Investing in the stock market is one of the best ways to diversify your investment portfolio. However, there is a common misconception that you need to be a business expert or come from a wealthy background to invest in stocks.
Fortunately, this is no longer the case, thanks to rapid technological advancements and continuous government support. Today, you can buy shares right from the comfort of your home. How cool is that?
Shares, also known as stocks, give you a stake in a publicly-listed company. To buy shares in Kenya, you can’t simply walk into the NSE offices and request to purchase them. There’s a specific procedure to follow, and we’ve detailed everything you need to know in this guide.
Looking to Invest Your Money?
See what our experts think are the best business ideas in Kenya currently.
The Kenyan Stock Market: A General Overview
Before delving further into how to buy shares in Kenya, let’s first give you a general insight into Kenya’s Stock Market custodian i.e., the Nairobi Securities Exchange (NSE). The NSE is an all-inclusive marketplace for buying and selling bonds, stocks, or ETFs (Exchange Traded Funds) in publicly traded companies.
The NSE was founded in 1954 and acts as a significant pillar of the Kenyan economy by expediting capital formation for businesses plus creating investment opportunities for individuals.
What are Shares?
Shares are units of ownership in a company’s stocks. So, by buying shares from a particular company, you equally become a partial owner of that company. Shares are publicly traded on stock exchange markets where individuals can buy/sell them. Share prices are highly determined by their demand and supply on the securities exchange markets.
Step By Step Procedure for Buying Shares in Kenya
As a beginner investor interested in buying shares, you may be confused about where to start. Here are the guidelines;
1. Assess your preparedness to buy shares
Do personal research
Like any other form of investment, investing in stocks requires a bit of research. It would be best to keep yourself updated on the current economic news and market trends to make viable investment decisions. Luckily, you can easily get information on investment strategies or stock markets from online sources or libraries.
Analyzing your investment goals
What’s your goal for investing in shares? Are you saving to buy assets like cars or houses, or are you saving for retirement? Having a clearly set investment goal is not only time-saving but also helps you to identify potential risks and how to tackle them.
Evaluating your risk tolerance
The volatility in stock market prices requires you to learn the basics of navigating through. Investors with a high-risk tolerance tend to go for stocks with the potential for great returns despite their high volatility. But if you are a risk-conscious investor, you may want to invest in more stable stocks.
2. Select a Licensed Stockbroker/Investment Bank
A stockbroker/investment bank acts as an intermediary between you and the NSE. The stockbroker executes trades, provides expert investment advice, offers account management, portfolio management, and places buy/sell orders on your behalf.
Factors to Help You In The Selection Process
Fees
Since you will bear all the costs, you should comprehensively analyze the fees different stockbrokers charge before settling on one. These include account opening fees, annual charges, and transaction fees.
Customer service
The customer service should be easily accessible and ready to give support when needed.
Reputation
Select a stockbroker with a solid track record in the Kenyan stock market and customer proof of their services.
Investment platform
Analyze the features and ease-of-use of the stockbroker’s platform. Next, evaluate if they collate with your investment strategies and technological preferences.
Be licensed by regulatory bodies
The stockbroker should be licensed by regulatory bodies like CMA (Capital Markets Authority) and the Central Bank of Kenya.
Examples of Investment Banks in Kenya include:
- Dyer & Blair – 10th Floor Loita House, Nairobi
- Kingdom Securities – 3rd Floor, Nginyo Towers, Nairobi
- Faida Investment Bank – 1st Floor, Windsor House
- Genghis Capital – Purshottam Place
- Head here for a list of member firms of the NSE.
3. Open a CDS (Central Depository System Account)
Unlike a long time ago when you were required to have physical share certificates to buy shares, a CDS account is electronic and thus allows seamless operation. You can visit your preferred investment bank or stockbroker, also referred to as a CDA (Central Depository Agent), to open a CDS account.
It’s important to note that you can only open one CDS account with a given broker. However, you can freely open other CDS accounts with different brokers.
Typical Requirements for opening a CDS account
- Copy of National ID/Passport
- Copy of KRA PIN Certificate
- Two recent passport-size photos
- Proof of income (Bank statement or payslip)
- Proof of residence
Benefits of a CDS Account
- Instant transfer of ownership when trading
- Paperless settlement reduces workload by saving time
- Relatively easy to use
- Safer as you can retrace files easily
- No losses or mutilation of documents
4. Select Shares
After identifying a stockbroker and opening a CDS account, you can now select the shares that suit your investment approach. Be cautious with the shares you choose to help maximize profits and still minimize risks. You can narrow down your selection of shares by analyzing the fundamental and technical analysis of different listed companies.
Fundamental analysis involves looking at a company’s financial power. This includes factors like industry trends, valuation ratios, financial statements, track record, and years of experience. On the other hand, technical analysis consists of an evaluation of the company’s trading volume, price trends, support, and resistance levels.
A stocks trading coach can help you with these bits if you find yourself lost.
5. Fund your account
If you are a beginner investor, avoid directly depositing money into your account. You can use a demo account to do paper trading as you learn the ins and outs of the market. Once you have gained enough experience on which stocks to buy, the market stand to take, and the expected market trend, you can now fund your account to trade with real cash.
6. Buy shares
After share selection, the next step is buying the shares. To do this, you place an order for shares with your broker by indicating the number or volume of shares you are interested in buying and the amount you intend to pay.
With a market order, you can instruct your stockbroker or investment bank to buy shares at the best market prices. Although this is the easiest way of acquiring shares, the execution price may vary slightly from the quoted one.
A limit order gives you the power to set the maximum price you can pay for any share. Therefore, your broker will only execute your order if they find shares that are equivalent to your share price or below. Although this grants you total control over the share-buying process, it can take time to find matching shares as some stocks may have less liquidity.
7. Settlement and confirmation
Once your stockbroker executes the buying process, the settlement procedure begins. The process involves the transfer of shares from a particular seller’s CDS account to your CDS account. Afterward, your broker will issue a confirmation note that includes the transaction details.
8. Monitor your investment
You can’t just buy shares and wait for profits to begin streaming in. Investing in shares is just like any other business and needs frequent monitoring to achieve success.
Advantages of buying shares in Kenya
Acts as a savings plan
You can invest in shares instead of leaving your money idle in the bank. Investing in shares not only acts as a savings plan for the future but also as a profit-making venture.
Has high liquidity
Unlike assets like cars or houses, you can easily buy and sell shares. Thus, shares are readily convertible to cash since you can get multiple buyers at a go.
Guarantor for acquiring loans
Since shares give you proof of ownership in a given company, they can be used as a security for getting loans from financial institutions. The more shares you own, the more money you can borrow, and vice versa.
A means of making profits
Investing in stocks or shares gives you an upper hand in generating higher returns compared to investing in physical assets. One unique technique that many traders use is buying low and selling high to get more profits within a short time.
Buying shares gives you an avenue to diversify your investments in different industries. Thus, in market volatility, each industry will react differently, thus minimizing losses.
Diversification
Buying shares gives you an avenue to diversify your investments in different industries. Thus, in market volatility, each industry will react differently, thus minimizing losses.
Risks Associated with Investing in Shares in Kenya
Just like other investment securities in money markets like bonds or ETFs, investing in the Kenya stock market isn’t a sail in the park. As a business-oriented person, you should enter the market with caution to reap more benefits. Here are some key factors you should keep up with;
Economic factors
The fluctuations in the country’s economic growth can adversely affect profitability and interest rates charged by different stockbroking companies. This, in turn, affects the overall prices of stocks.
Political instability
Political instability tends to instill anxiety among investors and make them make undesirable moves on the stock market, making it highly volatile to venture in.
Government policies
While it’s a great advantage for the government to regulate the stock markets, any changes in the rules, taxation, or policies can highly impact the business environment and indirectly affect the stocks market.
Global events
Global events like natural disasters, political instability, inflation, etc., can cause market-wide crashes or corrections, profoundly affecting the prices of stocks or bonds.
Conclusion
Many Kenyans are venturing into the stock markets more than before and view it as a great alternative to investing in physical assets. Though many people have largely benefited in stock markets through buying and selling shares, some have incurred losses.
Therefore, it’s vital that you analyze the stock markets by considering the associated rewards and risks before starting your investment journey.
With a Diploma in Banking and Finance, Lenah boasts a good understanding of the Kenyan business landscape. She’s a seasoned freelance copywriter who enjoys reading the Bible during her free time.
Great article.