nbsp;<a href="https://www.globenewswire.com/news-release/2020/08/31/2086444/0/en/Zoom-Reports-Second-Quarter-Results-for-Fiscal-Year-2021.html" target="_blank" rel="noreferrer noopener">81% of revenue growth</a>.&nbsp;



Zoom is one of the best performing stocks so far in 2020, largely weathering the pandemic-induced sell-off in March and rising by more than 370% year to date.



The company now expects revenue between $685 million and $690 million in the third quarter, and also raised its financial guidance for the full fiscal year to almost $2.4 billion as it takes into account growing “demand for remote work solutions for businesses.”



“Zoom crushed its second-quarter results and once again substantially raised full year revenue guidance,” says Morningstar analyst Dan Romanoff, adding, “While it was virtually impossible to top last quarter’s once-in-a-generation results, Zoom delivered a tremendous encore.”



CRUCIAL QUOTE



“Organizations are shifting from addressing their immediate business continuity needs to supporting a future of working anywhere, learning anywhere, and connecting anywhere on Zoom&#8217;s video-first platform,” said Eric Yuan, Zoom’s founder and CEO, in a&nbsp;<a href="https://www.globenewswire.com/news-release/2020/08/31/2086444/0/en/Zoom-Reports-Second-Quarter-Results-for-Fiscal-Year-2021.html" target="_blank" rel="noreferrer noopener">press release</a>.



SURPRISING FACT



At the beginning of the year, Zoom had a market cap of $19 billion. Today, that number has risen to more than $125 billion.



CHIEF CRITIC



While Zoom is a “recognized market leader in meeting software,” Morningstar still sees the stock as overvalued. Although the firm significantly raised its estimates, assigning a fair value of $153 per share—from $116 per share, that is still far below the more than $450 per share that the stock is trading at today. “We still cannot support the current share price within our discounted cash flow model,” Romanoff wrote in a note on Tuesday.



KEY BACKGROUND



Zoom reported revenues of $328 million in the previous quarter, a yearly increase of 169%. Its stock has been on a tear for much of 2020, rising steadily as demand for remote working solutions like video-conferencing skyrocketed amid the pandemic. More and more people have become dependent on Zoom for business, education and personal usage as government officials directed people to stay at home around the world.



FURTHER READING



<a href="https://www.forbes.com/sites/sergeiklebnikov/2020/08/31/stocks-just-had-the-best-august-since-1984-but-history-shows-trouble-is-on-the-way/">Stocks Just Had The Best August Since 1984, But History Shows Trouble Is On The Way</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/sergeiklebnikov/2020/08/31/billionaire-leon-cooperman-warns-investors-of-stock-market-euphoria-and-shares-three-big-risks-to-an-economic-recovery/">Billionaire Leon Cooperman Warns Investors Of Stock Market ‘Euphoria’ And Shares Three Big Risks To An Economic Recovery</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/sergeiklebnikov/2020/08/28/us-tech-stocks-are-now-worth-more-than-9-trillion-eclipsing-the-entire-european-stock-market/">U.S. Tech Stocks Are Now Worth More Than $9 Trillion, Eclipsing The Entire European Stock Market</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/sergeiklebnikov/2020/08/28/heres-why-a-tiktok-deal-makes-sense-for-walmart/">Here’s Why A TikTok Deal Makes Sense For Walmart</a> (Forbes)



-Sergei Klebnikov, Forbes Staff

In this photo illustration a Zoom Video Communications logo

Zoom Stock Skyrockets Over 40% After Blowout Quarter, And It Expects To Keep Rising

Topline:&nbsp;Following his annual letter to Berkshire Hathaway shareholders over the weekend, billionaire investor Warren Buffett told CNBC in an&nbsp;<a href="https://www.cnbc.com/2020/02/24/warren-buffet-interview-live-updates.html" target="_blank" rel="noreferrer noopener">interview</a>&nbsp;on Monday that the coronavirus is “scary stuff” for businesses and investors, but that the outbreak has “not changed” his long-term optimistic outlook on stocks.



<ul class="wp-block-list"><li>Stocks plunged on Monday, with all three major U.S. benchmark indexes <a href="https://www.forbes.com/sites/sergeiklebnikov/2020/02/24/markets-plunge-dow-drops-900-points-as-global-coronavirus-outbreak-worsens/#353cf5f46658">losing more than 3%</a>, as a rising number of coronavirus cases outside of China stoked fears that the outbreak could turn into a global pandemic.</li><li>Speaking with CNBC on Monday morning, Buffett <a rel="noreferrer noopener" href="https://www.reuters.com/article/us-berkshire-buffett/warren-buffett-calls-coronavirus-outbreak-scary-stuff-but-says-he-wont-be-selling-stocks-idUSKCN20I1AB" target="_blank">called</a> the coronavirus “scary stuff,” saying that the outbreak is now “front and center” the main threat to U.S. companies and the economy.</li><li>He further <a rel="noreferrer noopener" href="https://www.cnbc.com/2020/02/24/warren-buffett-says-us-economy-is-strong-but-a-little-softer-than-it-was-6-months-ago.html" target="_blank">warned</a> that a “very significant percentage” of Berkshire Hathaway’s businesses—it owns more than 90, from American Express and Coca-Cola to Geico and Dairy Queen—could “very well” be negatively impacted by the coronavirus, though he remains optimistic about their long-term prospects.</li><li>More broadly, Buffett said that the U.S. economy is <a rel="noreferrer noopener" href="https://www.cnbc.com/2020/02/24/warren-buffett-says-us-economy-is-strong-but-a-little-softer-than-it-was-6-months-ago.html" target="_blank">still “strong,”</a> though it had become “a little softer” than it was six months ago: “Business is down but it’s down from a very good level,” he described. </li><li>Despite the coronavirus’ impact on markets, Buffett, who is famous for his long-term  investing, <a rel="noreferrer noopener" href="https://www.cnbc.com/2020/02/24/warren-buffett-doesnt-worry-how-current-events-will-affect-the-market.html" target="_blank">said</a> that investors shouldn’t panic by selling stocks based or get caught up in “today’s headlines.” </li><li>The Oracle of Omaha actually sees a positive in the ongoing market sell-off, <a rel="noreferrer noopener" href="https://www.cnbc.com/2020/02/24/warren-buffet-interview-live-updates.html" target="_blank">telling</a> CNBC that Berkshire Hathaway would “certainly be more inclined” to buy stocks at the lower prices caused by the coronavirus.</li></ul>



 What to watch for: Buffett also <a rel="noreferrer noopener" href="https://www.cnbc.com/2020/02/24/warren-buffett-says-apple-is-probably-the-best-business-i-know-in-the-world.html" target="_blank">spoke</a> to CNBC about some of his favorite investments right now. He called Apple, which is Berkshire Hathaway’s third-largest holding (with a roughly 5.5% stake) behind insurance and railroad companies, “probably the best business I know in the world.” Buffett added that he especially likes bank stocks, which are a big part of Berkshire Hathaway’s portfolio—with big names like Goldman Sachs, JPMorgan Chase and Bank of America among its top holdings. Buffett <a rel="noreferrer noopener" href="https://www.cnbc.com/2020/02/24/warren-buffet-interview-live-updates.html" target="_blank">called</a> banks “very attractive compared to most other securities I see.”  



Surprising fact:&nbsp;Buffett also recently spoke about the coronavirus to his “science advisor,” billionaire Microsoft founder Bill Gates: “I talked to him in the last few days about it, and he’s bullish on the long-term outlook for a universal prevention of it,” he&nbsp;<a href="https://www.cnbc.com/2020/02/24/warren-buffet-interview-live-updates.html" target="_blank" rel="noreferrer noopener">said</a>.



Crucial quote: “We’re buying businesses to own for 20 or 30 years,” Buffett, who Forbes estimates has a <a href="https://www.forbes.com/profile/warren-buffett/#3a87d5e14639">net worth</a> of $87.3 billion, <a rel="noreferrer noopener" href="https://www.cnbc.com/2020/02/24/warren-buffet-interview-live-updates.html" target="_blank">said</a> on CNBC. “We think the 20- and 30-year outlook is not changed by the coronavirus.”



Key background:&nbsp;Stocks&nbsp;<a href="https://www.forbes.com/sites/sergeiklebnikov/2020/02/24/markets-plunge-dow-drops-900-points-as-global-coronavirus-outbreak-worsens/#353cf5f46658">plummeted sharply</a>&nbsp;on Monday, amid news that the coronavirus outbreak has now infected more than 79,000 people globally and killed over 2,600. The number of cases outside of China surged over the weekend, causing concern among global investors as countries like Italy, South Korea and Iran emerge as new coronavirus hot spots. The Dow Jones industrial average fell more than 1,000 points, dropping 3.5% for its worst day since February 2018. The S&amp;P 500 similarly fell 3.5%, its worst drop since October 2018. Monday’s sell-off completely erased both indexes’ gains so far in 2020. The Nasdaq Composite index, on the other hand, declined 4%.&nbsp;



Tangent:&nbsp;Buffett was also asked about U.S. politics during his&nbsp;<a href="https://www.cnbc.com/2020/02/24/buffett-on-bernie-sanders-us-can-do-better-for-those-left-behind-but-cannot-kill-capitalism.html" target="_blank" rel="noreferrer noopener">interview</a>. The billionaire investor said he would “certainly” vote for Mike Bloomberg. “I don’t think another billionaire supporting him would be the best thing to announce,” Buffet&nbsp;<a href="https://www.cnbc.com/2020/02/24/buffett-on-bernie-sanders-us-can-do-better-for-those-left-behind-but-cannot-kill-capitalism.html" target="_blank" rel="noreferrer noopener">said</a>, “but sure, I would have no trouble voting for Mike Bloomberg.” While he said he sympathizes with Democratic front-runner Senator Bernie Sanders’ (I-Vt.) message about income inequality, Buffett doesn’t think socialism is the answer,&nbsp;<a href="https://www.cnbc.com/2020/02/24/buffett-on-bernie-sanders-us-can-do-better-for-those-left-behind-but-cannot-kill-capitalism.html" target="_blank" rel="noreferrer noopener">saying instead</a>, “I don’t believe in giving up the capitalist system.”



Further reading: <a href="https://www.forbes.com/sites/sarahhansen/2020/02/22/buffetts-letter-to-berkshire-shareholders-reveals-5-billion-in-stock-buybacks-and-plans-for-his-berkshire-stake/#140c5c2d39d4">Buffett’s Letter To Berkshire Shareholders Reveals $5 Billion In Stock Buybacks And Plans For His Berkshire Stake</a> 



&#8211;<a href="https://www.forbes.com/sites/sergeiklebnikov/">Sergei Klebnikov</a>, Forbes Staff, <a href="https://www.forbes.com/markets">Markets</a>.

Conference On Issues Affecting U.S. Capital Markets Competitiveness

Here’s What Warren Buffett Says About The Coronavirus And His Outlook On Stocks

European equities may be close to a bottom as bearish investors price in a sharp economic slowdown and a flurry of political risks such as Brexit, asset manager BlackRock said in a note on Wednesday.



“Given the significantly bearish sentiment and positioning towards European equities, we could be nearing the point of maximum pain for the European market, particularly if fundamentals stabilize and improve from here,” wrote Nigel Bolton, who heads the BlackRock European Equity Team.



While Bolton saw “opportunity” for a “gentle increase” in European growth this year, he warned that company results could nevertheless disappoint, flagging risks of earnings downgrades across the market, particularly in leveraged companies. -Reuters



-Julien Ponthus

RC17DB6F8DE0

European Stocks Nearing ‘Point of Maximum Pain’ – Blackrock

Gold climbed to a seven-month high on Tuesday as markets opted for caution before three major macro events and a blizzard of big tech company earnings in the coming days, starting with Apple later. 



Despite the upcoming action &#8211; a key Brexit vote in the UK , Wednesday’s U.S. Federal Reserve decision and Thursday’s conclusion of the latest Sino-U.S. trade talks &#8211; European and Asian stocks held up relatively well.



London’s FTSE rose 1 percent and Frankfurt and Paris both made some ground. Utilities and other safety plays benefited from a series of U.S. profit alerts, including from digger maker Caterpillar, overnight.



News that the U.S had leveled charges against China’s telecom giant Huawei days before the next round of trade talks between Washington and Beijing knocked sentiment.



But it was offset by promises of more economic stimulus from China, which had berated Washington on Monday for blocking the appointment of judges for its World Trade Organisation appeal against U.S. tariffs.



Amid the turmoil, gold broke through $1,300 an ounce to reach its highest since mid June.



“Investors are very cautious with many uncertainties on U.S.-China trade talks and Brexit. Huawei is at the center of dispute, creating very noisy background for the trade talks,” said Margaret Yang, a market analyst at CMC Markets.



“All these are making it more difficult for investors to judge the market’s direction. Money is fleeing into assets such as gold, seeking safety.” ,”



The U.S.-Sino moves, as well as bets that the U.S. Fed will sound more cautious on Wednesday, kept the dollar near a two-week low and heightened the safe-haven appeal of the Japanese yen and the Swiss franc.



Sterling held at $1.3166 and 86.88 pence to the euro before crucial votes later in the day aimed at breaking a deadlock in the UK parliament over Brexit .



The pound has rallied 6 percent from Jan. 4 lows, but further gains may be limited unless lawmakers emerge with a big majority on the votes.



Most European government bond yields were little changed. Weaker economic data and unknowns like the trade feuds and Brexit have all boosted expectations that interest rates will stay low.



New debt deals from Greece, Belgium and Austria were also in the pipeline. The slide in rates has also encouraged governments to launch new bond deals. Even Angola, which has just taken IMF aid, said it was eyeing a bond sale.



In Asia, shares were mixed, with losses for Australia and New Zealand, with their benchmark indices down 0.5 percent and 1.2 percent respectively. Japanese and Chinese stocks both recovered from early wobbles to finish in the green.



<h4 class="wp-block-heading">WARNING BELLS</h4>



Markets will have more catalysts this week with over 100 of the S&amp;P500 companies reporting results, including Amazon, Apple and Facebook.



Overnight on Wall Street, the Dow and S&amp;P 500 each closed down 0.8 percent and the Nasdaq was off more than 1 percent.



The losses came after Caterpillar and Nvidia Corp joined a growing list of companies cautioning about the crippling effects of softening Chinese demand.



World markets slip on China worries; dollar steady ahead of trade talks



“Both companies are seen as industry bellwethers, and their disappointing results provide further evidence that this time China’s slowdown is for real,” said Rodrigo Catril, Sydney-based strategist at National Australia Bank.



Worryingly, earnings at China’s industrial firms too shrank in December, pointing to more troubles for the country’s vast manufacturing sector, which are already struggling with a decline in orders, job layoffs and factory closures.



Oil recovered after overnight losses. U.S. crude was last up 35 cents at $52.34 a barrel; Brent gained 37 cents to $60.30.



Washington imposed sanctions on Venezuelan state-owned oil company PDVSA on Monday, a step that is likely to curb its crude exports to the U.S. and ratchet up the pressure on President Nicolas Maduro. -Reuters



-Marc Jones

Gold Bar Casting At Valcambi SA Precious Metals Refinery

Gold Reaches Seven-month High as Stocks, Dollar Struggle

Traders will be glad to see the back of 2018. Nearly $7 trillion has been wiped off world stocks, emerging markets have been trampled flat by a charging dollar and even gold and U.S. government bonds have lost money. 



A grisly combination of U.S.-China trade tensions, central banks turning off the money taps and cooling growth in former hot spots has wiped 10 percent off MSCI’s 47-country world stocks index .MIWD00000PUS — its first double-digit loss in any year since the 2008 global financial crisis.



Many places have fared far worse. Top Chinese shares&nbsp;<a href="https://www.reuters.com/finance/markets/index?symbol=.CSI300">.CSI300</a>&nbsp;have fallen 25 percent into &#8216;bear&#8217; territory, export bellwether Germany&nbsp;<a href="https://www.reuters.com/finance/markets/index?symbol=.GDAXI">.GDAXI</a>&nbsp;has shed 16 percent, and Turkey and Argentina have led emerging markets losses, down 45 and 50 percent respectively.



Add in a wild 35 percent plunge in oil prices LCOc1 since September, rises in Italian, Greek and now French borrowing costs that show euro zone worries remain alive, and a full scale cryptocurrency collapse, and it has been unequivocally brutal.



“After 10 years of low interest rates and quantitative easing I think we have to understand how some of this leverage in the market can unwind,” said Allianz Global Investors fund manager and global strategist Neil Dwane.



“What was a virtuous circle on the way up can become a vicious one on the way down.”



A fair bit of the year’s pain has stemmed from swift move up in U.S. interest rates and a pumped-up dollar .DXY, which has had its best year in three years.



As a result, the euro&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=EUR&amp;destCurr=USD">EUR=</a>, pound&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=GBP&amp;destCurr=USD">GBP=</a>, Canadian and Aussie dollars&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=CAD&amp;destCurr=USD">CAD=</a><a href="https://www.reuters.com/finance/currencies/quote?srcCurr=AUD&amp;destCurr=USD">AUD=</a>&nbsp;and Swedish crown&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=SEK&amp;destCurr=USD">SEK=</a>&nbsp;have all lost between 5 and 10 percent and though the Japanese yen&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=JPY&amp;destCurr=USD">JPY=</a>&nbsp;comes out largely unscathed, emerging markets certainly haven&#8217;t.



Argentina&#8217;s peso&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=ARS&amp;destCurr=USD">ARS=</a>&nbsp;and Turkey&#8217;s lira&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=TRY&amp;destCurr=USD">TRY=</a>&nbsp;have slumped 50 and 30 percent, while India&#8217;s rupee&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=IDR&amp;destCurr=USD">IDR=</a>, South Africa&#8217;s rand&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=ZAR&amp;destCurr=USD">ZAR=</a>, Brazil&#8217;s real&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=BRL&amp;destCurr=USD">BRL=</a>&nbsp;and Russia&#8217;s rouble&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=RUB&amp;destCurr=USD">RUB=</a>&nbsp;are all down between 10 to 15 percent. China&#8217;s yuan CNYUSD=R is in the red for a fourth year in five.



Emerging market shares meanwhile have hemorrhaged almost 17 percent .MSCIEF and JP Morgan&#8217;s EM local currency bond index has lost nearly 8 percent.&nbsp;<a href="http://tmsnrt.rs/2egbfVh">tmsnrt.rs/2egbfVh</a>



Dalton Investments emerging market portfolio manager Pedro Zevallos said the big falls meant many markets, including China were now cheap. “But right now it honestly feels like catching a falling knife.”



“And my concern going into next year is that the dollar will continue to strengthen.”



<h5 class="wp-block-heading">TECH PROBLEMS</h5>



As well as the escalation in global trade tensions this year there has been the realization among investors that the big central banks aren’t thinking about stimulating the economy anymore — they’re trying to rebuild their arsenals in case of recession.



But the year hasn’t been a complete write-off everywhere.



While the S&amp;P 500 and Dow Wall Street bellwethers are down the most since 2008, at around 5 percent their losses aren’t too bad, while the tech-heavy Nasdaq .NDX is clinging on for its 10th consecutive year of gains.



The FAANGs (Facebook, Amazon, Apple, Netflix and Google) have had rollercoaster year. As a group, they are ending 2018 worth roughly $2.8 trillion — more or less where they started it, but down some $800 billion or 24 percent from their late August peak.



There has been a big parting of the ways too. While Amazon (<a href="https://www.reuters.com/finance/stocks/overview?symbol=AMZN.O">AMZN.O</a>) and Netflix (<a href="https://www.reuters.com/finance/stocks/overview?symbol=NFLX.O">NFLX.O</a>) have surged 33 and 45 percent, repeated scandals over data misuse and fake news propagation have slashed 19 percent off Facebook (<a href="https://www.reuters.com/finance/stocks/overview?symbol=FB.O">FB.O</a>) shares.



Asia, Europe stocks slide after Fed rate hike



Asia’s equivalent BAT group, made up of Badia (<a href="https://www.reuters.com/finance/stocks/overview?symbol=600865.SS">600865.SS</a>), Alibaba (<a href="https://www.reuters.com/finance/stocks/overview?symbol=BABA.K">BABA.K</a>) and Tencent (<a href="https://www.reuters.com/finance/stocks/overview?symbol=0700.HK">0700.HK</a>), have all down somewhere between 18 and 25 percent.



<h5 class="wp-block-heading">CRYPTOCOLLAPSE</h5>



With China also the biggest consumer of industrial commodities, its misfiring economy has contributed to the respective 17 and 23 percent declines in the price of copper CMCU3 and zinc CMZN3, used in things like pipes and galvanized steel.



The big cryptocollapse has seen Bitcoin&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=BTC&amp;destCurr=USD">BTC=BTSP</a>&nbsp;crash 72 percent. There are now over 2,000 other digital currencies in circulation but their value has plummeted to $128 billion from over $800 billion in January.



But even traditional safe-havens have failed to provide much in the way of protection.



Another four U.S. interest hikes have cost Treasury bond holders US10YT=RR nearly 2 percent despite a better last few months and the euro’s fall puts German Bunds down 2.3 percent in dollar terms. Gold is 4 percent less precious.



Italy’s government bonds meanwhile have plunged 9 percent after an anti-establishment government took charge in Rome and the European Central Bank confirmed its huge bond-buying program will end this year.



“The question as we look into 2019 and 2020 is how much worse the trade/tech cold war and Brexit get,” Allianz’s Dwayne said. “That could tells us that maybe we are not going to see a traditional downturn but a significant one.” -Reuters



&#8211; Marc Jones

gettyimages-645015088-170667a

Markets suffer worst year since global financial crisis

Exchange-traded funds (ETFs) are one of the greatest financial innovations in recent years. ETFs, which are essentially investment funds traded like other securities on securities exchange, much like stocks, have enjoyed remarkable success since being introduced in the 1980s. The global ETF industry, and its related products, is now estimated to have assets worth $2.6 trillion listed on 61 exchanges. Not to be left behind, Africa has steadily been growing its share in this burgeoning industry. Currently, there are six nations offering ETFs: South Africa, Botswana, Ghana, Nigeria, Egypt and Namibia. South Africa, a long-time leader in this area, has 34 ETFs ranging from those based on indexes to those based on commodities.
Kenya, through the Nairobi Securities Exchange (NSE), is seeking to become the latest entrant. In a bid to raise its profile, the Capital Markets Authority (CMA) of Kenya has been planning to launch the new product since July 2013. Partly aimed at attracting foreign investors, the expected launch comes at a time when the local equity market is increasingly attracting international investor interest. As the global markets become increasingly correlated, forcing portfolio managers around the world to become more familiar with frontier markets such as Kenya’s, it appears the new product is set to meet ready demand.
NSE’s Head of Market and Product Development, Donald Ouma, says that ETFs will be an affordable form of investment for retail investors as they give broad exposure to equities without having to spend a huge amount of cash. The new product promises to give investors the ability to track indices of various stocks spread out in various countries that would otherwise have been expensive or tricky to come by before.
Furthermore, ETFs are expected to improve liquidity of the overall market which currently spots turnover rates lower than 10%. The low fee structure also means benefits from the relatively lower expense ratios are passed to the investor. Locally, the average mutual fund charges an advertised management fee of 2%. The new product is also set to give easy access to alternative assets such as oil, gold and currencies. The latter could have come handy this year as the local currency lost nearly 5% of its value against the US dollar.
However, limited available exposure could leave potential growth opportunities out of reach of ETF investors. Since the NSE’s main index is still limited to a small number of stocks, ETF promoters may find it challenging to achieve a respectable scale. Another potential roadblock could be slow retail acceptance. According to the Ernst &amp; Young, EY Global ETF Survey: 2015 and beyond, outside the US, the ETF industry’s biggest long-term challenge is low retail adoption. With no way around this, acceptance by retail investors will certainly take time to realize despite huge potential for retail growth. Nevertheless, the benefits outweigh the challenges.
In the initial years, I see Kenya’s ETF industry dominated by very large funds and issuers such as the FTSE Group. The latter, which already has two off-shore NSE-based tradable indexes; FTSE NSE Kenya 15 Index and FTSE NSE 25 Index, plans to list its FTSE-based indexes. South African group, Absa Capital, is said to be in talks with CMA and NSE to list its gold-backed ETF, the New Gold ETF. More large-scale issuers are likely to enter the market. Ultimately, this will strengthen the industry’s outlook by giving investors a broader choice of ETF promoters and product range.
Moving forward, as the growing wave of international interest continues to focus on markets like Kenya, certain key factors will be crucial to ensure the success of the new industry; price transparency, education, investor engagement, patience, liquidity and technology. If ETFs are to fulfil their undoubted potential for long-term growth, all the stakeholders need to ensure that these building blocks are in place. If this happens, then NSE-listed ETFs could easily revolutionize the securities markets in the region.

Revolutionary  And Rewarding

You know times are tough when a star player exits the game. Those who play stocks agree that a move like this is not a good omen.
So when Centum, a listed investment company, announced in November last year that it had reduced its holdings at the Nairobi Securities Exchange (NSE), everyone stopped to listen.
In March 2011, Centum Investments, which invests in both listed and unlisted companies in the East African region, cut its exposure at the NSE from 23.6% to 9.1% of its total portfolio of $170 million and expanded its property investments by $11.8 million.
The move was to cushion its $170 million asset base as the stock market suffers from the jitters over a gloomy economic outlook in East Africa’s biggest economy and fears of political instability ahead of a general election later this year.
Centum’s investments at the NSE were punished with a 6.6% drop in half-year net profit for the six months, ending September 2011. In January this year, British American Investment Company began reallocating its assets to real estate to cut its reliance on the NSE.
2011 was a bad year for stock investors in Kenya, with the NSE dropping 31.4% by end of December, sending both institutional and retail investors scampering for safety. High inflation—which peaked at 19.72% in November but eased to 18.3% in January—along with severe drought, a weak shilling and turmoil in Western economies, resulted in the panic selling of stocks, which depressed the market.
Prices have remained low for the most part, while some have fallen to historic lows. The NSE was rated the second worst stock exchange performer in 2011, second only to the Egyptian bourse, which was down 47.2% due to political upheaval that toppled Hosni Mubarak.
“Institutional shareholders have been trashed in the bond market. The spike in the inflation rate, the excessive volatility of the Kenya shilling and a behind-the-curve Central Bank [of Kenya] have impaired the bourse,” says Aly Khan Satchu, CEO of Rich Management, an investment company based in Nairobi.
Kenyan billionaires in shilling terms, with huge stakes in the stock market, have seen their fortunes mauled by the bears. Investors lost an estimated $4.5 billion in the 12 months to December 31, 2011, as market capitalization shrank from $14.5 billion on January 1, 2011, to $10.1 billion at the end of the year.
But the six months between February and August suffered the deepest dip. Within the period, Chris Kirubi, one of the top investors at the NSE with 26.8% of Centum, lost about $7.7 million on the counter after the firm’s share fell 20% in the six months to August. Equity Bank CEO James Mwangi lost $20 million in the six months that saw the bank’s stock shrink by 30%.
Naushad Merali, the chairman of Sameer Group of Companies and ranked one of the wealthiest at the NSE, lost $6.2 million from his three listed companies—Sameer Africa, Sasini and Eveready East Africa—which fell 24%, 5% and 25% respectively, during the six months.
Most investors are shifting to less risky and now lucrative Treasury bills and bonds, as government increases borrowing to finance its budget. A sharp rise in interest rates, after the Central Bank of Kenya (CBK) raised its policy lending rate to an unprecedented 18% to tame inflation and buoy the weak shilling, is also squeezing money out of investors and limiting cash flow to the stock market.
Commercial banks have raised lending rates to above 22% in recent weeks, while CBK has steadily raised the coupon rates on Treasury bill and bond issues to attract investors. The coupon rate on the two-year bond, for instance, jumped to 22.8% in November from 16.5% in October, as investors bid for higher returns to hedge against rising inflation that touched a new high of 19.7% in November.
If the impact of two new listings at the NSE in the third quarter—Transcentury Limited and British American Insurance Kenya Limited (BRITAK)—is any guide, the chill at the Nairobi Stock Exchange is deep-seated. The BRITAK initial public offering (IPO) attracted a subscription of 60%. Analysts say this is an indication that investors are still skittish about stocks. Both Transcentury and BRITAK closed the year down 50% and 67.2% lower than their offer prices.
With an election year in 2012, there’s every reason for investors to be pessimistic. Most investment analysts project a sustained market recovery in 2013 after the elections.

Tag: Stocks

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