ASEA 2012 in Cairo

I leave tomorrow for the African Stock Exchange Association meeting 2012 in Cairo.
While I always agree with people when they tell me conferences are time consuming and can result in diminishing returns...(opportunity costs and all that)....I am excited for this meeting !!

The Agenda is posted on the ASEA 2012 website and the whole conference is VERY well organized and there are many interesting speakers that are NOT politicians. Sometimes this conference is about the politics but this one promises more. I am cautiously optimistic.

The theme of the conference this year is "Unleashing Africa's Investment potential-What could be done by African Capital Markets."

There may be security concerns but I believe the location of the conference will be safe and the staff at the stock exchange CASE appear to be on top of things. I plan to be conservative and remain close to the exceedingly posh-looking hotel.

Thankfulness

I am very...

thankful for friends old and new.
full of thanks for learning so much by teaching.
grateful for my students who struggle, overcome, then give back.
cheerful 2012 is almost over.

hopeful for new beginnings in 2013...

  

SEC contemplating more scrutiny of order types on NYSE

After multiple problems with high frequency trading and Initial Public Offerings gone awry, matters discussed many times here on Muzungu, the Securities and Exchange Commission is exploring the idea that more extensive regulation & scrutiny is needed on the exchanges. According to a recent Wall Street Journal article, the SEC, run by Mary Shaperio (whose picture int he story clearly illustrates how difficult a tenure she has had at the helm of the the SEC), believes that high-frequency orders have received special treatment on the floor which is not really legal. All order must be treated the same. If some orders have more information or are given preference over other orders then the systems has broken down. The entire idea of an exchange is fairness of treatment. Otherwise, everything should be specially arranged like private agreements between buyer and sellers.

The entire purpose of an exchange is economies of scale and uniform treatment of orders. This is the way to a more sophisticated level of trading inside the building and not outside under the Buttonwood tree. How is it that the oversight regulator lost sight of this? How is it that Congress lost sight of this?

Regardless, regular investors must have the same opportunities on exchanges as the institutional or sophisticated investor. HA! That has never happened. The institutional trader has ALWAYS had an advantage on exchanges. It is the nature of the beast. They trade more and have contacts on the exchange floor. It is how it is. However, the exchange regulator must make sure that that advantage is not too great.
This is what is taking place right now.

While high-frequency traders (HFT) make up to 50% of the trading volume on exchanges, the question is did exchanges HELP them...either through commission or omission. I don't really know but if forced to speculate, the exchanges failed to stop the dominance of HFT's....hence no level playing field. Now enough people have complained so it is time to act.

We shall see what they come up with. I believe the SEC is fatigued. I do not think Mary Shapiro intended to be SEC Commissioner another term. She is done and worked hard. We shall see is new changes actually come to be.

Of course, my final thought is this, we (the WEST) do actually feel entitled to tell Africa how to regulate its exchanges. I still think this is ok. I believe that the NYSE faces challenges not currently faced by African Exchanges, and yet the small illiquid exchanges of sub-Saharan Africa so not need to follow in our exact footsteps and can leapfrog these particular difficulties.

I do hope things calm down so I can head to Egypt next week!              

Law and investment in Africa

I recently attended the Texas Africa Business Summit in Houston. It was very interesting and saw there some friends from Malawi. The Summit brought together many friends of Africa in the Houston Business Community. There is a huge amount of support of Africa, East Africa and investment in those relationships-business or otherwise. It was remarkable to me, coming from California which is not so far away, to see that support. Africa does not exist, really as far as California is concerned. I forgive them that since the last few years have been so difficulty here on the left coast. However, Hollywood has not stopped cranking out the American cultural propaganda they call movies and spend not so much time bringing the outside world to us...and they could do that. They have the power to do that.

Hollywood has sat by making money while California raises taxes to provide the basics like education. The State had to ask for more money to do what we already pay taxes now to have them do; which is to educate the children. Where is all of the money?? I am not that good at math but I think donating even a small percentage of some meaningless holiday films this season could solve the crisis of public schools in the entire State of California. So, people in California don't even care about California, let alone Africa. Houston, Texas has some people who care about Africa and I went to their conference.

There was not much discussion of the law at the Texas Africa business Summit. There was a good deal of discussion of how bad the colonial powers were in Africa and how we (those of European descent) should all be ashamed of that. There were also on discussion panels,many former diplomats who were now Academics or at least writing books about their time spent in Africa. To be honest, they said so many valuable and interesting things from their personal perspective of having lived and worked there for so many years. Also, of interest was the discussion by the mutual fund managers who spent time meeting with company executives learning how to invest in Africa. A wise South African told me when I was in Malawi this past Summer, that Africa is about relationships.

I am sure that is true, but it is also true about pretty much everything. I think he meant it in a more complex way. Africa is about cultivating those relationships. This is excellent advice for Americans who really think everything is about the transaction. The relationship is incidental or collateral to the deal. This basic truth and misunderstanding, is America's problem with the World and California's basic, fundamental problem-full stop. It is also the fundamental problem with a focus on laws when trying to promote investment on African Exchanges. Investing has ALWAYS, historically been about relationships. The law can help and support that but not create those relationships. Rule of law, banking infrastructure, phewy!! Get in there and start relating and that is how we create more investment.

This December I will attend the African Stock Exchange Association meeting in Cairo. It looks very stimulating and there might be some regulators there worth hearing from. Cairo may not be super friendly to female Americans but who knows. I go and invest my time because I believe that there is a future for investment in Africa, for America and the World. I go because each year these Exchange Executives meet and ask the questions that the Investment community asks as well. How do we improve the investment climate in Africa, above and below the Sahara??!!

Conferences are monumentally silly-some sillier than others, but they do start conversations. The bad things happen when that conversation stops.

Malawi Stock Exchange

I recently bought some shares on the Malawi Stock Exchange (MSE). I wanted to do a little research to see how it is regulated.  The MSE started in 1996. The MSE is regulated by the Capital Markets Development Act of 1990 (Cap 46.06). Some of the rules are available on the MSE website.  A Securities Act is also in the process of being formally passed.

In general, the laws are extensive enough to set up a functioning Exchange. 13 companies are currently listed. Malawi is still very poor. When I visited the MSE this past summer the CEO described it as a frontier exchange. That does seem accurate. As it grows it and the other financial infrastructure dose as well, there will need to be more regulation. 

Recently also, the International Bar Associations’ Human Rights Institute (IBAHRI) released a Rule of Law analysis of Malawi. The aim of the report was to assess the state of the rule of law in Malawi. Emphasis was placed on assessing the independence of the judiciary and the legal profession. I think that it is a positive that the IBA attempts these kinds of missions but the report did, as usual, seemed skewed to push the donor agenda of making African countries more Western. Part of the review was to criticize Malawi for its enactment of a law criminalizing homosexuality. I have been to several IBA meetings and it has always been my impression that it serves the interests of large well funded law firms and organizations. It always touts the standard line. The report did draw attention to the 2011 unrest in Malawi and the death of a student activist critical of the government.   

Malawi currently has some inflation and growth has slowed. The outlook is for continued slowing. I have always been a contrarian investor. I like buying equity which can perform well even in weak economic conditions.

CASE Handbook now online

The Central African Stock Exchange handbook is now available for download.
The website is nifty and full of interesting info.
The handbook can be downloaded for a fee.

Social impact investors and Boards

Social impact investors put their investment 'dollars' to work for an educational, environmental, social and essentially public good purpose. Social stock exchanges and boards brings those investors to socially conscious businesses that want to raise capital.

In addition to the recently started but not yet LIVE Social Stock Exchange in London, another social investment board has launched. In partnership with the Stock Exchange of Mauritius, the iX, or Impact Exchange has launched a board to help companies who have a social purpose, and not simply a profitable purpose, to raise cash.

All of this raises the issue of who qualifies as a social company and how do we know once we buy shares that they will remain social? Oh, they are waaaay ahead of us. There are verification agents and audits, as well as ongoing reporting requirements.

This is not a new concept. Companies can do green audits, why not social audits. Of course, these are an additional cost. We pay more for organic, locally grown, specially made healthy for us and society goods. Being socially, environmentally conscious costs more. Some companies can afford that additional cost to attract that impact investor. Some companies cannot.

Here is where I get stuck. Anecdotally, its the small to medium enterprise from the developing world who cannot afford those additional costs to be green and responsible. Here is the kicker, the founders of iX plan to ask development agencies to assist them in defraying the costs of some of these audits. What do the economists call this...rent seeking? I hope I got that right. It is just another layer of cost and bureaucracy, job security for some, and all acceptable because we are investing in a sustainable future.

These ideas and concepts are not harmless. Exchanges make money and impact investors cannot get around that. Also, impact investors should be responsible for the companies they put OUT of business in favor of others that can afford the audit, impact verification and reporting requirements.  

Any data driven researcher out there that wants to help me find the proof please call me!