Recently some stocks at the NSE have confounded many by their metoric rise in prices backed by no fundamentals whatsoever. Some have used this appreciatiation to justify splits and bonus issues. We may not rule out manipulations as the following story from the Dec 19, 2006 edition of The East African/All Africa Global Media via COMTEX attests.
"For a number of years now, there have been murmurs that NSE is being manipulated by operators who have learnt the art of orchestrating artificial surges of demand for the shares of specific companies, enabling cliques of sellers to profit. In the process, unsophisticated buyers will respond to the rapid increases in the prices of these stocks by putting in orders. This explains the riddle of companies whose share prices have risen even when there were no fundamental changes in the fortunes of the company.
Market manipulation is not unique to an emerging market like the NSE. The phenomenon occurs even in sophisticated markets such as the London Stock Exchange and New York Stock Exchange.
THEORETICALLY, STOCK-markets are considered to be efficient because every investor in the market has access to all available information. According to theory, the price of the stock therefore reflects all available information on the company.
This is why, in more mature markets, there are more stringent reporting and disclosure requirements compared with emerging markets like the NSE, which are therefore more vulnerable to market manipulation.
Market manipulators are invariably people with access to privileged information such as corporate insiders, brokers, underwriters, large shareholders and market makers.
Once the manipulator has obtained inside information, he will then start buying the stock, creating liquidity and volatility. This will attract technical analysts who will call the market by volume and price changes.
The manipulator will then accumulate all the liquid shares available on the market with the intention of driving the price up, during which time he will release bits and pieces of information such as news of a big contract or increased earnings etc.
The information-seeking type of investor will thus be attracted, thereby creating a new level of demand for the shares.
COMING TO THE PHENO-menal interest in the recent IPOs on the NSE, it appears the investing public have noticed that new IPOs seem to come to trade at a significantly higher price.
This perception creates an artificial demand at the IPO stage and when the stock comes to trade, demand that ignores fundamentals such as future potential earnings. In an efficient market, the stock price must reflect its real or intrinsic value.
Trading on full and plain disclosure of information improves market efficiency and lack of information reduces market efficiency, thus increasing market manipulation. The irony in our situation is that informed traders and market manipulators compete for shares, thereby increasing the manipulators' profit.
Price manipulation at the NSE is one of the factors that has continued to curtail the effectiveness of arbitrage activities, especially in the case of cross-border trading between exchanges in Uganda and Tanzania. Arbitrage activities have in fact been rendered completely counterproductive.
In these situations, the need for regulation is acute. In particular, enforcement of anti-manipulation rules can improve market efficiency.
I WILL NOT NAME ANY OF the stocks listed on the NSE. But any discerning observer will have noticed what has been going on with specific stocks.
Then, once the manipulator has insider information, he assesses the intrinsic value of the stock. If it is low, he drives the stock price up by accumulating everything av-ailable on the market.
Generally, to maintain the volume and price, the manipulator trades between fictitious accounts. And as soon as he realises that the informed trader is beginning to buy the stock, the manipulator starts selling out rapidly.
HOW CAN YOU DETECT that a stock is being manipulated?
To be successful in stock manipulation, the manipulator must pose as a credible informed trader. It has been observed that 40 per cent of such cases involve corporate insiders, 60 per cent involve brokers, 30 per cent involve large shareholders and 20 per cent involve market makers and stock underwriters.
Indeed, most successful manipulation schemes are undertaken jointly by several parties. In most cases, they will trade among accounts owned by essentially the same individual or group.
In the case of the Nairobi Stock Exchange itself, two important regulations must be adopted to discourage market manipulation.
First, there must be properly detailed disclosure requirements for all listed companies covering any material changes that may affect the stock price. The news must be announced in a timely fashion and must be easily accessible to the investing public.
Second, there need to be disclosure requirements for major shareholders, officers and directors of the company in the event they change their stock position.
Third, every trade must indicate which brokerage house is buying and selling.
Copyright The East African. Distributed by AllAfrica Global Media (allAfrica.com)."
So let us be careful before we jumping the bandwagon to the merriment of these manipulators.
Friday, December 22, 2006
Monday, December 18, 2006
Sasini Tea and Coffee posts a loss in Third Quarter
SASINI TEA AND COFFEE LIMITED UNAUDITED RESULTS FOR THE NINE MONTH ENDED 30TH SEPTEMBER 2006.
Sasini Tea and Coffee Limited has posted a loss of Ksh. 386.5 Million in the period ended 30th September 2006 compared to a loss of Ksh. 3.5 Million for the period ended 30 June, 2006.This is attributed to severe draugt lasting from November, 2005 to February, 2006. However, their turnover improved by 15% over the same period.
RESULTS ANALYSIS
Turnover.
The company recorded a 15% increase in turnover compared to 30 JUNE, 2006. This is attributed to improved production in Tea segment. This is expected to continue as the weather is expected to be good.
Income statement.
During the period ended September30, Sasini Coffee and tea reported a net loss of Ksh. 386.5Million compared to Ksh.3.5Million reported in June, 30, 2006. This is attributed to fall in production due to severe drarught. These results are expected to improve due to buoyant coffee prices at the auction market.
Future Outlook of the Company
The company has taken new initiatives of rebranding its products for the regional market consumption. The company has also erercted a new coffee mill plant that is nearing completion. There has been a buoyant increase in the world coffee prices at the auctions market. This is due to reduced supply. These good prices combined with the re-branding strategy is expected to improve the performance of the company
Sasini Tea and Coffee Limited has posted a loss of Ksh. 386.5 Million in the period ended 30th September 2006 compared to a loss of Ksh. 3.5 Million for the period ended 30 June, 2006.This is attributed to severe draugt lasting from November, 2005 to February, 2006. However, their turnover improved by 15% over the same period.
RESULTS ANALYSIS
Turnover.
The company recorded a 15% increase in turnover compared to 30 JUNE, 2006. This is attributed to improved production in Tea segment. This is expected to continue as the weather is expected to be good.
Income statement.
During the period ended September30, Sasini Coffee and tea reported a net loss of Ksh. 386.5Million compared to Ksh.3.5Million reported in June, 30, 2006. This is attributed to fall in production due to severe drarught. These results are expected to improve due to buoyant coffee prices at the auction market.
Future Outlook of the Company
The company has taken new initiatives of rebranding its products for the regional market consumption. The company has also erercted a new coffee mill plant that is nearing completion. There has been a buoyant increase in the world coffee prices at the auctions market. This is due to reduced supply. These good prices combined with the re-branding strategy is expected to improve the performance of the company
Monday, December 11, 2006
Nairobi Stock Exchange: Breaths or Bubbles?
Over the recent few months the Nairobi Stock Exchange (NSE) has been on a bull ride. The bourse has seen record breaking highs in share prices and subscriptions of IPOs. Compared to its East African counterparts, the Uganda Securities Exchange (USE) and the Dar es Salaam Stocks Exchange (DSE), the NSE may be experiencing a ‘stock market bubble’ like the ‘dot.com bubble’ in USA bourses during the late 90’s, where prices of stocks shot up without any substantial reason.
A stocks market bubble is a massive rise in stock prices caused by a wave of public enthusiasm. This wave elicits a mass behavior that gives rise to an exaggerated bull market. Market prices of listed stocks consequently become overvalued. Generally, stock market bubbles are followed by stock market crashes.
Over the decades stock market bubbles have been experienced in many stock markets around the world. Each of them (like the great crash of October 29, 1929, prior to the great depression in northern America) leads to a crashing of the bourse with devastating effects on the country’s economy. Surprisingly, none of the crashes has ever been forecasted even by great economists. Just 14 days before the great crash of October 29, Irving Fisher, a distinguished Economist, said that in a few months he expected the market to be much higher than it was then, only for it to collapse in less than a month.
In Africa, due to lack of liquidity and the small market size, the bubbles’ size is either too small or has never been experienced altogether. Thus, many of the African stocks markets have never encountered a crash, Johannesburg Stock Exchange being an exception. This should not be a reason for us to throw caution to the wind.
For many traders and investors, the fear of a crash is a perpetual source of stress, and the onset of the event itself can be devastating. At the moment, this fear is slowly gripping investors in the NSE. Prices of stocks are rising not because of increased profitability of the listed companies but due to future prospects, fast increase in value, and anticipation of rise in prices. To make matters worse, investors buy the over valued shares using borrowed money.
With the impending integration of the three East African stocks markets, existence of a bubble in the NSE would not only affect all the markets, but also the regional economy. This would adversely affect the process or even stall it for good. There is need to look out for signs of a bubble in the three bourses and prevent them from bursting. The NSE should be wary since it is more active and at an advanced development stage.
Looking at the performance of the NSE over the last ten years, in the figure below, it is clear that the market index has never been this high and the probability of it dropping is more likely. The market index has hit an historic high of 5,654.46, which can easily be compared to the United States NASQAD (National Association of Securities Dealers Automated Quotations) index of 5,048.62 in July 2000 just before the ‘dot-com bubble’ burst. The question is, ‘Is the NSE trading in a bubble?’
Current NSE Index: 5,654.46
Performance for past ten years
(c) 2006 stockskenya.com
Nobody has ever predicted the ‘when’ and ‘how’ of bursts. Just before the burst, the market will always look so promising and attract some late comers. Unfortunately, they are hit the most. The NSE is exhibiting all these features. Almost all the listed stocks seem to be performing well. But something curious about them is that most of these stocks have a P/E (Price/Earnings) ratio of more than 22, meaning that, an investor will take 22 years or more to double his investment. This is simply unrealistic and clearly reflects the existence of a bubble in the market.
The downturn of the market is quite eminent and investors should take measures to avoid incurring losses when this occurs. Some defensive measures that can be employed include changing the asset base of one’s investment portfolio. This involves moving out of stocks and equities as soon as you realize the change in trends and getting into high quality corporate bonds in companies that are going to survive no matter what and maybe some short-term treasury bills. One can also get into high-quality bonds and set oneself on auto pilot since they have a fixed rate of return although lower than what you will get from the stocks. Another option would be housing which at the moment is slowing down.
On the other hand, it may be alarming to say that the NSE is headed for an outright crash. It makes more sense to ponder on the idea that large investors such as mutual funds will start buying when prices of solid stocks fall to the point where they are undervalued, than thinking they will stay away and let the downturn run into a crash. At the moment, speculation in the NSE has not yet gone out of hand. Let's hope it just a breath and not a bubble.
By Kevin Mwanza The African Executive Staff Writer
A stocks market bubble is a massive rise in stock prices caused by a wave of public enthusiasm. This wave elicits a mass behavior that gives rise to an exaggerated bull market. Market prices of listed stocks consequently become overvalued. Generally, stock market bubbles are followed by stock market crashes.
Over the decades stock market bubbles have been experienced in many stock markets around the world. Each of them (like the great crash of October 29, 1929, prior to the great depression in northern America) leads to a crashing of the bourse with devastating effects on the country’s economy. Surprisingly, none of the crashes has ever been forecasted even by great economists. Just 14 days before the great crash of October 29, Irving Fisher, a distinguished Economist, said that in a few months he expected the market to be much higher than it was then, only for it to collapse in less than a month.
In Africa, due to lack of liquidity and the small market size, the bubbles’ size is either too small or has never been experienced altogether. Thus, many of the African stocks markets have never encountered a crash, Johannesburg Stock Exchange being an exception. This should not be a reason for us to throw caution to the wind.
For many traders and investors, the fear of a crash is a perpetual source of stress, and the onset of the event itself can be devastating. At the moment, this fear is slowly gripping investors in the NSE. Prices of stocks are rising not because of increased profitability of the listed companies but due to future prospects, fast increase in value, and anticipation of rise in prices. To make matters worse, investors buy the over valued shares using borrowed money.
With the impending integration of the three East African stocks markets, existence of a bubble in the NSE would not only affect all the markets, but also the regional economy. This would adversely affect the process or even stall it for good. There is need to look out for signs of a bubble in the three bourses and prevent them from bursting. The NSE should be wary since it is more active and at an advanced development stage.
Looking at the performance of the NSE over the last ten years, in the figure below, it is clear that the market index has never been this high and the probability of it dropping is more likely. The market index has hit an historic high of 5,654.46, which can easily be compared to the United States NASQAD (National Association of Securities Dealers Automated Quotations) index of 5,048.62 in July 2000 just before the ‘dot-com bubble’ burst. The question is, ‘Is the NSE trading in a bubble?’
Current NSE Index: 5,654.46
Performance for past ten years
(c) 2006 stockskenya.com
Nobody has ever predicted the ‘when’ and ‘how’ of bursts. Just before the burst, the market will always look so promising and attract some late comers. Unfortunately, they are hit the most. The NSE is exhibiting all these features. Almost all the listed stocks seem to be performing well. But something curious about them is that most of these stocks have a P/E (Price/Earnings) ratio of more than 22, meaning that, an investor will take 22 years or more to double his investment. This is simply unrealistic and clearly reflects the existence of a bubble in the market.
The downturn of the market is quite eminent and investors should take measures to avoid incurring losses when this occurs. Some defensive measures that can be employed include changing the asset base of one’s investment portfolio. This involves moving out of stocks and equities as soon as you realize the change in trends and getting into high quality corporate bonds in companies that are going to survive no matter what and maybe some short-term treasury bills. One can also get into high-quality bonds and set oneself on auto pilot since they have a fixed rate of return although lower than what you will get from the stocks. Another option would be housing which at the moment is slowing down.
On the other hand, it may be alarming to say that the NSE is headed for an outright crash. It makes more sense to ponder on the idea that large investors such as mutual funds will start buying when prices of solid stocks fall to the point where they are undervalued, than thinking they will stay away and let the downturn run into a crash. At the moment, speculation in the NSE has not yet gone out of hand. Let's hope it just a breath and not a bubble.
By Kevin Mwanza The African Executive Staff Writer
Stock Market Trends: Watch Them and Reap!
"Bulls make money, bears make money, but pigs just get slaughtered!” goes an old stock market saying.This may sound comical, but woe unto you if you don’t learn from it. As simple as it sounds, it explains how stock markets operate and the Nairobi Stock Exchange (NSE) is no exception.In stock markets, investors gain or loose. Anyone who comes to trade in stocks should be prepared for this.
Watching the NSE, it’s quite evident that it is on a bulls ride with almost every stock performing well, except for a few that have reached a plateau. Investors have more than often doubled or even tripled their earnings in the recent dealings; from the KenGen and Scan group IPO’s to the East African Cables share split.
In fact, investors have developed a mass bulls psychology where everyone anticipates a rise in stock prices with every IPO, rights issue and even a stock split which in the first place should not change the share value. This has created a very high demand for securities in the secondary market consequently increasing the prices.
Some investors, who can easily be termed as ‘pigs’, have nose-dived into the bourse looking for the one big score that will enable them reap high returns in a short time. They buy every publicized stock without observing due diligence, and end up losing their investment. Seasoned investors love them, as it's often from their losses that they reap their profits.
Even with a bull stock market at the moment, investors should be on alert, testing the wind and watching out for signs of changing trends. Reading the market each day may not be helpful, but understanding the general direction of the market with some expertise support may act as a warning sign of the stock market turning bear. Then, and only then, should an investor consider selling his or her portfolio and wait for the fall.
One does not need a futuristic periscope or psychic advice (some investors use psychics to help them pick stocks) to understand the market trends. You can get a good idea of where the market is headed with just two pieces of information: price and volume. When you put these two together, you get to know whether there are more sellers or buyers in the market. Volume tells you whether there is movement in the market and price shows you the direction of the movement.When you see the down days too frequently in the NSE, which has been on a bulls trend, this is a sign that the stock market is about to reverse course or stall. Mutual funds and institutional investors are usually the volume buyers and sellers that move the market. When they begin moving in a direction, that’s where the market will definitely go and you can easily see it in the price and volume numbers.
In case the market shows sharp price movements in either direction, without corresponding volume increases, it is sending false messages that should be watched even more carefully. What does this mean to you? Do not buy or sell more shares; stay back and observe the forces of supply and demand. When there are more buyers (higher prices on higher volume) than sellers, the market will trend upwards – bull market. When there are more sellers (lower prices on higher volume) than buyers, the market will trend downwards – bear market
Higher Prices + Higher Volume = Upwards trend (bull market)
Lower Prices + Higher Volume = Downwards Trend (bear market)
Higher prices + lower volume=Bullish Trend
Lower prizes+lower volume=Bearish Trend
If you see more than a few of the latter, prepare for change by selling some of your stocks or holding on to them and wait for the trend to dictate otherwise.
By watching for changes in the market you can be ready for any potential market changes that may affect your earnings. It’s always a good practice to step back and get a better view of what the market trends have been. From that and other information gathered from the market, you can decide to give your broker a call and instruct him on whether you want to buy or sell your stocks.
Learning how to use the stock market is always more than just a little tricky. But even then, being able to foresee what is going to happen in the stock market will always be of great advantage.
You don’t want to be led to slaughter with the pigs. Do you?
By Kevin Mwanza The African Executive Staff Writer
"Bulls make money, bears make money, but pigs just get slaughtered!” goes an old stock market saying.This may sound comical, but woe unto you if you don’t learn from it. As simple as it sounds, it explains how stock markets operate and the Nairobi Stock Exchange (NSE) is no exception.In stock markets, investors gain or loose. Anyone who comes to trade in stocks should be prepared for this.
Watching the NSE, it’s quite evident that it is on a bulls ride with almost every stock performing well, except for a few that have reached a plateau. Investors have more than often doubled or even tripled their earnings in the recent dealings; from the KenGen and Scan group IPO’s to the East African Cables share split.
In fact, investors have developed a mass bulls psychology where everyone anticipates a rise in stock prices with every IPO, rights issue and even a stock split which in the first place should not change the share value. This has created a very high demand for securities in the secondary market consequently increasing the prices.
Some investors, who can easily be termed as ‘pigs’, have nose-dived into the bourse looking for the one big score that will enable them reap high returns in a short time. They buy every publicized stock without observing due diligence, and end up losing their investment. Seasoned investors love them, as it's often from their losses that they reap their profits.
Even with a bull stock market at the moment, investors should be on alert, testing the wind and watching out for signs of changing trends. Reading the market each day may not be helpful, but understanding the general direction of the market with some expertise support may act as a warning sign of the stock market turning bear. Then, and only then, should an investor consider selling his or her portfolio and wait for the fall.
One does not need a futuristic periscope or psychic advice (some investors use psychics to help them pick stocks) to understand the market trends. You can get a good idea of where the market is headed with just two pieces of information: price and volume. When you put these two together, you get to know whether there are more sellers or buyers in the market. Volume tells you whether there is movement in the market and price shows you the direction of the movement.When you see the down days too frequently in the NSE, which has been on a bulls trend, this is a sign that the stock market is about to reverse course or stall. Mutual funds and institutional investors are usually the volume buyers and sellers that move the market. When they begin moving in a direction, that’s where the market will definitely go and you can easily see it in the price and volume numbers.
In case the market shows sharp price movements in either direction, without corresponding volume increases, it is sending false messages that should be watched even more carefully. What does this mean to you? Do not buy or sell more shares; stay back and observe the forces of supply and demand. When there are more buyers (higher prices on higher volume) than sellers, the market will trend upwards – bull market. When there are more sellers (lower prices on higher volume) than buyers, the market will trend downwards – bear market
Higher Prices + Higher Volume = Upwards trend (bull market)
Lower Prices + Higher Volume = Downwards Trend (bear market)
Higher prices + lower volume=Bullish Trend
Lower prizes+lower volume=Bearish Trend
If you see more than a few of the latter, prepare for change by selling some of your stocks or holding on to them and wait for the trend to dictate otherwise.
By watching for changes in the market you can be ready for any potential market changes that may affect your earnings. It’s always a good practice to step back and get a better view of what the market trends have been. From that and other information gathered from the market, you can decide to give your broker a call and instruct him on whether you want to buy or sell your stocks.
Learning how to use the stock market is always more than just a little tricky. But even then, being able to foresee what is going to happen in the stock market will always be of great advantage.
You don’t want to be led to slaughter with the pigs. Do you?
By Kevin Mwanza The African Executive Staff Writer
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