At a time when household indebtedness is a big debate, Botswana Stock Exchange (BSE) has conceded that it is institutional investors, precisely Pension Funds that crowd the tiny bourse. This, therefore, stifles small investors, a group that is normally blamed for lack of investment and savings culture.
Critics have often described the stock market as the ‘rich club’ with a number of Batswana in the countryside locked-out as institutional investors run the show by buying and keeping stocks and, as a result, drying liquidity.
The level of liquidity on the local bourse is less than the one of Mauritius, which is Botswana’s competitor apart from JSE, the largest in the region.
BSE outgoing Chief Executive Officer, Herin Mendis, admitted on Wednesday when appearing before the parliamentary committee that oversees statutory bodies that local bourse still continues to face liquidity problems.
Pension funds account for 50 percent of the total turnover on the exchange and the gap seems to be widening, unless something drastic is done. When retail investors participate, the participation is limited to urban areas.
It has also emerged that Bonds are currently a major challenge for the exchange as they are difficult to trade while ETFs have made good impression.
Characterized by lower levels of liquidity, Mendis says the BSE intends to introduce new products, like the Global Depository Receipts (GDRs), to help improve liquidity.
GDRs are transferable securities representing ownership of a given number of shares of a company (a company whose shares are listed in a stock exchange and underline a GDR) and issued by a custodian.
By listing GDRs, the BSE will offer local investors an opportunity to diversify their portfolios through foreign investments without having to bear most of the operational and custodial constraints, which are normally associated with such cross border transactions.
To improve the selling and buying of shares the stock exchange continues to make public presentations and exhibitions coupled with a media engagement and providing easy to understand publications. The initiatives are intended to increase the participation of investors in the local bourse.
The BSE figures indicate that the contribution to turnover of foreign companies and individual investors in the stock exchange is dismally low which is recorded at 29 percent and 2.4 percent respectively in the first half of 2015. In comparison to 2013 the figures reflect a insignificant difference however the contribution of foreign companies to turnover improved in 2014 while that of foreign individuals plunged. Local companies on the other hand have shown a buoyant contribution to the total turnover between 2013 and the first half of 2015.
In 2014 however the upbeat contribution declined to about 47 percent from about 60 percent in 2013 but conversely increased to 66 percent in the first half of 2015. The contribution of local investors reflects a declining trend from 8.7 percent in 2013 to 2.6 in the first half of 2015.