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Betting on abbreviations: Absa wows customers and peers with financial engineering

It was intriguing to see how Absa Bank has nurtured the ETF market and invested in the stories of its customers to grow it into a robust segment of the NSE.
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I attended a press conference nearly a decade ago when Absa Bank, then known as Barclays, announced the launch of the first-ever Gold ETF in Kenya. As a typical journalist, this sent me down an internet rabbit hole trying to understand what an ETF was in the first place. This time, the Nairobi Securities Exchange was throwing abbreviations at us- ABS, SBLs, REITs, etc.- which often sent us back to online explanations.

More is better

NSE policy direction had prescribed that Nairobi be the first to launch all the complex financial instruments being traded in Johannesburg and the rest of the world, believing that there were enough deep-pocketed Kenyans to buy these options.

I learned a little about ETFs and how they work. The ETF allows investors to indirectly own gold with a minimum trade of 100 shares and is expected to help diversify portfolios away from equities and bond markets. These ‘instruments’ are regularly traded in the global market, which have been absent in Kenya since we lacked the infrastructure to access them and the expertise to trade them at the time.

Head Equity Research at Absa Bank Kenya Timothy Wambu making his presentation during the Absa 2025 Macro Economic Outlook, risk management and structured investments solutions forum.

Read also: IWD: Absa Women executives write the story of the future of female finance

Absa Bank, which had been trading ETFs in South Africa, decided to bring these instruments to Nairobi as part of its strategy to expand the market share of the largest gold ETF in Africa to seven markets across the continent.

Latent counter

The NewGold ETF, fully backed by physical gold bullion, is primarily listed on the Johannesburg Stock Exchange, with secondary listings in Kenya, Botswana, Nigeria, Mauritius, Namibia, and Ghana, offering institutional and retail investors the opportunity to hedge in gold.

Absa initially issued 400,000 shares but cut them to 150 shares due to low demand. In the initial years, foreigners owned 94 per cent of the counter.

I remember tracking this counter for most of the decade at Business Daily, where I once wrote that this was the most dormant counter at the bourse, having traded only sets of 100 to 800 units ten times in the first three years since its listing in February 2017.

The safe haven

However, at the onset of COVID-19, investors in gold-backed ETFs enjoyed a significant increase in the value of their holdings, following a sharp rise in the global price of the precious metal, as gold is viewed as a safe haven investment during times of economic shocks.

This has seen local investors, particularly institutional ones take up positions in the ETF. According to the Capital Markets Authority, institutional investors, who comprised only 0.13 per cent of New Gold ETF buyers in 2018, now account for 21.7 per cent of its holders today.

Absa Bank Senior Economist Phumelele Mbiyo says inflation will be transitory around food supply chains, offering scope for an accommodative monetary policy stance.

Foreign investor holding has been whittled down to 70 per cent, and about 7.9 per cent of local individuals hold the assets, up from 5.8 per cent in 2018.

The Absa gold counter was launched with a market capitalization at the price of Sh1,855 per unit, but today it is worth Kes3,660 each, with a market capitalization of Kes1.4 billion.

The Absa ETF market

The gamble had paid off; not only had Absa created a new market niche, but it also viewed this as an opportunity to expand after Absa Bank Kenya announced that it was on the cusp of launching a Morgan Stanley Capital International (MSCI) World Index-linked ETF within the second quarter of 2025.

The MSCI World Index captures 1,395 large and mid-sized companies listed across 23 developed economies, including the US, UK, Switzerland, Singapore, Germany, Israel, Japan, France, and Australia. Presently, the top constituent companies of the MSCI World Index by market capitalisation are Apple, Nvidia, Microsoft, Amazon, Facebook's parent company Meta, Google's parent company Alphabet, Broadcom, Tesla, and JP Morgan.

I was in the rooms where this news was first announced, on the sidelines of the weeklong 2025 Economic Forum that offered in-depth macro analysis, explored financing opportunities, and yield-enhancing strategies in a bid to help clients build resilience and growth.

Masterclass

It was intriguing to see how Absa Bank has nurtured this market and invested in the stories of its customers to grow it into a robust segment of the NSE.

The lender had flown in Absa Bank Senior Economist Phumelele Mbiyo, Head of Client Solutions Group for Africa Regional Operations Vuyo Mafrika, and Absa Bank Kenya Senior Legal Counsel Rhee Molefe to provide importers, exporters, regulators, and market investors an opportunity to unpack complex financial instruments that can be crucial in navigating current volatility, while exploring alternative funding opportunities as well as yield enhancement instruments as we enter a low interest rate environment.

In the tone of a friendly elementary teacher, Ms. Vuyo took us through her bag of trick words. Total Return Swaps, Repos, and Buy and Sale Backs were her favourites due to their exposure to foreign currency and accessibility for Kenyan investors who can purchase a position in shillings.

She explained the differences in the contracting methods and what each meant regarding the risk associated with the instrument, as well as how the profits from the investments would be negotiated, shared, and disbursed.

She weaved through the questions, advised bankers on structuring contracts, and conducted a masterclass on practical instruments useful for hedging against currency movements to protect inventory cash flow from volatility.

During tea, I had the opportunity to rub shoulders again with some of the top economists in Nairobi whom I hadn't seen in a long time. It was interesting to discuss how Kenya was trading Eurobonds in the international markets, analyzing the moves by the national Treasury and considering the implications of investor responses to them.

You could really feel that the room was different from nearly a decade ago; everyone was excited about the opportunities these instruments offered. Some of the traders I spoke to mentioned that they were using these hedging instruments, and such upskilling events had simply improved the way they deployed them, thanking Absa Bank Kenya for investing in their stories.

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