Thursday, 14 November 2013 00:54
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By Shabiya Ali Ahlam
While business people are facilitated by the capital market, wealth creation is facilitated best by long term capital markets.
“In developing countries, the capital markets continue to be a significant player to the growth of capital simply because the resources can be mobilised as sources for investment,” said Equity Bank Group Managing Director/CEO Dr. James Mwangi, while kicking off a session that aimed at providing fine insights on developing capital markets in emerging economies.
Commonwealth progress
Focusing on the progress in this sphere in the Commonwealth region, London Stock Exchange Senior Manager India, Pakistan, Middle East and Africa Ibukun Adebayo said he is surprised by the ability of the member countries in using the capital markets to drive their economies. “I want to really categorise by saying that in the Commonwealth countries such as the UK, South Africa, Australia, and Canada, the characteristics of the companies in the stock market are the constitutional cause of capital. Those countries give about 90% of world’s listed companies,” he expressed.
Moving away from the developed markets, Adebayo noted there is a phenomenal growth story across South Asia. He recalled that back in the early 2000, the Indian Stock Exchange capitalised over $ 300 billion. Today it is much closer to $ 1.4 trillion and is close to reaching the magic ratio of having 100% of its economy matched by the market capitalisation.
The other success story Adebayo pointed out is the success of Pakistan as it still continues to be one of the highest yielding markets in terms of dividend yield. This is said brings exceptional. In Africa he said the situation is the same as the country has shown an average consistent growth of 5.5% over the years.
A long way to go
Highlighting the progress of Sri Lanka, Colombo Stock Exchange Chairman Krishan Balendra noted that the nation has a long way to go in terms of capital markets as it has a cap of just 30% of GDP, which is low comparing countries such as Singapore and Malaysia, which have a cap of 200% of their GDP.
“There is a lot of room for growth, and the market doesn’t represent the economy,” he told the audience. However, Balendra pointed out that the valuations are attractive and corporate earnings are noted to be strong. Moreover the Price Earnings (PE) ratios he said indicate that the market is attractive when compared to regional markets.
Focusing on the post-war progress, the CSE Chairman said participation has increase so much so that the trading accounts increased from 500,000, to 700,000, while the market saw over 50 new listings.
“The market cap is relatively small to the economy but is has grown substantially. In the last four years, the market has grown over five folds,” stated Balendra.
Savings essential for sustainability
Presenting from a bank’s perspective on the capital market, Hatton National Bank CEO Jonathan Alles said that growing economies, especially those that are fast growing, require a fair amount of savings to sustain in an evolving environment today.
“There must be a variety of products with low interest rates should be made available in the market as it will allow people to have access to equity. Not all of us are equally knowledgeable about the equity market so bridging that gap and bringing that intermediation to people, and to the product structure is an important role the CSE and similar organisations across the commonwealth should be keen to pursue,” he told the audience.
Shedding light on key areas that needs to be looked at from a regulator and legal framework point of view, Alles suggested that from the time of setting up a product and exchange, the experience of the Commonwealth nations in this regard should be shared to get the model right. However, he stresses the need to fit into that model the aspirations and economies of the individual countries.
