Successfully invest in Kenya’s Stock Market

As I was talking to one of my colleagues recently about investing, we ended up debating on which stock investment strategy, (investing in developed economy like Canada or investing in an emerging and growing market like Africa) will give you the better returns. In the end I realized that a lot of us have perceived Africa to be too risky, than the actual risk that exists. Having successfully invested on the Nairobi Stock Exchange (NSE) market, I have decided to offer my insight on some of the things that one can do to be successful investing in the market. I have a strong interest and affinity in Kenya’s stock market and believe that the following opinions will stimulate your thought process and bring awareness to you as a reader, thus allowing you to go out there and do more research and learn other people’s opinions too. Investing in stocks entails a high degree of risk and there is no guarantee of a positive return whether you are investing in Canada or elsewhere, the reason why you need to asses yourself and how much risk you can take while investing in any market. Kenya is an attractive market for those that want to gain an exposure to the growth that’s taking place in Africa. The African GDP is projected to grow to around, $2.6 trillion in 2020 according to some economists, and Kenya finds itself in a strong position to take advantage of that growth. As the global markets struggle with their economics futures, e.g. Europe, USA, the continent has been growing at an exponential growth rate of 6.6%, while the rest have stalled. Kenya represents a free market economy, where the prices of the goods and services are determined by the market forces. It is one of the most politically stable countries in African with a significant advanced economy, hence why a lot of multinational companies have chosen to set shop in Nairobi. The Nairobi Stock Exchange (NSE) has over forty seven companies listed. The market is small (fourth largest in Africa), but also very speculative, hence there is a minimum amount of shares that you can buy at most of the brokers, set at 100 shares. The first thing you need to do to be successful is to identify the stockbroker that you want to work with. There are quite a number of investment brokers, some of the well known include Dyer & Blair Investment Bank Ltd, Suntra Investment Bank Ltd, and Canadian owned Kestrel Capital (EA) Limited, which charge a broke fee ranging from 2.1%-2.6%. Once you visit a broker, they will help you open an account with the Central Depository Settlement Corporation (CDSC), which is where all shares are held electronically. The Kenyan stock market is highly speculative and for someone that is investing in small scale or is just starting out, it can be very intimidating. I highly recommend that you ensure the following: I have learnt that you have to be constantly in touch with your stock broker, while keeping yourself up to date with the trends emerging in the market. Do not buy a company stock that you do not understand what the company does (what service/product they offer), because you may never understand which companies are undervalued, or even have a potential for growth. Make sure that you have a plan on the length of time you want to invest in the market. You can choose to be a speculative investor, short term, medium term or even long term. Stay in touch with your broker, and make sure they advise you as soon as your stock has either been sold or bought, either through email/phone call or any automated system. You need to have a good working relationship with your broker to succeed in investing in the NSE market. If you are a speculative investor, (sell your stock as soon as a wave of uncertainty hits the market) like most small scale investors on the NSE, then I would suggest buying shares that trade in large volumes. If you look at the trading for the past years, you will realize that prices constantly change for shares that are traded a lot, thus will give you a chance to make a profit when the price shifts and you sell them back.Try and buy low value stocks which also offer dividends. Make sure that when you receive the dividends, you reinvest those to help grow your portfolio. That way, you can hold onto the shares, while getting dividends and once your net worth or portfolio has grown you can then offload those shares at a profit and invest in other stocks. There is no given science to being successful in any stock market, Kenya being no different. It’s a risky affair and you must be willing to adjust accordingly. There are a lot of factors in play; it’s a matter of staying true to your plan knowing that the end result is to create wealth and ensure that your money grows to shield you from inflation and provide you a secure future.