CMA approves listing of first ETF in Kenya

The Capital Markets Authority (CMA) in Kenya has recently granted approval for the listing of the first exchange-traded fund (ETF) on the Nairobi Securities Exchange (NSE). This ETF will track the price of gold and is set to launch soon, introducing a new investment option for investors in the country. Mary Njuguna, Manager for Corporate Approvals at the CMA, shed light on the significance of this development in a recent interview with CNBC Africa. Njuguna explained that while ETFs are considered derivatives in South Africa, in Kenya they are classified as equities. The ETF, issued by South African-based NewGold Issuer (RF) Limited, will be listed on the NSE's main investment market segment. However, its value is derived from gold, which the issuer holds with a custodian. The security listed on the NSE will track the price of gold closely, providing investors access to this underlying commodity. This move comes at a time when the NSE has faced challenges, offering investors an alternative route for investment. Njuguna highlighted the importance of expanding the portfolio of investment options available in the market, citing the recent listing of Real Estate Investment Trusts (REITs) as another example of diversification. The gold ETF not only introduces diversity in commodities but also allows pension funds to invest up to 80% of their assets in such products, enhancing liquidity and diversity in their portfolios. One of the key concerns with introducing new investment offerings is investor education. Njuguna emphasized the need for simplifying the concept of ETFs for Kenyan investors through various materials and engagements. Collaborating with market participants and the NSE, the CMA aims to enhance investor knowledge and understanding of ETFs. By soliciting feedback and conducting assessments, they seek to address any gaps and ensure a smooth introduction of the product to the market. Despite potential challenges in market readiness for sophisticated financial products, Njuguna emphasized the importance of creating an enabling environment for issuers while also gauging investor interest. By engaging with both institutional and retail investors, issuers can assess market demand and tailor their offerings accordingly. Njuguna stressed the need for a starting point in introducing new investment products, laying the groundwork for future growth and innovation in Kenya's financial market. The listing of the first ETF tracking gold prices on the NSE marks a significant milestone for Kenya's capital markets, offering investors a new avenue for diversification and investment opportunities. With careful planning and robust investor education initiatives, the CMA aims to ensure a successful launch of the ETF and pave the way for further advancements in the country's financial landscape.