By Kabo Ditlhakeng | From The Botswana Gazette

In just two months, over US$190 billion has left China in capital outflows to other investment destinations after its market crash. Although difficult to tell where the cash is headed, Gazette Business Reporter Kabo Ditlhakeng finds that there are few attempts by the Botswana Investment community to tap into this capital?

Moatlhodi Sebabole, a finance PhD candidate and economist at First National Bank of Botswana (FNBB) shares with us what really transpired in China; He said; “China rebased its economy wanting to shift away from exporting as the major driver of economic growth, preferring rather domestic consumption as the driver.”

According to Sebabole, this came with easy access to credit by unsophisticated individual investors to invest in the stock market.

“In the year leading up to the crash, individual investors put in too much money in stocks using borrowed money. They exceeded the rate of economic growth and profits of the companies they were investing in. As a result, investors faced margin calls on their stocks and many were forced to sell off shares en masse, causing the crash,” explained Sebabole.

Quizzed on where the capital is likely to go, Sebabole opined that capital is constantly looking for better returns and that emerging economy markets provided just that. Sebabole was not too upbeat about a large chunk of the capital flowing into the Botswana Stock Exchange (BSE) citing the small size of the local bourse and lack of liquidity.

“The Botswana Stock Exchange is small and not ready for the kind of funds we’re talking about here; you just cited $190 billion in capital outflows over two months. We need to do something about the liquidity position of the local stock market, it is dominated by institutional investors who buy and hold stock for long periods,” decried Sebabole.

However, he commended initiatives by stocks like the Exchange Traded Funds (ETFs) where stocks from other markets are sold as a basket, or in some cases are tied to commodities like gold which is performing very well.

Read more at The Botswana Gazette