Pension houses buy & hold strategy affects Liquidity flow on LuSE – Kabaso

Lusaka Securities Exchange Chief Executive officer Nicholas […]

Lusaka Securities Exchange Chief Executive officer Nicholas Kabaso has noted that the exchange is working around increasing product diversity to help enhance liquidity flow. Speaking in an interview with Zambian Business Times-ZBT noted that bringing on board new products such as the exchange credit fund to create more liquidity on the LuSE.

 “ Part of the issue that we are working on is increasing product diversity obviously for liquidity to flow, money has to find products on the market, and that why as an exchange we are working on trying to improve the level of products, because we already have vanilla equity listings to improve the depth of the market we are bringing in new products such as the exchange credit fund,” said Kabaso.

He added that the other pension houses having the buy and hold strategy in existing stock is affecting market liquidity. “ In the existing stocks we have the inherent problem of pension houses that have got a buy and hold strategy, which obviously affects liquidity flow because when firms or individuals buy shares and can not sell, it basically means there won’t be enough liquidity flowing to the other investors,” said Kabaso.

He mentioned that part of the reason why investors are in a buy and hold situation is because the number of listed companies remains low. “ Part of the problem why investors are in the buy are hold situation could also be because the number of listed companies still remains small which then means that even if an investor is to sell-off their shares, they won’t have additional options to be able to investor the particular returns gotten from the sell of their share, which then remains on the exchange work around increasing the number of listed companies,” said Kabaso.

 He mentioned to additionally re-enforce on the conversation that increasing liquidity is the issue of finding products that are very close to what the country’s economic fundamentals are starting. “ Zambia is predominantly a mining country and we still need to be able to get mining firms to list their direct mining activities on the exchange regardless of how much capital will be injected from the local as well as few international communities to ensure that the market reflects the actual fundamentals of the mining sector which can also help in addressing the issue of additional liquidity on the market,” said Kabaso.

He further stated financial literacy as an important aspect in achieving the much desired liquidity flow on the exchange. “ If we have to be able to increase liquidity on the exchange, we have to sensitise the market around what LuSE does and continue to create additional streams to educate citizens both retail as well as institutions to be able to look at the capital market not just for speculative reasons but as a way of deploying productive savings into productive sectors,” said Kabaso.

By Justine Phiri