The Role of a Functional Bond Market in Growing the Investor Base of Equity Markets in Africa

Abstract

One of the major constraints on the growth of Africa’s equity markets is the narrow and shallow pool of investors. Experts have often cited the absence of or limited investment of pension assets in equities on local stock markets as the major constraint on the growth of demand for listed securities in African stock markets. Also, often cited as one of the major constraints on the growth of the investor base and growth of demand for securities listed in African stock markets, is poor investor education and financial literacy. This article argues that the efforts to enhance the investor base for equity markets could be augmented by a functional bond market which could serve as a source of investors for bond-like equities. An argument is also made that by promoting issue of convertible and other equity-linked bonds, a functional bond market could serve as a source of investors for the equity markets as investors convert the bonds to equities or, exchange the bonds with equities or indeed subscribe for fresh issues of equity securities.