Ignorance blamed on stock slump

September 17, 2008
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, NAIROBI, September 17 – The lack of proper investor education may be to blame for the share-price slump in the stock market, according to experts.

Investment Analyst Aly Khan Satchu said there is need for a concerted effort by players in the industry to educate the public on the fundamentals of stock trading, and insists that unless this is done the market will be controlled more by speculation as opposed to fundamentals.

“Look at the Safaricom share, it is grossly underperforming and not because the company is not doing well but because the buying and selling habits of investors are based on hearsay,” he emphasised.

The market, which in the last two years has experienced phenomenal growth stimulated by the advent of Initial Public Offerings (IPO), has seen the number of investors rise to about 1.5 million.

However, despite this increase in numbers there has been little effort to educate the public on the fundamentals of running of the stock market.

Satchu feels the Capital Markets Authority and the Nairobi Stock Exchange need to spearhead this initiative as soon as possible if the current situation in the NSE is to improve.

“If you factor the over Sh3 billion refund for the KCB rights issue, you cannot deny that there is liquidity in the system that is not being translated into the stock market operations,” Satchu noted.

Previously, the bourse has intimated plans to conduct investor education in line with the demutualisation process that is ongoing, but this is yet to pass.

Meanwhile, Satchu said the precarious state of the global financial markets may not directly impact Kenyan stock. He noted that no Kenyan companies were listed on any of the major stock exchanges in the world. The analyst pledged that the current financial systems in the country are quite secure and well regulated.

“Our current banking system is what I would call the plain vanilla banking system, of borrowing at very low rates and lending at an extremely high rate. They do it quite well, and make a lot of money,” he explained.

What happened in America, he said, was a case of giving a lot of loans and then pooling them together and imagining that the risk would be less. This did not necessarily turn out to be true and now everything is tumbling down, he exclaimed.

“However, in our case, the chance of this systemic risk is quite low,” Satchu noted.

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