Barclays Africa has announced that it plans to list its NewGold exchange-traded fund (ETF) on the Nairobi Stock Exchange (NSE) in the coming months.
- The NewGold ETF has its primary listing in Johannesburg with secondary listings in Nigeria, Ghana, Mauritius, Botswana and Namibia. It works by listing bullion debentures that are each equivalent to 0.01 ounces of gold which are then bought and sold as regular shares. The regulatory bodies have approved 400,000 such debentures to be listed.1
- The announcement comes shortly after Barclays Bank of Kenya launched its brokerage firm in October 2016, Barclays Financial Services Limited (BFSL). BFSL is a wholly-owned bank subsidiary that will have access to the bank's trading desks in nine other African countries2..
- This new development also comes less than one week after Barclays Africa announced that it is to receive US$1.1 billion as part of its 'divorce' package from its parent UK bank. This will help cover the costs of setting up a program aimed at black economic empowerment, predominantly in its home country of South Africa. The government in Pretoria is continually seeking to ensure that as many institutions are in the hands of black stakeholders with Barclays Africa being a particular target given its ability to play a role in the development of black-owned businesses3. Barclays Africa will receive a separate US$952 million to cover costs such as rebranding and technology requirements associated with the split4.
- The NSE is currently passing through one of its worst periods in recent years, given the unwanted mantle of worst performing bourse in 2017 - its value fell 6.9% in the first 18 days of the year5 due to global instability, increased reliance on imports, increased spending in an election year and a worsening drought affecting food production6. The debut of its first ETF will hopefully bring much-needed diversification to the exchange's portfolio. Michael Mgwaba, head of exchange traded products at Absa Capital unit (Barclays Africa-owned) said "NewGold ETF fits the objective of what Kenyan markets seek to achieve, which is to boost liquidity and deepen the market7."
Outlook
Those seeking mid to long term investment options should look at the NSE with interest. The current downturn being experienced by the bourse is worrying for investors but it will come to an end and prices will rebound as a result of increased private spending from a growing middle8 class and positive policy action from government such as seeking external financing9 and securing a loan from the IMF10. Whilst the NewGold ETF will be linked to global gold prices as opposed to the performance of the NSE, the extra volumes traded on the NSE alone will increase confidence in the market and could help stimulate such a recovery.
Gold prices are seeing a resurgence as uncertainty continues over the extent and effectiveness of OPEC production cuts, the US dollar fluctuations during the early days of US President Donald Trump's tenure, and the pound and euro struggles on the back of the Brexit dilemma. Those seeking a stable domestic investment would do well to investigate ETFs where available.
The announcement of the impending launch so soon after the declaration of the separation package agreed between Barclays Africa and Barclays UK could be indicative of the direction in which the continental company will look to focus its attention. It will likely look towards increasing its non-interest income, reducing its exposure to the risk of non-performing loans.
Footnotes
3 https://www.ft.com/content/4b4ce00c-20dc-11e6-9d4d-c11776a5124d
6 http://www.theeastafrican.co.ke/business/Kenya-economic-growth/2560-3794558-10nf4no/index.html
8 http://www.africanbusinessreview.co.za/finance/2737/Kenya's-2017-economic-outlook
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