Early this week, I had such an interesting Twitter exchange some Rwandans on Twitter, including Ms. Rosine Dusabe and Magnifique Migisha of Rwanda Capital Market Authority, to name a few. We interacted about investment and markets related topics, but what constantly came to my attention is that this capital markets culture needs to be spread much more amongst Rwandans of all stages.
I have said it, and I will say it again: No market has been successful without strength of the retail public participation. When I say retail public, I mean those dubbed mom and pop investors. From Kimironko fruits markets, going through Nyabugogo miscellaneous shops to New York Stock Exchange, all supply and demand momentums are driven by the retail public. Don’t get me wrong. Even these billion dollars pension funds or mutual funds are purchased by individuals’ pooled capital.
So why does it feel like many regional African financial markets, particularly Rwanda Stock Exchange (RSE), are institutionally dominated? Why a big chunk of market share at the RSE is owned and remains in the hands of private institutions or government agencies? I don’t think it’s just because this sector is too sophisticated for an average Joe Rwandan to understand, nor too expensive to afford.
In my opinion, most random Rwandans can afford to acquire a few shares of BK or BRALIRWA as much as they can afford a couple of servings of Primus or Turbo King. Hundreds of thousands of young professionals, entrepreneurs, and small or medium business people can afford to stash at least FRW 100,000 worth of shares of their favorite, say Crystal Telecom.
And yet we see every other week at the RSE , trading sessions closing with ZERO trades at all counters; while almost every single convenient pub in Kigali is sold out in the evening.
Cleary the problem is a weak supply and demand momentum. This lack of capital markets individual investors’ participation is explained by their poor inclusion. Even those who are interested don’t get enough briefing about this, normally lucrative, side of the investing world.
This part of the market is not being educated enough of the reasons why to be part of this investment practice. Yet, this is what should drive the secondary markets. The public investors are the ones constantly buying and selling because they are constantly moving money. On the other hand, institutions or government agencies tend to buy at the IPO stages and hold for a long-term time horizon. This is what explains weak demand, weak supply, illiquidity and sluggish growth at the Rwanda Stock Exchange. Definitely not a weak economy.
I give tons of credits to the Capital Markets Advisory and the RSE for successfully establishing and regulating the market, but the job doesn’t end with taking companies public.
In facts, the job starts here because the secondary market is the real indicator of whether it’s a healthy market or not. Otherwise it’s just an auction.
The market is made with constant supply and demand. Imagine if the Kimironko markets were made with only suppliers, but no one to buy? What if there were only buyers and no goods supplied?
This is the exact same case when Bralirwa or KCB shares are offered to the public but there is enough educated investing public to buy those shares. Or when the same shares are owned by big institutions then that constant daily secondary markets supply is weakened provided that these big players tend to buy and hold. Or even when they trade, they do so in very large block of orders, too large for a small individual to afford. Therefore they trade amongst themselves.
In my opinion, the best way to see the Rwanda Capital Market post a much stronger momentum moving forward is to shift the market from the hands of the institutional investors to the retail public. And the one successful way to get the retail public actively involved is to get them educated enough to understand the upside potentials and the process.
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