how to invest in kenya stock market- NSE

Here are a few steps one can follow to begin trading securities at the NSE.

Step 1: Figure out which assets to invest in.
Step 2: Choose your securities wisely.
Step 3: Choose a stock broker.
Step 4: A CDS trading account.
Step 5: Choosing the stocks.

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.

A derivative is a financial instrument that derives its value from an underlying asset or security, such as a commodity, stock, stock index, precious metals, bonds, etc. Derivatives are helpful in reducing risk in one’s portfolio because they involve transferring risk from those who want to avoid it to those who want it.

An ETF is an investment fund traded on the stock exchange, much like stocks. It holds assets such as bonds, commodities or stocks. Most ETFs track an index – a stock or bond index, with some allowing slight deviations from the index. They are attractive investment options for investors because of their tax efficiencies and their stock-like features. ETFs are exempt from capital gains tax upon the sale of the ETF. Just like stock owners, ETF holders are eligible to receive dividends.

A REIT is a regulated investment vehicle that allows persons to collect money or money’s worth, with the intention of earning profits or income from real estate as beneficiaries from the trust. REITs derive their revenue from income in rentals – IREIT, or from development and construction for sale and/or rental – DREIT.

Many beginners rush to pick big stocks just because of their big names or because they heard a thing or two making headlines about the company (Don’t get me wrong, this approach is advised for beginners and as one’s investing knowledge and experience expands, one can deal into more sophisticated trading [employing investment strategies and market timing techniques to beat the market]). When narrowing down research on these firms, however, we find that the movement in their stock prices is quite small and gives minimal, if any, profit. For maximum profit, narrow down to top gainers as well as losers and make sound investment decisions.

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

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.

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).

Source: Strathmore