[2008-03-18]  BSE Introduces ETF To Boost Liquidity

Botswana Stock Exchange (BSE) is to introduce Exchange Traded Funds (ETFs) to improve liquidity and tradability in the capital market.

ETFs are index tracking funds secured by a basket of securities listed on an exchange by among others banks or fund managers. This is meant to allow investors to buy or sell securities consisting of the collective basket of shares or index as a single unit.

On Thursday, BSE in collaboration with Bifm briefed the media at its premises about the upcoming inaugural conference it will host to deliberate on ETFs. Although the BSE market capitalisation is comparatively high, liquidity is extremely low.

One of the reasons for the imbalance has been identified as lack of instruments to draw out liquidity in the market.

"It is one of the strategies that BSE has identified to encourage structuring and listing of ETF products, which will leverage on Botswana's competitive advantages like political stability and a liberalised access to capital," said BSE CEO Hiran Mendis.

The listing of the new products is meant to increase the number and choice of products on the BSE, which will give investors diverse risk-return options. Mendis believes ETFs will attract new investors to the BSE by providing a diversified, low cost way of investing.

The strategy of BSE is to consult with fund managers and financial institutions to encourage them to formulate the instruments and list them on the stock exchange.

The BSE would however have to formulate rules for the purpose. Victor Senye of Bifm said at the press conference that as a wealth management firm and one that relies on the BSE, they welcome the introduction of ETFs. Bifm is sponsoring the upcoming ETF conference.

"Lack of liquidity on the local bourse has been a major challenge. The new products will be ideal for us because it will attract a lot of people especially retail and individual investors to participate in stock exchange."

The local bourse operates at about 3 percent of market capitalisation because the majority of stocks are owned by institutional investors and fund managers, who buy and hold stock, hence the lack of liquidity.

Product development manager at BSE, Thapelo Tsheole, said another strategy would be to tap on foreign capital that is being managed by foreign fund managers on behalf of local fund mangers. Botswana fund managers export 70 percent of capital under their management.

"BSE want some of the foreign capital gravitating this way and the ETFs will offer an option on investing such funds."

Investors would be able to buy and sell ETFs on the stock exchange in the same way they would any other share.

The one difference however is that an ETF will normally not afford investors the voting rights that they would have enjoyed if they had invested in the underlying stocks.

The first ETFs were introduced in 1990 in the Toronto Stock Exchange. In the US, they were introduced in 1993 while South Africa got them in 2000.

Globally, the financial markets are experiencing a growth in ETFs listed and traded in exchanges and the growth is not only in number of products and their variety but also in terms of assets and market value.




Source: © Mmegi, Since 2002