If you do not take long positions in a stock that is you only speculate, then this thread is not for you.

For long term investors especially in sub saharan African markets, has it ever crossed your mind that your choices of most of your stocks are skewed towards the Finance sector ?

The reasons are obvious :=

They are the most profitable sectors
They are the most liquid sectors.

But be awasre that your greatest risk is in this sector because :-
Your exposure to risk is far more than other sector namely :-
1 High risk Of non performing loans
2 Wrong disclosure of balance sheet entries, auditors are only exposed to what the banks want them to see

3 The spiral effect on other banks because of interbank setlement which if consistently defaulted by a few distressed banks can affect the books of other banks.

The insurance firms are not spared either as they invest heavily on bank stocks.

What ever the returns my take is that you should not expose your porfolio more than 40% of your holdings on finance sector as a leverage.

The industrials seem to be more stable and consistent during turbulence, but their returns may not be as salutable as banking counters.

If majority of your counters is in banking or finance stocks my candid advise is that you need to rethink and re-balance your porfolio.
The banking sector is an ill wind that has already blown in US, Europe. In Africa, Nigeria investors learnt the hard lesson, for those whose portfolio were over exposed to banking stocks, it can happen to any other market.

I know of some investors that do not invest in Banking stocks at all due to obvious reasons above.
Even in Banking you have to split your portfolio between the agressive banks and the value banks.

Your aggressive bank I can pin point are:-
(i) KCB
(ii) Equity
(iii)COOP
(iv) HFC
(V)NIC
(Vi) DTB etc

For the consevative banks I can pin point

(i) Stan Chart
(ii) Barclays

During bullish run aggressive banks take the lead, but during bear run, the conservative banks are more reliable.
I suggest out of your 40% allocation to finance sector, give 40% of it to agressive bankS, 50% to conservatives and 10% to the insurence compnies. With this you will have 60$ of your portfolio spread ON the industrial and other sectors.
Simply put it is not very balanced or not so ideal to be too exposed to financial sector no matter how attractive it is as on the longer term you may tend to loose more.

So check your portfolio and see how exposed you are to the finacial sector ?. Is it not worthwhile to re-balance your portfolio ? The decision is yours.

Happy investing

Iam 100% in banks. However the advice is true looking at the situation in the US.

My rebalancing will be just before 2012 when I plan to move to the real estate.

@sheep permit me to chip in here, in terms of recovery after general economic melt down like what happened in 2008, blue chips industrials always out peform blue chip financial not only in NSE but in other markets.
Lets take a look at a few blue chips on both sectors :-


FINANCIALS
High of KCB in 2008 was 32.5 bob
High of BBK was 98 Bob

Now KCB is 22 bob plus
BBK is now 56+ bob
Replace KCB with equity that was 300 (Pre split) in 2008
the story is the same, it is yet to attain 30!

None of them has recovered to that high

INDUSTRIALS

The High of EABL in 2008 was 194 bob
The high of ARM in 2008 was 137 bob

Now EABL is 200+, ARM is 170+

Both have a gone above the highs of 2008


If you invest in other markets like Ghana, Botswana, RSA, Hong Kong or US etc the story is the same.

You will not be popular in Wazua if you start picking on EIB or JM......

@young in kenya the main problem esp in the late 80s and the 90s has been poorly capitalised banks and a poor regulatory environment.

young, the market has been on an upwards trend the last few days, thanks in no small part to the financial sector. They will benefit immensely from the growing economy. (I hope the drought won't be as bad as the previous ones) Do you still hold the view of ''not more than 40 percent exposure?''

Happy new year Youcant,

Max 40% exposure to financial sector is not what I believe it is a universal best practice for long term investors and fund managers.
Some school of thoughts even advocate for 20% max.

@young i totally agree with you that investors shouldn't expose themselves more than 40% to ANY sector...

But to take advantage of the current rally i'm almost 60% into financials but i expect to reduce this to 35% when end of february hits

How much are the houses being built in Kibera by the government going for? Or they are only for renting?

Hi,
Can anyone share any insight into the laxity / stringency of bank lending standards on unsecured funding? the sense i've gotten from alot of people is that an overwhelming chunk of mortgages are 100%+ financed (i.e. a zero downpayment mortgage) or an 80% mortgage with 20%+ personal loans unsecured. Is this a common occurrence? Welcome your thoughts / insights.