Investment ExpertSpeak: Mauritius regulators to keep abreast of financial innovation
Sharona Rambocus, Vice President of CFA Society Mauritius, spoke to AfricaMoney on how Mauritius’ credibility as an international financial centre of choice took a hit in the latest financial scandal. However, she pointed out that, subsequently, local investor confidence in the stock market has rebounded upon favourable corporate results of certain major market players. She also stressed that PwC conservators needs to be transparent in their communication about the financial services major implicated in the financial scandal, the BAI Group, as well as its related entities, as people are speculating on rumours which might be completely baseless and downright detrimental to the health of the financial market.
Sharona Rambocus is the Chief Investment Officer at DMH Associates, which is a firm specialising in M&A advisory, capital raising and project financing, and is the secretary at a newly established association for financial experts, the Investment Management Association.
Edited excerpts from an exclusive interview with AfricaMoney:
Mauritius is going through a bad phase, following the financial scandal involving insurance major BAI that rocked the country’s financial services sector. Can you please provide your views on the implications of such a huge financial scam on the island economy?
It is not of importance to repeat what others have been saying but rather what concerns me most is the credibility of Mauritius as an international financial centre for which we worked hard and which took a direct hit. The emotional impact and other such areas do not lie under my domain expertise but being a wealth manager and having worked in the financial sector for long, my immediate concern is to reinstate the credibility of Mauritius. Prior to the scandal, investors were displaying trust in Mauritius and viewing the country as a trusted centre for credible financial services, given the ease of doing business, political stability, friendly and skilled people.
Given that Mauritius is trying to position itself as an international financial centre, what damage control measures can it adopt to limit the adverse impact of this financial scandal?
Now, we need to act quickly, take decision rapidly and propose solutions. Moreover, PricewaterhouseCoopers (PwC) are the experts appointed as conservators to resolve this issue. Thus, we must allow the experts in their field, namely PwC, to do their job and be transparent in their communication, as full disclosure and communication is critical for effective analysis and should be made available to all stakeholders. It is lack of information that can be the most damaging element in the face of an event with such serious implications. PwC must disclose clearly what irregularities they unearthed, the steps to proceed with to resolve the issues, and the time frame that it will take to implement the necessary corrective action. Currently, people are in the unfortunate position of speculating over rumours which are likely baseless and might be downright detrimental to the health of the financial market
More importantly, what, in your view, can be done to prevent such financial issues from cropping up in the future?
First up, trust is essential to the functioning of the broader financial services industry. Without it, individuals are unlikely to lend and invest, which will directly lead to a reduction in the economic growth. Secondly, financial markets are built on a structure of laws and regulations that ensure that firms doing business and people working in the finance industry fulfill their obligations. However, laws and regulations are not always sufficient because they might not cover all financial activities, being sometimes vague and ambiguous, and laying open unfortunate loopholes for less ethical companies to exploit. Thirdly, because the law is slow to catch up with financial innovation, when new financial products are on the market, financial markets need more self-regulation— that is, an in-built code of ethics and professional standards. The behaviour of those working in the industry should be ethical as it lays down the foundation for industry behaviour as a whole.
In fact, a recent piece of research states, “statutory law and criminal sanctions have limited efficacy.” Accordingly, what needs to be done is to educate professionals in the industry to work in an ethical manner, rather than expecting them to do so on their own in view of stringent rules and regulations alone.
In summary, it is good to have various laws in place to preempt the chances of fraud and scams occurring in the first place, but if the people working in the industry are not ethical, the overall industry behaviour will be unethical as well.
Currently the Stock Exchange of Mauritius is spiraling down, with the high degree of uncertainty facing the financial services sector. Can you comment on investors’ confidence and willingness to invest in the stock market in such a situation?
Personally, I do not think that there is a major lack of confidence as local investors are still supporting the market, but some foreign investors are selling. Recently, some listed stocks published good financial statements, like the MCB Group Ltd, and some hospitality majors as well, thus giving reassurance to investors and reinstating confidence in the market.
Moreover, the stock market is more a long-term investment vehicle and therefore there are always ups and down. As for foreign investors, they are selling because they do not know with complete certainty what is really happening in the Mauritian market, and thus as a precaution, they prefer to sell. However, when you are located in the market itself, you know that there are stocks that are performing well, so you will invest. Accordingly, basis availability of differential degrees of information, foreign and local investors’ attitudes are different.
We need to encourage people to invest on the bourse, especially for retirement, to democratise investment on the local stock exchange. Finally, I believe that people should be encouraged to seek recommendations from investment advisers, as being domain experts.
Assuming a global investment portfolio, what approximate percentage of such portfolio can be committed to Mauritius, as a gateway to Africa and Asia? Also, which country must a majority of funds be geared towards in order to get favourable returns?
A maximum of 5% of a global investment portfolio should be committed to Mauritius, given the market is relatively small and illiquid. it is difficult to label any one country a dream investment destination, as the significance of an investment destination depends on the type of investment you want to undertake. Thus, while investing in a country, you must follow a top-down approach. For instance, at a macro level, each country displays certain key performance indicators, of which the most critical ones we need to look out fo rare growth and inflation. Then, we assess sector within the economy, and then, within the sector, we look for companies that have a strong balance sheet and have potential for growth, going forward.
Finally, what is the perception of foreign investors regarding investment opportunities in Mauritius and how can such perception be taken to the next level?
The perception has been impacted adversely by the recent scandal but it is still good; however, there are things that need to improve to take the market to the next level. For instance, we need to up skill our resources, improve the regulatory framework and remove the ill effect of bureaucracy on the ease of doing business, among others.
Mauritius should be perceived, as a trustworthy financial centre where investor interest will come first and market interest will be second.It is important to keep in mind that the sustainability of a financial market depends on fairness, efficient working regulators and due policy framework.
If we do not have the trust of investors, we will not be able to take it to the next level.
-By Wazna Gunga