How to Buy Shares in Kenya. The Nairobi Securities Exchange(NSE) is a dealer market that provides an organized trading platform for the buying and selling of financial instruments of publicly listed companies. Many potential share investors are intimidated by the prospects of buying shares on the Nairobi Securities Exchange (NSE). This is mainly because they do not understand the process involved with buying/selling shares, and how the market works. Others still believe that share investment is an activity only reserved for sophisticated investors. However, this has changed significantly in recent years. With developments in technology, more prospective investors can enter the market and there are many regulated and reputable stockbrokers that accommodate Kenyan investors, even if they do not have prior experience in buying, selling, or trading shares.
Currently listed on the NSE are 64 stocks from companies across 11 sectors of the Kenyan economy; banking, investment, investment services, agricultural, telecommunications and technology, manufacturing and allied, automobiles and accessories, construction and allied, commercial and services, the insurance sector and energy and petroleum. Owing to the digitalization of trading services by the NSE (Nairobi Securities Exchange), all one needs to begin stock trading is a computer, decent financial market knowledge, some money and, of course, the internet. The trading mechanism of the NSE was automated in the late 2000s and has enabled ease in trading since then and more trades can be executed per minute.
Why trade stocks?
Stock trading allows one to make a profit against buying and selling securities. Profitability in stock trading relies on timing the market, other risk factors, and stock mispricing. The timing of the market is a predictive trading strategy that involves buying or selling assets in anticipation of the fluctuation of asset prices. If one can accurately predict the price movement of an asset – whether the price will go up or down, then one can make a trade to turn this expectation into profit. However, keep in mind that losses are equally probable. Mispricing, on the other hand, is a difference in the current price of a security and its fundamental value. This can be caused by an event in the economy, a macroeconomic issue, or a specific characteristic of the asset at a microeconomic level.
In addition, having long (buy) positions in stocks and bonds is advantageous because some co-operative societies and banks will allow loans with the securities currently owned as collateral.
In contrast to other forms of investments, stocks are highly liquid (can easily be sold), because of the high amount of buyers and sellers present in the market. If ever you wished to cash out, it will be easy to find a buyer, and sell. It would normally take months to find a buyer for the property in case of need for cash.
A great advantage of stock trading is that taxes are paid on gains only when one sells the stock. Losses on trades can also help reduce the taxes paid on gains. In bonds investment, however, taxes are paid annually.
The Nairobi Securities Exchange is the official stock exchange in Kenya. It is the central marketplace where buyers and sellers of Kenyan shares meet to trade. There are more than 64 stocks from companies spanning across the 11 sectors of the Kenyan economy, including:
- Investment Services
- Banking
- Investment
- Agriculture
- Automotive
- Construction
- Commercial
- Insurance
- Energy, and more.
( Nairobi Securities Exchange’s Market Watch.)
Before you begin, you need to understand that the market moves in either direction, up or down, because of market forces, the performance of the specific company and various economic conditions. All these cause market volatility, and to understand this is very important. Misjudgment, greed, bad timing and bad luck have driven many investors into bankruptcy.
Here are a few steps one can follow to begin trading securities at the NSE.
Step 1: Figure which assets to invest in
There are two analysis methods by which one can select assets appropriately, the technical and fundamental analysis methods. Fundamental analysis involves analysing factors that could influence a stock’s future price, based on the company’s management, financial statements, and the company’s market and industry position. Through fundamental analysis, we can find out if a stock is overpriced or under-priced – mispricing. Technical analysis, on the other hand, is analyzing the stock’s price movement through charts, patterns, and graphs, in anticipation of price movements. This analysis method can be advantageous in short term trading, for profits.
Stock prices are volatile and thus you should be keen to estimate the prices using fundamental and technical analysis of the stock to make sound investment decisions.
Step 2: Choose your securities wisely
NSE is among the few trading houses in Africa offering a wide variety of assets, among them stocks, bonds, derivatives, Exchange Traded Funds(ETFs) and Real Estate Investment Trusts(REITs). These provide good candidates for a less risky portfolio.
When you are looking for shares to form part of your investment portfolio, you are going to use either one of the following analysis methods or a combination of both:
- Fundamental analysis – in which you analyse different factors that may influence the future price of a share according to the company’s management, financial statements, and the position of the company in the industry and market.
- Technical analysis – in which you analyse the price movements of the share by viewing price charts, patterns, and graphs, which indicate how its price moves.
When you start trading shares, it is important to remember that stock prices can be susceptible to volatile market movements, which is why it is crucial to use a combination of fundamental and technical analysis to provide you with the “why” as well as the “how”.
Step 3: Choose a broker
Stockbrokers are involved in in-depth research of the market and as professionals, may advise their clients in trading issues. When choosing a broker, a few pointers to look out for are the services they provide, the expertise of the brokerage, and, most importantly the trading fees charged. As a beginner, some brokers may seem unattractive because of the various fees charged, but this should not reduce the standard or quality sought when choosing a broker. A list of all brokers (NSE trading partners) can be found by clicking on the link provided, https://www.nse.co.ke/member-firms/firms.html
You cannot buy or sell shares directly on the NSE. You need a stockbroker that will facilitate your trade. Choosing the right broker will involve in-depth research of the market and professionals that offer their trading and investment solutions and options.
When you choose a stockbroker, look at their regulation status, licenses, the services that they provide, the fees that they charge, their expertise, and the trading platform that they offer.
As a beginner, it is also important to select a broker that will provide you with the necessary training and education, helping you gain an understanding of the stock exchange, stock market, and the process involved with trading.
Step 4: A trading account.
For one to trade securities at the NSE, one needs to open a CDS (Central Depository System) account – a trading account. The account is unique to each investor and can be opened on an individual or joint basis. This account, by the Central Depository and Settlement Corporation, acts as a bank account for the stock and securities market, and the body, CDSC, ensures all settlements have been paid out.
Opening of the CDS account can be made at the central bank, or at local central depository agents, and will need filling of a CDS 1 form and submission of a few personal documents, i.e.
- Two color passport-sized photographs
- KRA pin
- National ID or passport
- Evidence of residence and
- Evidence of income. (payslip or bank statement)
https://www.cdsckenya.com/faqs(Frequently asked questions on CDS accounts).
However, if one fills the CDS 1 form at a bank in which one is a member, one will only need the passport-sized photos and an original copy of the national ID/passport.
How to open a CDS account in Kenya
You visit any investment bank like Stanbic, stockbroker in Kenya, or a bank- some, like Equity act as agents of various stock brokers in Kenya as licensed by the CMA (capital markets authority).
You won’t pay a penny but you’ll be asked for the following documents:
- Your original ID card and a copy thereof.
- Your original KRA Pin and a copy.
- 2 recent colored passport size photos
Companies are asked for additional documents including a certificate of incorporation and company’s KRA PIN.
You can deposit some money in the CDS account via the broker or bank as you gear up for your first foray in the stock market.
Step 5: Choosing the stocks
Once logged in to your trading account, the next step is to transfer funds to the account and pick stocks and a market position on the stock in a manner such as to expect gains. A market position means that one can either buy or sell a stock. In buying (long), one expects the market to move up and in selling(short), one expects the market to move down. In addition, there is the concept of short-selling, which allows investors to borrow assets not previously owned, sell them and later buy them back at a lower price, and so bring in profit from an asset not owned by the investor. Dividends are another way to gain money from stocks. Dividends are a distribution of company profits to its shareholders and are paid semi-annually (most common).
6. Buying Shares
Before you deposit capital into your trading account, it is important to first use a demo account with your broker. This is a paper trading account that allows you to trade in NSE using virtual funds.
The demo account allows you to gain valuable insight into how the stock market works and how real-time prices move and change. Once you have gained enough experience, you can deposit real money into your trading account.
From here, you will have an improved idea about which stocks you want to buy with your capital, which market position to take, and what to expect from your shares.
Market positions mean buying or selling shares. When you enter a buy or long position, you believe the stocks will appreciate and therefore you purchase them. When you enter a sell or short position, you believe the stocks will depreciate and you, therefore, sell them to buy them back at a lower price.
How to identify the best shares to buy in kenya
Apply these tips in your quest to identify the best shares to buy in NSE Kenya (Nairobi Stock Exchange).
- Research your prospective company’s general health: If you want to invest, let’s say in Safaricom, look for its annual report first. This will give you an overview of the company’s future prospects- you want to buy shares of a stable, growing company.
- Evaluate the business further: Hunt for any useful information in the newspapers, the internet, TV, etc. about the company’s shares. Also look for the latest Nairobi stock exchange performance data of the share from the NSE online platform. You want to be sure that the company’s share has great potential going forward.
