The availability of free-floating stocks, or the shares available for trade in the exchange, result in higher liquidity in the market because players can actually have options to buy and sell. The local exchange has a requirement for all listed companies to maintain a 30% free-float, but pension funds hold the majority of this for their long-term investment horizons.
In a market update session hosted by the Debswana Pension Fund (DPF) recently, BSE chief executive, Aupa Monyatsi, said the exchange was aware of complaints over the lack of sufficient free float in the market and the resultant liquidity crunch.
This, he said, was the result of not having many listings on the exchange, with the already existing equity listings locked in by pension capital.
“Part of the reason why there are liquidity challenges in the stock exchange is that there are not many listings and over 80% of the free float is in the hands of pension funds,” Monyatsi said.
The local market has several licensed pension funds, but the biggest two being the Botswana Public Officers Pension Fund and the DPF are the biggest investors on the local stock market.
The two pension funds have snapped up the majority of equity and debt listing options through their asset managers.
Market players from some local companies shared their frustrations even more plainly in a panel discussion, sharing that the local market offers no price discovery for their stocks.
“Because of limited daily trading of stocks, the prices on the stock exchange do not reflect current market information,” said a representative from a locally listed company. “It is so frustrating because sometimes the shareholders who are pension funds do not even understand the mandate of the business or its vision. “We just deal with asset managers who act on their behalf.”
Other analysts have recommended that the BSE consider increasing the required free-float from the current 30%, to increase access to investors other than pension funds.
Pension funds dominate the local stock market simply because there are not many investable options in the country. The lack of investable opportunities means the pension funds would have to hold huge cash deposits, lowering their potential returns to pensioners.
Monyatsi, however, cautioned that the market should not just focus on equity and debt listings but also consider other options such as Exchange Traded Funds, corporate bonds, and green bonds.
“The problem could be that the market is only focusing on equity and debt listings alone, whilst there are many options that could increase liquidity such as ETFs and green bonds which are becoming more appealing in international markets,” he said.