Overview:
Under their umbrella body, the East African Stock Exchanges Association (EASEA), the stock managers say this would protect investors from local currency-exchange risk and attract more investors.
East African stock market managers want their central banks to consider allowing them to start issue debt instruments in hard currency.
A hard currency is expected to remain relatively stable through a short period of time, and to be highly liquid in the forex or foreign exchange (FX) market. Such currencies include the US Dollar, the Euro, the Swiss Currency, the Japanese Yen and the British Pound.
Under their umbrella body, the East African Stock Exchanges Association (EASEA), the stock managers say this would protect investors from local currency-exchange risk and attract more investors.
According to EASEA chairman Celestin Rwabukumba, local currencies have continued to affect the performance of stock markets.
“As far as we are concerned as EASEA it is a matter that central banks must approve. But the issue is most of our economies do not allow people to issue instruments in hard currency except governments which can issue Eurobonds. Banks are allowed to trade in hard currency, however, capital markets are not allowed which I find counterproductive actually,” he is quoted by the East African newspaper as saying.
He adds: “For capital markets instruments I do believe that all of us in EASEA we are discussing that and I’m sure we are even going to be discussing that in our technical committee of the African Securities Exchange Association (ASEA) of which I’m the vice-president. We have been discussing that but most countries are jittery, central banks are reluctant.”
East African currencies have struggled against the US dollar yet stock markets in the region offer debt and equity capital raising instruments, including bonds, initial public offerings (IPOs) and rights issues, in local currencies.
However, this policy shift will open competition with commercial banks, which central banks may not approve.
But the EASEA boss, who is also Rwanda Stock Exchange (RSE) chief executive officer, says the central banks need to consider approving this.
“If one can get a loan from a commercial bank in hard currency why can’t we issue a bond in hard currency in the capital market?” Mr Rwabukumba wonders.
ASEA was established in 2010 with the primary objective of promoting the growth and development of capital markets in the East African Community and on the African continent, generally. It also seeks to foster mutual assistance and cooperation, including the sharing of information among member states.
At its 29th meeting, on 21 July 2017, in Nairobi, the East African Securities Exchanges Association (EASEA) instructed its technical committee to accelerate the implementation of the common infrastructure of the capital markets. The idea is to allow investors to be able to intervene in any of the financial markets of the region through a single platform.