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Every investor and potential investor who wishes to trade securities listed on the Eswatini Stock Exchange must have a Securities Account and a Cash Account. Investors cannot deal directly on the exchange. They invest through a stockbroker.
A securities account is opened with the Central Securities Depository (CSD). To open a securities account on the CSD the investors must approach a stockbroker of their choice, who will provide them with the relevant applications forms.
The investor is expected to fill in the forms and provide the necessary Know Your Investor (KYI) documents. The Broker is expected to also set a Cash Account for the investor by way of selecting the clients’ bankers and stating the clients banking details. Once an account has been opened, the investor can proceed to place a buy order or sell order with their stockbroker who will then enter the order on to the trading platform.
Mobile Application and Internet trading will then enable registered subscribers to access the market by way of the provided order placement menus. The placed orders will be channelled to the broker for acceptance and subsequent release to the trading systems. Settlement of mobile transactions can be done either through the subscribers’ mobile wallet or through the subscriber’s bank account. The option to select the settlement account will be provided at order placement.TRADING PLATFORMS
The price of shares is determined by the demand and supply of those securities and other economic factors. This is a result of the value the investors place on those shares. If a company is expected to perform well for a certain period, then its shares are likely to be in demand as investors look at the prospects of a good dividend being paid out. On the other hand, if a listed company is expected to perform badly, then its share price is likely to fall as investors want market related returns on their investments.
When forming an opinion about a particular share, the interested party is advised to analyse the financial reports of the relevant company. The investor can also benefit by reading financial newspapers and magazines and should obtain as much information as possible about the intended investment. By conducting a comparative analysis with the company's competitors the investor can gauge the success and marketability of those shares. The stockbroker may also assist with his/her expertise.PUBLICATION OF SHARE PRICES
Each day after trading, the prices of securities are sent to the press and are published daily in the national newspapers. The prices are also available on the exchange website. The website address is: ww.ese.co.sz and the email address is firstname.lastname@example.orgWHEN TO BUY AND SELL SHARES
Investing in shares (also referred to as stocks) has been shown in history as one of the easiest and most profitable ways to build wealth over the long-term. With a handful of notable exceptions, it has been verified that almost every member of the Forbes 400 list of the wealthiest people got there because they own a large block of shares in a public or private corporation.
However, the enticement of big money has always thrown investors into the lap of stock markets. Nevertheless, making money in equities is not easy. It not only requires tons of patience and discipline, but also a great deal of research and a sound understanding of the market, among others.
This is because, unlike, fixed deposit investment, the stock market does not guarantee profit and if that is not enough there is a probability of making losses when the share price declines. Here are some few tips that could help investors when investing on the Eswatini Stock Exchange.PURPOSE OF THE INVESTMENT
The first and most important thing in investment is for the investor to work out what they want from investing in shares. The lingering question to an investor is “do you need regular income (dividends) or capital growth?”.
For regular income, it is wise to consider looking at companies that have a history of paying dividends, which tend to be the larger companies on the Eswatini Stock Exchange. Smaller companies are often focused on growth of the company such that they are more likely to reinvest their profits in the company than pay dividends to shareholders. Such small companies are more likely to experience growth in value over time.RESEARCH
Since investment in shares is investing in a company (s), it is important for the investor to educate themselves about how economic and market changes as well as management’s strategic decisions can impact the company(s) earnings. This requires legit and reliable information from different sources, for instance, economic reports from the Central Bank of Eswatini and research departments of fund managers and stockbrokers, audited financial statements of listed companies, business action of reputable newspapers and media.
Important things to note from this information includes the state of the economy of Eswatini, interest rates, government policies, exchange rates, investor sentiments and overseas economies and markets that could affect the prospect company’s businesses.
One important source of information is the company’s annual reports. These reports contain important information one may need to know about the company including core business activities, future prospects, financial status and strategies for the company. Thus, the annual report can be used to evaluate the performance of the company and decide whether you should buy or sell their shares. Investors can use the annual report to check if the activities detailed in the current annual report are the same as what the company said it was going to do in the previous year’s report.
It is important to also check the revenue made and how it was made. The annual report also contains profit/loss that the company has made and reasons the company has made a loss. If a company is issuing shares for the first time on the Eswatini Stock Exchange, another useful source of information is the company’s prospectus.COMPANY ANALYSIS
The health of the business (company) determines the value of the investment. Listed companies on the Exchange release numerous information that can be used to determine whether the share price is overvalued or undervalued. Investors can use simple ratios to determine whether they should buy or sell.
The Price Earnings (P/E) and the Price to Book (P/B) ratios can be used to determine whether the share is overvalued or undervalued. The P/E ratio is a comparison of the company’s share price against its profitability/earnings whilst the P/B is a comparison of the company’s share price against the net value of its assets (total equity).
Lower P/E and P/B ratios could mean that the company us currently performing well relative to its past trends. However, a high P/E ratio could also mean that investors are expecting higher earnings growth in the future. All things being equal, an investor should buy shares with low P/E and P/B ratios and sell shares with higher P/E and P/B ratios.
However, every investor needs to keep in mind that they can’t always rely on yardstick in determining whether a company’s stock is expensive or not. To work out a P/E ratio, divide the current price of the share by the earnings per share (EPS). To work out the P/B ratio, divide the current price of the share by the Net Asset Value (NAV) per share. The Net Asset Value of a company is the company’s total assets less the total liabilities to determine what it would cost to recreate the business. It is therefore a reflection of the net worth of a company.
Earnings per Share (EPS) is described as the portion of the company’s profit allocated to each share. Thus, the higher the EPS, the more the higher the value of the share. This information can be sourced from the company’s annual reports. Investors who need regular income are more focused on dividend.
Dividends are paid from profits that the companies make and can be a good reflection of the company’s performance. Thus, investors can look into the dividend yield (%) in order to help them in making a decision on which shares to buy or sell. A high dividend yield is more attractive for investors looking for regular income. Dividend yield can be calculated by dividing dividend per share by the share price.RIGHT TIME TO SELL
It is interesting to note that the immense majority of investment advice is geared toward buying. Nonetheless, what is bought must be sold eventually. It is recommended that investments in shares should be long term to allow investors to realise gains on their investments.
Other investors engage in short term speculative trading, but this is only recommended for those with sophisticated knowledge in stock trading. Buying shares at the right price is vital. This is because the ultimate return an investor gains on any investment is first determined by the purchase price. Undeniably, selling at the right price guarantees the actual profit, if any, despite that the buying price may initially determine the profit gained.
However, investors have challenges when it comes to selling due to an innate human tendency to be greedy. For instance, an investor buys shares at E50. When the price gains to E61 the investor decides to hold till the share price increases to E70. The share price increases to E71, however, greed and emotions take control of the investor and he decides to hold till E80. Unfortunately, the share price begins falling to E45. The investor decides to cut his/her losses and sells at E45. Thus, as greed and emotions overcame rational judgment, casino tendencies replaced sound investment principles. Knowing when to sell is of paramount importance.
Investors should realise that selling at the right time doesn’t require precise market timing. Luck has very few investors, if any, who can buy at the absolute bottom and sell at the absolute top. In some instance, it is possible that upon buying shares, the prices increase drastically over a short period of time. The investor should not applaud themselves that they are smarter than the market. Prices can rise drastically sometimes due to speculation by other investors. It is wise for the investor to sell and move on to other counters when the price becomes overvalued. If the market corrects itself and the share price falls, investors have an opportunity to buy at a lower price.DIVERSIFYING IS KEY
Shares are generally considered growth investments and can give strong returns over time. Nonetheless, it should be noted that higher potential returns are ordinarily associated with higher risks. Before investing in shares it is important to consider what would happen if you lose some or all of the money you’ve invested due to share prices falling. It is therefore vital to protect your portfolio by diversifying. Thus, to spread your investment between different counters usually through companies of different sectors. For instance, investing in the banking sector and manufacturing is less risky than just one sector or company. That way, investors can take advantage of each company’s strengths and are better protected if one industry does not perform well in a certain year. Furthermore, if one company goes belly up the investor will only lose a part of their investment, not the whole portfolio.
Building an individual portfolio of shares can be rewarding but investors need to have the skills and experience to make it worthwhile. It is therefore important for investors to seek professional advice from experienced and licensed stockbrokers or investment managers.