Tuesday, February 06, 2007

Kenyan bubble

Good report from the Guardian on the new and booming stock market in Kenya, which is showing all the symptoms of a bubble:

Kenya has gone share crazy. The incredible performance of the Nairobi Stock Exchange (NSE) - which is next to the public auditorium and provides the live share-price feed - is the talk of the country. From 2002 to 2007, the main NSE index rose 787% in dollar terms, according to Standard & Poor's, the investment research firm, making it one of the world's best-performing markets[...]
Stories of overnight wealth creation have created a huge frenzy for shares from people who have never invested in the stock market before. When KenGen, the state's biggest electricity company, listed its shares last year, there were queues at brokerages all over the country. Local media reported how small-scale farmers were selling their cattle to buy the shares. Banks suddenly offered "share loans" to people who had been considered unworthy of credit[...]
The Kenya Association of Stockbrokers said the success of the new listings meant that close to a million Kenyans now owned shares. Amish Gupta, chairman of the association, said: "Suddenly we have got the mass market buying stocks, not just the elite." Most new investors today are aged between 22 and 40, he added. "Savvy men and women looking for quick returns."

The bubble seems to be driven not so much by a loosening of credit, as is often the case, but by the abandonment of traditional saving methods, as well as remittances by expats:
vast sums of money have poured in from the diaspora; not just to sustain families, as before, but also to invest, helping the NSE index burst through 6,000 points for the first time.[...]
Historically, most people with spare cash kept it under the mattress. Wealthier individuals bought livestock, opened a stall selling clothes or mobile phones, bought a matatu minivan taxi or, most popular of all, purchased property.

When the bubble bursts, as it will, it'll hit hard, with the potential for serious political upset.

On a vageuly related note of investment trends and political worries (and not worth a post of its own), the Guardian also has a vaguely handwringing full-page feature on 'The rise and rise of private equity', something it takes as synonymous with big take-private deals. Take-privates have come in and out of fashion for many years now, and I've lost count of the number of times I've been told all the low-hanging fruit on the public markets have already been picked off. The current trend for big deals just reflects the weight of money held by the PE houses - whether the economic effects are good or bad remains to be seen.

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