What exactly goes down at the Nairobi Securities Exchange? This is a question my friends and I have been trying to unravel since registering for the Young Investors challenge yesterday. See Links Below { http://stf.younginvestors.co.ke/nsechallenge/register.php or https://www.nse.co.ke/public-education/nse-investment-challenge.html } . Investment banking is a goal I have harboured for long and curiosity has driven to the floor severally. Below are the Basics I believe participants of the Young Investor Challenge will find very useful. Let’s call it NSE FOR DUMMIES :-).
The Nairobi Securities Exchange or the NSE is a market like any other but specialises in financial instruments such as government and corporate Bonds, stocks, trusts. Started in 1954, there 51 listed companies and the number will increase this year. Stocks or Shares are unit of ownership in a company. One important factor to remember is that when you invest in stocks, you are investing in the future of the firm. The NSE is divided into two markets, the Main Market Section and the Alternative Investment Section.
So how do you Make Money from the NSE?
There are mainly two ways of making money.
Capital Gain – The selling of shares at a price higher than the buying price. An example is an investor who bought Safaricom 1000 shares at kshs. 5.50. When Safaricom announces their annual results, the price of the shares rises to kshs. 7.50. The investor sells the shares at that 7.50. For every share held, he will make a gain of 2.00. Meaning he will make a capital gain of 2,000/=.
DIVIDENDS – Companies normally share their profits through offering dividends to the shareholders. Suppose the same investor decided not to offload the shares, but take the dividend offering. Safaricom decides to offer a dividend of 80 cents per share. The Investor will earn 800/= from their investment.
PRICES
Share prices on the NSE float up and Down. There are several Factors that determine the Price Movement on the market.
- Forces of Demand and Supply
On a particular day the prices of the shares of given companies may move up due to demand where investors want a given stock. In other instances, the prices of these stocks may go down due to much supply. The demand and supply is sanctioned by various factors such as Company Performance. When KCB registered stunning performance for the first quarter, the demand for the share rose from average of Kshs 36.00 to Kshs 38. 00. Corporate action where decisions in a firm affect the price of the share in the market. The failed acquisition of Kenol-Kobil by PUMA energy had adverse effects on the price of the stock. News Stories also affects the shares of the company. If you read the Business Daily on Tuesday, it provides clear insight on news stories on companies such as change in leadership and planned company activities. Some of the news in a large way affects the share price. Economic Status of the Firm also affects the price of the shares whereby revenues and profits may lead to investors buying shares while a decline may lead to dumping of stocks. On the economic status of the firm, increased debt and poor acquisition may lead to poor prices of shares.
HOW TO BUY AND SELL
Buying of Stocks on the NSE is done through Authorised Brokers. Investment Banks also serve as Brokers. Some of the authorised Brokers are Dyer and Blair, Genghis Capital, Suntra Investments, Kingdom Securities, Tsavo Securities among others. To purchase shares, an investor requires a CDS account (Central Depository Settlement Account). The minimum number of shares for any investor is 100 shares or shares worth 3,000/= shillings. The standard charges are 2.1% for shares below 100,000/= or 1.8% for shares above 100,000/=.
NB: – buy when Low, sell when High!!
TERMS
You have probably heard this on the news. These terms are common in the market.
Bullish run – a trend where the share prices are expected to rise. Bullish markets are characterised by increased investor confidence and optimism for strong results.
Bearish run- A trend where the prices of stocks decline over a period. Over this period there is pessimism and most investors anticipate losses.
Index- An index is used as a yard stick to reflect the market that they represent. On the NSE, there are various indices with the NSE share index being quoted the most by the media. Indices normally show trends in investment patterns.
Some of the Indices commonly quoted in the world include the NASDAQ Composite that tracks performance of technology companies, the Dow Jones Industrial Index that tracks the 30 largest companies and the Standard and Poor (S&P) which tracks the 500 most traded companies on the NYSE.
Market Capitalisation– The market Capitalisation is the number of shares multiplied by their current price on the stock market.
Sectors- Simply the classification of stocks based on the industry such as agricultural, commerce and services.
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