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 Chief Executive Officer, Herin Mendis, admitted on Friday there is an increased gap between borrowing and saving in the country, which is made worse by lack of investment avenues for individual investors.
“There is limited reach of the BSE,” he said at household savings forum organised by Botswana Guardian.
“Individual investors get crowded by institutional investors and (which leads to) low levels of liquidity on the BSE.”
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.
Mendis noted the distribution of turnover by the retail investors show that over 71.4 percent are based in Gaborone, 5.1 percent in Selebi Phikwe and 2.8 percent in Francistown.
Surprisingly, Gantsi, known for being home to the best cattle farmers in the country, is nil. Mendis believes the tide can be reversed with the recent full automation of the stock market as the outreach will be increased.
“It is an equation that will take time,” Mendis said, referring to the continuous bossing of the market by pension and insurance funds.
With a goal to diversify investors, the BSE, warn that the thinking of the market participants will also need to change.
“There is a lot to be done to educate the public on the positives and negatives of investing,” said Mendis.
The BSE, although popular in Gaborone, an area populated with more literate people as compared to the rest of the nation, is open to all investors; large and small. Lack of education has often been another stumbling block with rich cattle owners deciding to keep the status quo.
The exchange has embarked on road shows and participated in trade fairs as part of taking the message to the public. It has also sent a message out to schools in a bid to encourage them to visit the stock market.
BSE is also translating publications into Setswana and made presentations at various institutions. The exchange also reports to be working on other innovations that will work as an incentive for retail investors.
One of the muted products is Security Borrowing and Lending (SBL) that will allow shares to change hands between pension fund managers and retail investors.
The move will address a situation as to how pension frees liquidity as they normally invest for the long term ‘and dry out liquidity’.
Under SBL, Botswana Stock Exchange will encourage borrowing and lending of securities, which Mendis hoped will ‘enhance liquidity’.
The Gaborone-based stock exchange is also muting the idea of opening branches that ‘will act as magnets’ around the country with Francistown a possibility in the near future.
Its products and services, including Exchange Traded Funds (ETFs), bonds and equities are normally a preserve of people with knowledge and background education.
Liquidity is a major issue as it tends to be limited to the domestic company index because of its proximity. “If we can get foreign companies to perform, the BSE will be a different place”.
Bonds are currently a major challenge for the exchange as they are difficult to trade while ETFs have made good impression.
The other products that BSE could develop include more ETFs to add to New Gold and Beta Beta and the Global Depository Receipts, which will give local investors exposure to international stocks.
The other muted products are Real Estate Investment Trusts (REITs) and Contracts For Difference (CFDs) ÔÇô in the long term
However, last year was one of the most exciting for the BSE as there was more Initial Public Offering (IPOs) more than any other year. In terms of raising capital, investors raised P700 million in new listing, including Choppies, which listed this, but its IPO was done last year. Companies normally approach pension funds before listing as a way of private placements.