The domestic bourse ÔÇô the Botswana Stock Exchange (BSE) ÔÇô revealed this week that efforts of widening and deepening the exchange are at an advanced stage. The BSE is looking forward to doing that by diversifying its product offering through the introduction of Exchange Traded Funds (ETFs).
Briefing the media on Thursday, the Chief Executive Officer of the BSE, Hiran Mendis, said ETFs would play a critical role in the development of capital markets. He said expectations are that ETFs would ease the problem of liquidity in the market and equally deepen it.
“Market capitalization is comparatively high but the liquidity is very low. Our turnover to market capitalization is around 3% – a comparatively lower figure to that of the Johannesburg Securities Exchange, which stands at 36%. There is a lot of work to be done if we are to improve the situation,” he noted.
Amongst key areas that ought to be harnessed are the country’s key competitive advantages of stability (politically and economically) and liberalized capital account. Already, the BSE has joined hands with the Botswana Insurance Fund Management (Bifm) to sensitise stakeholders about the value of ETFs. The conference would be held on the 3rd of April in Gaborone.
Bifm CEO, Victor Senye, emphasized the importance of the ETFs, saying they would bring the necessary diversity and tradability to the bourse.
“Right now there is little tradability because most of the participants are just buying and holding and that may, in the process, prejudice some of the companies,” said Senye. Through these new products, Senye said dependence on institutional investors would be reduced and there is a likelihood of wetting the appetite of retailers and individuals, in view of the fact that ETFs are generally priced competitively.
In the past, lack of liquidity on the BSE has been blamed on lack of availability of broad based products. In demonstration of starvation, products that have been listed (particularly bonds) have been over-subscribed. The other blame has been that companies listed on the bourse have only floated the bare minimum ÔÇô around 20%, and holding the remaining chunk deprived homage to a lot of money. This saw pension fund administrators flighting capital offshore to look for homes for the money under management. Mendis acknowledged the limited free float in the market, but said it is equally an opportunity to allow the bourse to introduce more new products in order to balance the lever.
“It is not desirable to have like-minded participants in the market, so we cannot only rely on the listed companies to float more. We need to have a balance between the market players and these calls for attraction of new products and players. We should attract institutional investors as well as retailers and foreign investors in order to achieve a balance,” he explained.
Once more players and products are attracted, Mendis said there would be an increase in velocity of turnover. Of the current listed entities, it is estimated that over 70% is largely weighted in favour of the financial sector and about 90% of traders are fund managers or institutional investors.