A number of readers have been wondering about how to open a brokerage account on the Malawi Stock Exchange.
I can understand why. The little market in Blantyre posted the best return of any sub-Saharan stock exchange in 2013. Its All Share Index is up 75.2% over the past 12 months in US dollar terms.
Performance like that would make even the most jaded of investors take notice.
So, what do you need to do to put money to work in the warm heart of Africa?
Here’s how to get started.
How to Open a Malawian Brokerage Account
Four brokers are licensed to trade on the Malawi Stock Exchange. You can find contact details for each of them here.
I emailed all of them, asking if they accepted foreign investors, how much they required to open an account, and what documentation was necessary in order to do so.
The only response I received came from African Alliance Malawi.
You’ll note that the stock exchange website doesn’t include an email address for them, so try sending your account opening query to this one: email@example.com. Make sure to specify that you’re interested in opening a Malawian trading account.
African Alliance does, in fact, accept foreign investors and doesn’t require a minimum amount before opening an account. But they do require some documentation.
As an investor, here’s what you will need to provide them:
1) A certified copy of your passport or driver’s license
2) Proof of your residential address – e.g. a recent utility bill
3) A recent bank statement for the account that will be your source of funds
4) And a completed African Alliance account opening form.
Fund Your Account
After opening your trading account, your broker will provide you with its bank details so that you can send funds. 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.
Trading Costs and Taxes
Before you begin buying and selling Malawian stocks, be sure you understand the trading costs involved.
Malawian brokers charge commission on a sliding scale based on the value of the transaction. For amounts greater than MWK100,000 (approximately $250), however, the commission amounts to 1% of the total value traded.
There is also a government surcharge of 17.5% on the amount of this brokerage commission. And a flat exchange fee of MWK50.00 per transaction.
So, for a transaction of MWK1,000,000 (approximately $2500) expect to pay roughly MWK11,800 worth of commission and fees (about $30.00).
There are also some taxes to take note of, too. Malawi levies a 10% withholding tax on dividends paid to non-residents and capital gains are taxed at a rate of 30% unless the stock has been held for more than seven years.
Submitting a Trade Order
Now it’s time to do some research into the various companies listed on the exchange to figure out where the best opportunities lie. Your broker can likely provide some guidance here, but if you’re more of an independent sort and want to conduct your own research, the financial statement library should give you a few numbers to crunch.
After identifying your hot stock pick, it’s time to tell your broker to buy it for you.
All that needs be done is to submit a written trade instruction. Some brokers may have a special trade mandate form to complete, but, for others, a simple email may suffice.
Keep in mind that many shares listed on the Malawi Stock Exchange 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 up to five business days after the trade date in Malawi, so if you’ve sold shares, don’t expect to receive the proceeds of a sale before then unless you’re willing to incur a penalty to settle the trade more quickly.
Follow these steps and you’re all set to begin investing in Malawian stocks. That wasn’t too bad, was it?
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.