Creating Wealth: Investing on the Zimbabwe Stock Exchange

Mon Apr 5 20:47:49 CAT 2021

Creating Wealth: Investing on the Zimbabwe Stock Exchange

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.

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 (ZSE).  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 Limited, First Mutual Holdings and Masimba Holdings.

By buying shares it means you ultimately have a say in its affairs. The
company holds annual general 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 of
auditors. 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. A stockbroker is a regulated
professional individual, usually associated with a brokerage firm or
broker-dealer, who buys and sells stocks and other securities for both
retail and institutional clients through a stock exchange or over the
counter in return for a fee or commission. You have to ensure that you find
a registered stockbroker. The list of registered ZSE stockbrokers can be
found on the ZSE website. Some of the registered stock brokers include  EFE
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 a financial institution that
holds customers' securities for safekeeping to 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.

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 $1000.

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, it's 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 evaluate
securities and 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 its intrinsic value, by examining related economic,
financial and other qualitative and quantitative factors. Fundamental
analysts study anything that can affect the security's value, including
macroeconomic factors such 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 then send 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.

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 a capital asset that
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 its 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
lose 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.

We wish you the best in your investments.

Copied with additional editing by Bulls n Bears

Invest Wisely!

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