Posted by StartupBiz Zimbabwe | Oct 2, 2017 | All Articles, Personal Finance, ZSE | 25
This article will explain how you can invest on the Zimbabwe Stock Exchange (ZSE). The stock market is a great alternative which can be used mainly to channel individual and institutions’ savings. As with every investment, there is risk that is involved, but you can also obtain profits beyond expectations. Investing in stocks will help create financial security, independence and generational wealth. With time, you can become a successful investor. The stock exchange plays a pivotal role in an economy so that the financial system functions properly. Most ordinary individuals walking on the street may wonder what a stock exchange is and let alone how to participate on such a platform. This article is here to help most of us understand what a stock exchange is and how we can be able to invest and also be participants in the financial markets.
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A stock exchange is a platform which allows people and institutions with excess funds or savings to become part owners of publicly listed companies. In exchange and for the equivalent of funds invested, one gets shares in a company. Shares are also known as equities. This is facilitated by the fact that companies are in dire need of capital and thus they issue shares and invite investors (people and institutions) to buy shares in their business. Zimbabwe has a stock exchange- Zimbabwe Stock Exchange. Companies operating in Zimbabwe have to satisfy certain legal and financial criteria before they can be listed or quoted on the Stock Exchange. Examples of the popular listed companies are Delta Corporation, Econet Wireless Zimbabwe, Old Mutual Plc, First Mutual Holdings and Masimba Holdings.
By buying shares it means you ultimately have a say in its affairs. The company holds annual meetings where shareholders come together to vote on matters such as such as appointments to the company’s board of directors, executive compensation, dividend payments and selection ofauditors. The following is a step by step guide of how to invest on the ZSE.
Open an account with a Zimbabwe Stockbroker And Custodian
You cannot walk into the Zimbabwe Stock Exchange and buy shares on your own. You need to go through a stockbroker.Astockbrokeris a regulated professional individual, usually associated with abrokerage firmorbroker-dealer, who buys and sellsstocksand othersecuritiesfor bothretail andinstitutionalclients through astock exchangeorover the counterin return for afeeorcommission. You have to ensure that you find a registered stockbroker. The list of registered ZSE stockbrokers can be found on the ZSEwebsite. Some of the registered stock brokers includeEFE Securities (Private) Limited; Imara Edwards Securities (Private) Limited and Old Mutual Securities (Private) Limited. They will give you an account opening form which you will have to complete. The requirements include copy of National ID and valid bank account.
You also require a custodian.A custodian is afinancial institutionthat holds customers’ securities forsafekeepingto minimize the risk of their theft or loss. A custodian holds securities and other assets in electronic or physical form. So when you buy shares, your share certificates will be kept by a custodian. Opening the custodian account can be done through your stockbroker, as they will have working relationships with specific custodians. So you just need to go to the stockbroker and you will be able to open both the trading account and custodian account.
UPDATE: This process can now be done online using Ctrade. Read our guide:HOW TO TRADE ZSE SHARES ONLINE USING C-TRADE
Deposit Funds into your Brokerage Account
After opening your trading account with your stockbroker, your broker will provide you with its bank details so that you can fund your account. You can do this via a bank transfer to your stockbroker’s bank account. The stockbrokers have different minimum initial deposit fees, some $200 while with others $1500.
UPDATE: This process can now be done online using Ctrade. Read our guide:HOW TO TRADE ZSE SHARES ONLINE USING C-TRADE
Identify stocks to buy
Your funds are now in your trading account, meaning you are now ready to buy stocks.Even though a securities broker or advisor can facilitate much when you are investing on the ZSE, its you who have to choose which stocks to buy. Upon this background it is imperative that you take time to study the stock market and the economy of Zimbabwe as a whole. Consider insights and predictions of experts and get an understanding of the state of the economy and which type of stocks are performing well at any given time. There are many investment techniques, which include technical analysis and fundamental analysis.Technical analysis is a trading tool employed to evaluatesecuritiesand attempt to forecast their future movement by analyzing statistics gathered from trading activity, such as price movement and volume.Fundamental analysis is a method of evaluating a security in an attempt to measure itsintrinsic value, by examining related economic, financial and other qualitative and quantitative factors. Fundamental analysts study anything that can affect the security’s value, includingmacroeconomic factorssuch as the overall economy and industry conditions, and microeconomic factors such as financial conditions and company management.
Send your orders to your Stockbroker
After you have identified which stocks you want to buy, you then have to place an order with your stockbroker, who then places the order on the ZSE via the Zimbabwe Stock Exchange’s Automated Trading System (ATS) . This can be done by sending an email to your stockbroker with your trading instructions e.g. Buy 1000 shares of Econet Wireless Zimbabwe at the market price. Orders can also be placed via the phone or in person. Your trade will then be executed when the shares become available. So if there is noone selling Econet Shares at that time, this means that your order will not be fulfilled immediately. You can also place a limit for all your oders e.g. instructing your broker not to buy if the share price increases to a certain level before your order is fulfilled.This will help you avoid paying significantly more for your shares than you had intended to pay. After your order goes through, your broker will thensend you a brokers note that specifies the price at which shares were bought, transaction date, name and number of shares bought, commissions, and total transaction costs. Selling shares which you have is a similar process. When you have purchased shares, you will be issued with an electronic share certificate that will be sent to your custodian.
UPDATE: This process can now be done online using Ctrade. Read our guide:HOW TO TRADE ZSE SHARES ONLINE USING C-TRADE
Where is the money?
You may be asking, so how do I make money by buying shares from the ZSE? There are two primary ways of making money, via capital gain and via dividends. Capital gain is an increase in the value of acapital assetthat gives it a higher worth than the purchase price.A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to its shareholders.
Let’s take for example, you bought 1000 Econet Wireless Zimbabwe shares on 3 January 2017. On this date, they were trading at 30 cents per share. That means you would have invested $300 to buy the shares. In June 2017, Econet Wireless Zimbabwe decided to distribute some of it’s profits for the previous year to it’s shareholders. This is called a dividend. Econet Wireless Zimbabwe declared a dividend of 0.467 US cents per share. This means that for your 1000 shares, you would have gotten $4.67. On 29 September 2017, you decide to sell your 1000 shares. On this date, they were trading at 85 cents per share. That means you get $850 from your $300 investment! This is called capital gain. So basically those are the two ways of making money from the stock exchange.
What are the risks?
The Econet Wireless Zimbabwe example may have made it look like it’s easy to make money from the Zimbabwe Stock Exchange. However, there is no investment without risk. In 2017 the Zimbabwe Stock Exchange has been performing well, however it is not always like that. Let’s say in 2009 you bought shares in Interfin Bank and you kept holding them, you would have eventually lost your money as the bank collapsed in 2012. So if you buy shares in a company which later declares bankruptcy while you are still holding the shares, you will loose money. Thus why it is important to first study the company whose shares you want to buy to see whether it’s financially sound.
The other risk is depreciation of the stock price. Let’s say you bought 1000 DELTA shares on 1 July 2013. On this date, the price of DELTA shares was $1.39 each. This means you would have invested $1390. Then you decide to sell your shares 3 years later on 1 July 2016. On this date, the price of each DELTA share had fallen to 67.30 cents. Thus you would have gotten $673 from a $1390 investment, which is a loss. This is where fundamental analysis comes into play, as you will have to try forecast the direction of a stock price by considering the performance of the company, it’s industry and the economy.
Investing in the stock market is a deep subject, we have just scratched the surface. We advise you to study more. There are many resources online which can help you in your investment journey.
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