FTSE has partnered with the Nairobi Securities Exchange to develop indices for Kenya, which could precipitate the introduction of ETFs to the market.
Local regulations do not currently allow ETFs to be listed there but a change in regulations - expected imminently - could see the first ETFs listed in Nairobi as soon as the second quarter of 2012, according to Jonathan Cooper, managing director, FTSE Middle East and Africa.
Existing indices for the market are not suitable for financial products; the FTSE NSE Kenya 25 Index and FTSE NSE 15 Index are designed to be tradable and FTSE has had interest from companies looking to create ETFs based on the indices.
"I've had a number of conversations with people here who - regulation aside - would start the process tomorrow. The thing the indices are doing is speeding up that process of evolution," says Cooper.
He adds that ETF listings are likely to come from local players first but investment may come from outside the country: "The domestic banks and firms and managers, in creating a domestic ETF, are optimistic that they can get assets under management from overseas participants," he says.
"We are talking about big, top end managers which operate in the market place here, which would be known to some of those offshore institutional investors... there will be managers offshore who will be looking at frontier markets and if we can have a domestic participant here that can list, which has a decent brand that foreigners may be familiar with, it will help to facilitate that process."
The development of the indices are part of FTSE's strategy in the region; it has had a partnership with the Johannesburg Stock Exchange for several years and earlier this year it announced a partnership with the Casablanca Stock Exchange.
Cooper explains that Kenya is a key market within the region due to its 2030 vision, part of which involves diversifying its economy.
The two indices both consist of large cap stocks but the 15 applies a cap to the stocks: where a stock's weighting would be greater than 20% of the index, it will be capped at 20%; where it would be between 15% and 20%, it will be capped at 15%.
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