The stock market is a crucial financial institution that lets investors (including you and me) to own shares of big companies and make some profit out of it.
Making money on the stock market however requires you to be armed with the right kind of information. Keep scrolling downwards to learn more about the art of share trading.
How to Trade Stocks in Kenya
You can trade stocks by buying shares from companies that have been listed under the Nairobi Securities Exchange. Generally, there are two main ways to make money from stocks.
The first method is through dividends that are dished out to shareholders after the company they have bought shares from makes profit. The second method is through buying the shares and waiting for them to gain value and then re-selling them.
For instance, you can buy 1000 shares from Company ABCD at Ksh 10 per share (You’ll spend Ksh10,000). Now you wait for Company ABCD shares to gain value say to Ksh 15 and then you re-sell them. This way, your Ksh10000 will grow to Ksh 15,000 thus making a profit of Ksh 5,000.
How do you buy stocks?
Stocks are bought through stock brokers. These brokers often charge a small commission for each transaction. It is important to choose a genuine and reputable broker. (List of top stock brokers).
Capital Gains Tax
The Government is planning to introduce Capital Gains Tax (CGT) in 2015. CGT is basically the tax that you are charged on the profit you make from selling your shares. Given the example we have used previously, you would have to pay a small percentage out of the Ksh5,000 profit made to the Government as tax.
You can contribute to our social media debate on Capital Gains Tax by following this link.
What stocks to trade in 2015?
This is quite a tricky question to answer because it is virtually impossible to predict the future. However, by using data gathered from analysts and researchers, it is quite possible to project the image of the Kenyan stock market in months to come. Here are some useful points for you to note down.
Stocks owned by popular banks are the ones to watch out for in 2015. According to experts, 2015 is going to be an year of low inflation. What this means is that bank loan interest rates may reduce in the course of the year as the Central Bank loosens its monetary policy stance.
Most of the big local banks will (probably) perform well because they have diversified their investments and do not heavily rely on interest rates collected from loans. On the other hand, banks that have not diversified their products might not perform as well as income from interest rate on loans will reduce.
Tip: You may want to look for banks that have diversified their product portfolios and buy their shares right now as you wait for their prices to rise.
(2)Manufacturing and construction sector stocks
Crude oil prices are falling throughout the world. What this essentially means is that, the cost of fuel and electricity will most likely reduce over the year. Arguably, this will affect manufacturing and construction stocks.
When the cost of energy is cheaper, manufacturers and construction companies incur less operation costs and therefore make more profit. More profit and better performance means more dividends and a rise in share value.
Tip: You may want to keep an eye on shares of companies in the manufacturing and construction sectors e.g. cement producing companies.
(3)Telecommunication and technology sector
A lot might happen in this industry in 2015. Currently, there is only one single player in this sector but as the days go by we might have new players joining the market to spoil the party.
Price wars and new innovations will dictate the momentum of companies trading in this sector. All the same, it is highly likely that we will see a continued rise in prices of shares for T&T companies – a continuation from 2014.
Tip: Keep your ears on the ground for the latest tech news in the country and make a decision on
which shares to buy going forward.
(4)Infrastructure and allied sector
The local tourism industry has not been performing quite well in recent years. For this reason, focus has shifted to the infrastructure development sector.
Companies that have invested heavily in infrastructure projects and ones that have embarked on ambitious projects might perform pretty well in the course of 2015.
This growth might be further hastened by the dropping crude oil prices as the companies will be saving on cost of energy as well.
Some important tips for stock traders
- Do your own research and risk analysis before you rush to invest in any stock.
- Follow news from the CBK keenly. Information on monetary policy changes is crucial.
- Don’t fear fluctuations, the market may move in mysterious ways and price fluctuations can be numerous and sudden at times.
The mechanism of the stock market is something that you can grasp only after spending ample time researching and consulting. There may be failures in the beginning, but it is always wise to remain focused and to keep working on improving your portfolio of stocks. Happy trading in 2015!