Last week, we took a look at sub-Saharan Africa’s top-performing stocks of 2011. Zimbabwean firms dominated the list. In light of this, I thought it might be helpful to run through the details of actually buying and selling stock on the Zimbabwe Stock Exchange.
Before I begin, however, let me state clearly that investing in Zimbabwe, in my view, entails a significantly higher degree of political risk than does investing in most other sub-Saharan markets. The government of national unity between Mugabe’s ZANU-PF and Morgan Tsvangirai’s MDC is fragile at best, so don’t invest any money that you can’t afford to lose.
That said, if you’re comfortable with the risks, you’ll find a lot of interesting companies among the exchange’s 78 listed stocks. Moreover, because the Zimbabwean economy has been dollarized, currency risk is not an issue for U.S. investors.
Zimbabwean Stockbrokers
My previous experience investing in Zimbabwe was as an institutional investor. This is a rather different process than investing on your own as an individual. An introducing broker and custodian shepherded us through our transactions. We didn’t have to deal with the nitty-gritty of establishing a working relationship with a local Zimbabwean stockbroker.
So I compiled a list of stockbrokers who trade on the market. (This took a bit of digging because the Zimbabwe Stock Exchange’s website has been down for maintenance for weeks.)
Photo by Kevinzim
I then emailed each broker. I asked them if they catered to foreign investors and, if so, how much they required in order to open an account. Of the dozen or so brokers that I contacted, I found the following four brokers to be especially helpful and responsive.
- EFE Securities – ($1,000 minimum to open account) Founded in 2003, EFE Securities publishes daily market commentary and occasional company research reports on its website, both of which are available to registered users. Registration is free.
- IH Securities – ($2,000 minimum to open account) Headed by a former director of Renaissance Capital’s Zimbabwe operation, IH Securities offers free company research, daily market reports, and an excellent Equities Trading Handbook on its website.
- Lynton-Edwards Stockbrokers – ($1,000 minimum to open account) One of Zimbabwe’s larger stockbrokers, Lynton-Edwards’ slick website provides stock charts and company results for a selection of firms.
- MMC Capital – ($10,000 minimum to open account) A relative newcomer, MMC Capital was founded in 2008. Executive Director Itai Chirume is a Chartered Financial Analyst. You can join MMC’s research mailing list via their website.
The process of opening an individual trading account and buying and selling shares is essentially the same for all Zimbabwean brokers. In fact, they even charge the same commissions and fees. They differ only in their minimum funding requirements and the quality of customer service and research they provide.
Trading Costs
Here’s how much it will cost you to buy and sell stock on the Zimbabwe Stock Exchange:
| Buying | Selling | |
|---|---|---|
| Total Commission and Fees as % of Total Transaction Value | 1.73% + US$2.00 | 2.41% + US$2.00 |
Note that Zimbabwe levies a 15% withholding tax on dividends. This is deducted by the issuing company before the dividend payment is made.
Opening a Zimbabwean Brokerage Account
Now let’s walk through the process of opening an account and buying your first shares.
Step 1: Complete and Return the Account Opening Form
The account opening form (aka the “Know Your Client” or KYC Form) typically requires disclosure of your passport number or other ID number, your address, and banking details.
Take note here that the Zimbabwe Stock Exchange still issues actual paper certificates as proof of share ownership. So, they will be mailed to you unless you specify that you would like your broker to hold them on your behalf. If you prefer not to hold these certificates in your filing cabinet or safe deposit box, I suggest you ask your broker to set up a Nominee account. This will allow your broker to hold share certificates on your behalf as well as to directly deposit any dividends directly into your trading account.
Step 2: Review, Sign, and Return the Broker Agreement
Most Zimbabwean brokers require a signed broker agreement or mandate form before they will open an individual account. The document outlines the terms of service to be provided.
Step 3: Provide a Certified Copy of Your Passport
If you don’t have a valid passport, a certified copy of your driver’s license may suffice.
Step 4. Provide a Copy of a Recent Utility Bill or Other Proof of Residence
A scanned copy of your electric bill should work just fine.
Step 5. Wire Funds to Your Brokerage Account
After opening your trading account, your broker will provide you with its bank details so that you can fund your account. The most efficient way to do this is via wire transfer. If you haven’t sent an international wire before, I suggest that you take your broker’s bank details to your local bank branch and ask them to walk you through the process. They’ll make sure that your funds arrive securely. Note that most US banks charge about $25 for outgoing international wires.
Step 6. Submit a Trade Order
You’ve done your research and found a stock that you’d like to buy. What now?
While some brokers will request a signed trade mandate form, for most brokers, all you need to do is send an email to your broker with your trade instructions. Keep in mind that some Zimbabwean shares are rather illiquid, so I advise specifying a limit price for all of your orders. This will help you avoid paying significantly more for your shares than you had intended to pay.
Your broker will then execute your trade and send you a contract note that specifies the buy or sell price, commissions, and fees. Settlement of share trades takes seven days in Zimbabwe, so if you’ve sold shares, don’t expect to receive the proceeds of a sale for an entire week unless you’re willing to incur a penalty to settle the trade more quickly.
Mission Accomplished
That’s it! Follow these steps and you’re a Zimbabwe investor.
The process of opening a foreign brokerage account can be confusing. If you found this walk-thru to be clear as mud, please don’t be shy. Post your questions in the comments, and I’ll do my best to get answers for them.
[If you'd like tips on opening a Kenyan brokerage account, check out this interview on how to invest on the Nairobi Stock Exchange.]
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so this is how the stock exchange functions in zim are there any other things i also need to know
Are the minimum values indicated above for opening trading account in US dollars, coz if they are, they are locking out many potential individual investors.
How long does it take to receive your proceeds after a sale in Kenya?
Kenyan trades settle three business days after the execution date. So, for example, if you executed a trade on the Nairobi Securities Exchange on a Monday, the earliest you could expect to receive the proceeds is on Friday.
Hi Ryan, If you could help me. I plan to begin investing in the stock market here in Zimbabwe. For a first time investor which books/literature do you recommend i read to enhance my knowledge about the stock market? Your help will be greatly appreciated.
That’s a great question, Kelvin. Let me put together a list of my favorite books and post them in the near future. In the meantime, I think you could learn a lot from reading articles on this website.
Thx ryan thts great stuff its so helpful
You’re quite welcome, Mishi. Glad you found it useful.
Kingdom Stockbrokers is cheap. The minimum amount is USD500.
Thanks, Mhofu. Are you a customer of Kingdom?
Hi. I am a very small time investor on the Zimbabwe Stock Exchange. I traded a bit during the Zim dollar era. My portfolio is managed by FBC Securities. I find them to be very good and responsive. Can you shed some light on Unit Trusts? I want to understand how they work. Are they a worthwhile investment option for a small player?
Hi Hazvi,
Unit trusts (which are similar to our open-ended mutual funds here in the USA) can certainly be worthwhile investments for small individual investors. A unit trust is essentially a managed portfolio of investments (typically stocks and/or bonds). If you invest in a unit trust you are effectively buying representative portions of each stock included in the portfolio. This makes it easy for a small investor to diversify into a large basket of stocks via a relatively small investment.
The price of a unit trust fluctuates depending on the value of its underlying portfolio. Thus, the manager of the unit trust is an important consideration. Do you trust the manager to make good investment decisions? What is the manager’s strategy for delivering a good return?
The other factor to consider before investing in a unit trust is its expense ratio. A unit trust manager is paid a percentage of assets invested (typically between 2-5%) to manage the portfolio. The higher this percentage is, the more it will effect your potential return.
So, consider the unit trust’s strategy, its long-term track record, and its expenses before purchasing.
Happy Investing!
Ryan
Thanks. How do I invest in the United states? Money and stock market.
Hi,
Great stuff. Once you’ve sold your shares, how much do these Zim investment firms charge you to send your money back to the US?
Thanks
Thanks, L. Apart from the commission and taxes, the only charge incurred should be a wire transfer fee. This typically costs about $15-30.00 for an international wire.
Hey Ryan, your articles are very educational and exciting. I am a student at a local university in Zimbabwe. I have realized that most of my peers lack in-depth knowledge on investing in the stock markets. To this end, together with a group of friends, we have decided to set up an investment club to gain actual investing experience and more knowledge. For university students, how would you advise us to go about the investment process, and where to start? Unit trusts? Stocks?
Many thanks
Thanks, Perry. Investment clubs can be very educational. The Motley Fool has a great guide to starting an investment club.
The decision to go with a unit trust or with individual stocks depends a lot on how actively club members would like to research their investments. Assuming that you are only contributing money that you don’t need in the near term to pay down debt or for living expenses, I would suggest the club consider investing in individual stocks. You will learn more that way. Researching a company carefully and getting a sense of how it operates.
Keep us posted on how the club develops! Also, are there many Zimbabwean unit trusts available? I’d love to hear more about them, if you can point me in the right direction.
Happy investing!
Hi there,
Would you tell me if there is any dividend tax or capital gain tax on sales of shares in Zimbabwe? What is the average breakage costs or annual fees?
Since it is a paper share certificate, how do we check for authencity? Do we email the company of the shares we bought to check? Or you just ensure the broker are ethical and reputable? I’m just concerned about fraud.
Thank you for the great article.
There is no Capital Gain Tax on the sale of securities listed on the Zimbabwe Stock Exchange at present.
Hi Wendy,
Great questions!
As Perry noted, there is no capital gain tax on stock sales in Zimbabwe. There is, however, a 15% withholding tax on dividends. I am not aware of any broker charging an account maintenance fee.
With the paper share certificate, you will have to trust in the integrity of your broker. I’ve found the ones above to be quite professional, and I have not yet encountered any complaints of fraudulent share certificates.
If you should run into problems, you can lodge a complaint with the Securities Commission of Zimbabwe.
Happy Investing!
What is the minimum number of shares you can buy from the Zimbabwe Stock Exchange?
The Zimbabwe Stock Exchange now has an up and running interactive and updated website after 2 years without a running website
http://www.zimbabwe-stock-exchange.com/
i want to buy shares in the Zim stock exchange bt i dont understand the procedure would you please send me something and how it works please
In addition to the 6 steps described above, investors are required to open an account with a custodian to hold their shares. The added costs involved may be significant for retail investors.