Uganda’s National Social Security Fund (NSSF) has shortlisted three stockbrokers to handle its trading business as the state provident fund accumulates stocks on the cheap anticipating to profit from a rally in share prices by the end of 2012.
African Alliance Securities, Equity Stockbrokers Limited and Crested Stocks and Securities limited were picked to handle NSSF’s trading business in Uganda.
The Ugandan pension manager joins the ranks of its Kenyan counterpart which last year picked five stockbrokers and investment banks to join its list of pre-qualified service providers.
The Ugandan brokers are in an enviable position because they are set to earn millions of shillings in brokerage fees paid by NSSF in trading on its equity and bonds portfolio at the Uganda Securities Exchange (USE) and other markets in the region.
According to NSSF Managing Director, Richard Byarugaba, the Fund anticipates continued decline in share prices during the first quarter of 2012 — a situation that offers wider room for buying cheap shares that could be offloaded before end of the year in pursuit of substantial capital gains.
“We find it necessary to diversify our investments quite significantly in order to generate higher returns on members’ contributions. But supply is still low on several counters and this makes matters difficult for a large corporate investor like NSSF,” Byarugaba argued.
With NSSF’s reporting date set at 30 June of every year, the prominent institutional investor hopes to reap solid capital gains by mid-2012 that are critical for boosting returns on members’ contributions.
Trading activity in regional stock markets has remained subdued as investors keep off shares because the high rate of inflation has reduced their disposable income. High interest rates have also swayed investors to government securities instead of stocks.
As a result of the low trading volume most of the brokers have been keen on bidding for big business and have welcomed the business from NSSF.
“We bid for NSSF’s stockbrokerage services and are eager to commence trading business for them even though they are yet to formally appoint us,” noted Edward Ruyonga, General Manager of Equity Stockbrokers Limited.
NSSF also said it will conduct its regional trading of equities through the three brokers or their partners. African Alliance’s subsidiaries in Kenya and Rwanda will handle NSSF’s business in those countries.
Crested Stocks and Securities Limited bid for regional stockbroking services, backed by its partners: Standard Investment Bank in Kenya, Orbit Securities Ltd in Tanzania and CDH Capital inRwanda.
The Fund’s desire to intensify activity in the stock markets also comes at a time of deepening competition for high yielding treasury bills and bonds, a scenario that has affected some investors’ ability to acquire huge volumes of debt notes whenever they please.
This has forced NSSF to divert some of its funds to listed shares so as to counter challenges of unused money in its investment book.
Interest rates on treasury bills and bonds have remained in double digits since mid-2011, largely because of tight policy actions by the Central Bank intended to bring down soaring inflation and boost the Uganda shilling against the US dollar. The 91 day and 182 day treasury bills stood at 23.1 per cent and 23.4 per cent while the 364 day treasury bill stood at 21.5 per cent in mid December. The interest rate on the three year bond stood at 23.8 per cent during the same period.
The selection of three stockbrokers could also appease sections of the capital markets that previously criticised the choice of a single broker, arguing that it undermined competition among external agents and consequently quality of transactions executed on behalf of the Fund.
The Fund has also adopted early realisation of capital gains on shares in order to ensure steady accumulation of investment incomes as opposed to the old practice of holding onto capital gains for too long and losing out whenever the market sinks.
The shortlisted stockbrokers are optimistic about executing equity transactions for the Fund.
“A more active role for NSSF in the stock markets will enable the Fund to pick up numerous bargain stocks that are capable of generating handsome capital gains in the short term.
For instance, a number of banking stocks in the Kenyan market are likely to rise considerably in 2012 because of remarkable performance in a tough environment.
As a firm, the NSSF deal will help us raise our turnover that has remained weak over the last two years.
Higher turnover on our books will directly complement our solid ratings in sourcing market deals and attraction of retail investors,” said Robert Baldwin, Chief Executive Officer of Crested Stocks and Securities Limited.