BRVM: West Africa's Regional Stock Exchange forging ahead

Dear Africa interested individuals:

                                                        I was privileged to be invited to attend an event in New York with the CEO of BOURSE REGIONALE DES VALEURS MOBILIERES (BRVM )as the speaker.  He came to speak to US frontier market fund managers about the progress the exchange has made and plans for the future.  BRVM is the 6th (sixth) largest stock exchange in Africa by market capitalization.  The top five are: Johannesburg, Nigeria, Casablanca, Egypt and Nairobi.   

Major takeaways:

1. Two stocks out of the thirty-nine listed companies on the Exchange are widely held by foreign institutional investors.  The two are:  

A. Ecobank Transnational Incorporated (ETI) is held by 30 foreign investors.  

B. Sonatel (Telecom) is held by 27 foreign investors.  

Both stocks provide the most public financial and operational disclosure among all the listed companies on the BRVM.  We can see clearly see the appeal to foreign investors.  Both stocks have lagged other stocks when it comes to top gainers on the BRVM over the past three years.   

2. Average inflation across the 8 countries (Cote d' Ivoire, Mali, Senegal, Togo, Benin, Niger, Burkina Faso & Guinea Bissau) that make up BRVM was 1.3% for 2015.  

3. Average Real GDP across the eight countries for 2014 was 6.0% and 6.6% for 2015 and a forecast of 7.2% for 2016.  

4. 25% of total traded value in 2015 emanated from foreign investors.  75% of total traded value in 2016 emanated from domestic investors.  

5.  Four (4) companies returned in excess of 100% in 2014.  Seven (7) companies returned in excess of 100% in 2015.  Two others returned in excess of 90%.  

6. Only two (2) foreign investors are invested in Societe Generale Bank Cote d' Ivoire: the largest bank in Cote d' Ivoire.  The bank has returned in excess of 200% over the past four years.  Stocks that have a significant amount of active retail participation tend to have more significant positive returns over time compared to those that have a more active institutional participation.  

7. Four (4) IPOs expected in 2016; all four expected listings are banks and 16 in total between now and 2020.  

8. Best performing (index return) exchange in Africa for 2015 with a return of 17.77% in local currency terms and also in USD terms with a return of 2.77%.   

9. Liquidity is still an issue as only $560 million worth of stocks was traded throughout 2015.   Based on 240 trading days (estimate), this equates to $2.33 million total value traded per day.  The CEO is aware and is working assiduously to improve liquidity.  Over the past ten years, total value traded has risen 1,900%.  

10.  As it relates to retail investors, the CEO of BRVM encourages retail investors to trade through collective investment schemes (mutual funds) and not trade directly.  This is the same view shared by the CEO of the Nigerian Stock Exchange and I informed him.  He said retail investors need to be better educated before direct retail investment can be encouraged.  I mentioned that stability of markets can not be sustained with deference to foreign institutional investors who are typically spooked by macroeconomic, geopolitical, currency and industry/company specific events.  

11. Seeking to attract companies in countries that do not have exchanges to list on the BRVM instead of waiting for a domestic exchange which may only have 2 or 3 companies.  DR Congo is a prime example and shares the same language of the constituent BRVM countries.  Will be interesting to see how this plays out.  This will be good if it comes to fruition as it will help diverse African companies to raise funds easier and become more visible faster.  Cameroon has an Exchange (created to meet the needs of companies in Cameroon and Gabon) and most people forget this because of its relative inactivity.  

12. BRVM is talking with the Toronto Stock Exchange about creating a venture capital market as opposed to an SME market and should come to fruition by 2020.  The SME market on exchanges remains poorly patronized by companies and by investors who exhibit apathy in trading listed SME companies on most African stock exchanges.  

13. The currency of Francophone West Africa - CFA is pegged to the Euro at fixed parity.  This negates a good amount of foreign currency risk for foreign investors.  

14. One broker complained about the transaction fee payable to BRVM for every trade executed being excessive.  

Two other fund managers were seriously concerned about the poor financial disclosure by almost all listed companies on the BRVM.  The fund managers appealed to the CEO to enforce better disclosure by listed companies through regulatory fiat.  

15. English language translation of financial results was also requested.  The CEO said BRVM's website is presently being overhauled and once completed, some company earnings releases will be available in English going forward.   

16. Full membership of the World Federation of Exchanges (WFE) expected in 2016.  

17. Launch of Diaspora & Project bonds in 2017.  

18. BRVM currently chairs the West African Capital Market Integration Council (WACMIC).  Seven (7) transactions have been executed thus far on the West African integrated market trading network.  A target date of 2020 has been set for full integration of all West African Stock Exchanges.  I asked about cross-listing of companies listed on one Exchange on another.  ETI has been able to achieve this successfully.  This is my opinion will help built awareness of companies beyond their local market prior to full regional market integration.  The CEO said he does not believe cross-listing is necessary.  If one order book is achieved and any broker on any of the three West African Exchanges can place an order and execute on another exchange, this is more beneficial than cross-listing companies with the added burden of multiple regulatory reporting and scrutiny according to the CEO.   
19. The CEO said the Exchange is already demutualized, just not listed.  11% of BRVM is currently owned by the State and 32% by stockbrokers.

20. The biggest challenge to integration of the West African Exchanges is post-trade according to the CEO of BRVM.  Settlement of trades in three different currencies and three different payment systems is the biggest challenge to integration.  Discussions are currently ongoing on with banks to find a settlement bank to serve as a custodian and to settle trades in all three West African Exchanges' currencies in T +3.  

21. BRVM was integrated into MSCI and S&P indices in 2015.  

The CEO was amiable, humble, honest and down-to-earth with his responses.  The days ahead on the BRVM are looking good under his stewardship.  Stay tuned.  I sure will.     

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