Tuesday, May 27, 2014

How to Invest in the Nairobi Stock Exchange



The Nairobi Stock Exchange or the Nairobi Securities Exchange (NSE) as it is officially referred to is your one-stop shop for publicly traded Kenyan shares and bonds. Whether you are a foreign or local investor, buying shares on the stock market is simple, fast and straightforward.

Let me walk you through the process.


Stock Buying Instructions


Step One – Stock Purchasing Due Diligence

The first thing you need to do before you invest in anything is to carry out some due diligence. Due diligence refers to undertaking comprehensive research before you commit money. In the case of Kenyan stocks, you need to establish several issues, namely:

  1. How big the company is, that is, market capitalization.
  2. Revenue, profit and margin trends
  3. Competitors and Industries
  4. Price-earnings ratios (PE) in conjunction with price-to-book (P/B) ratio and the price-to-sales/revenue ratio.
  5. Management and share ownership
  6. Balance sheet in comparison with the competition, specifically:
    • Overall level of assets and liabilities
    • Overall level of debt
    • Amount of long-term debt
    • Debt-to-equity ratio
  7. Stock price history
  8. Stock options and dilution possibilities
  9. Company's future outlook
  10. Industry-wide and company risks e.g. pending legislation that will affect the company negatively, legal cases etc. In essence, carry out a worst-case-scenario analysis.

The above information is available from online sources such as the Nairobi Securities Exchange website where you can find various statistics, view live and historical data, and download a few investor guides. Also, most companies listed on the securities exchange have websites with sections dedicated to investor information where you can also download annual company reports.

Step Two – Find a Stock Broker

After conducting due diligence, identify a stock broker. As is the practice the world over, Kenyan securities are purchased via a broker. Many stock brokers have portals that allow you to buy stocks online in Kenya. Please see the list of licensed Kenyan stock brokers.

Talk to the broker and ask for their professional opinion regarding step one above. What do they think about the company you want to invest in? Do they concur with your findings or do they have a different opinion? Listen carefully to what the broker has to say before you place a buy order.

Step three – Open a CDSC (Central Deposit and Settlement Corporation) Account

All publicly traded shares are held electronically in CDSC accounts. Opening a CDS account is free at most brokerage houses. Do this by visiting your broker's office or downloading the forms from their website. You will need to attach the following:

  1. A recent passport-size photo
  2. A certified copy of your driver’s license or passport
  3. A certified copy of a tax return or utility bill

Once the broker receives the documentation, your account will be activated. As soon as your account is active, you can begin making buy and sell orders.

Stock Buying Tips & Warnings


  • Stocks are bundled in minimum lots of 100 shares in the main market. If you want to buy less than this, you can do so on the Odd Lots board.
  • The NSE market opens Monday to Friday from 8.00 a.m. to 5.00 p.m. Trading begins at 9.00 a.m. and ends at 3.00 p.m.
  • The Capital Markets Authority (CMA) regulates the amount of fees that can be charged for trades. The fee for trades below 100,000 Kenya shillings (Convert with Google Currency Converter) is capped at 2.1% and 1.85% for amounts above. Many brokers will negotiate a lower fee for high volume trades.
  • The rules specify that dividends must be deposited to your bank account AND NOT the trading account. Foreign investors can arrange to have their dividends wired to accounts outside Kenya.

Suggested Reading


Nairobi Securities Exchange

Capital Markets Authority


Share on Whatsapp

0 comments:

Post a Comment

Kindly leave helpful comments.