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Is Investing in Shares and Bonds on the Uganda Securities Exchange (USE) Any Good?

Is Investing in Shares and Bonds on the Uganda Securities Exchange (USE) Any Good?

If you are significantly a Ugandan in the diaspora or have awareness of the desire charges in marketplaces these types of as the US and the British isles you will know that the Financial institution of England’s base price is .5%. The Fed fee in the US is presently .25%. This is the amount that fundamentally decides lending costs by commercial banking companies and therefore the desire costs they pay on price savings. The United kingdom level is not predicted to transform for say the up coming 3 many years i.e until finally 2015, I be expecting the exact same for the US rate. You can therefore expect that the desire you will get on your discounts will be near to zero.

The search for investments spending a “excellent” return is never ever-ending in these tough times. One particular option is to take into account investing in shares and bonds in the Uganda Securities Current market (USE).

Very first the essentials of what stocks and bonds are and how the inventory current market performs.

Shares (making use of an example)

Stocks also identified as shares or equities are a “slice” of the share cash of a corporation that are supplied to the public. If a business has say UGX 1m in share cash and every share is say truly worth UGX 1 (nominal selling price), there are as a result 1 million shares. The corporation can then select to say offer you 20% of these shares to the public. It in other words and phrases gives 200,000 shares to the general public. It even so does not offer you them at the nominal cost but difficulties them at UGX 2 every (so at a high quality).

As an investor, you could purchase say the 20% of the shares ie (200,000 shares) at Shs 400,000 (UGX 2 x 200,000). You can then pick to promote these shares say at UGX 4 each and every for this reason for Shs 800,000 and make a profit of UGX 400,000. The sale and order of shares is truly how the stock trade works, it connects buyers and sellers of a general public firm’s equities.

Bonds (working with an instance)

Just like shares are a signifies of a organization increasing financing (as normally the shares are issued at a premium) as in the above case in point, bonds are also another indicates of a company (or say federal government) elevating finance. The variation is that a share offers you component possession in the firm whilst a bond is similar to an “IOU” in other terms the issuer of the bond (say the business) guarantees to pay you on a upcoming date (say 3 years) the principal sum of the bond (or the volume you are lending it) additionally fascination.

A “3 year 10.25% Treasury bond of UGX 1m” for that reason implies that the issuer of the bond (in this case the Federal government of Uganda (GOU) will in 3 yrs pay you back the principal of Shs. 1M in addition desire of 10.25%. The desire is normally paid semi annually.

Just like shares, bonds can be traded on a stock market. In other phrases an institution this sort of as Nationwide Social Stability Fund (NSSF) will obtain bonds throughout an auction but say in the unlikely circumstance that they do not wish to keep the bonds for the maturity period of time i.e. the 3 several years, they can decide on to sell their bonds on the stock industry. The man or woman acquiring the bonds will usually get them at a quality or lower price (dependent on the market desire premiums). If the trader buys the bond at a low cost, it indicates the trader pays fewer than the facial area price of the bond and will love the fascination on the bond for the relaxation of the maturity period moreover the low cost on obtain of the bond.

But what about investing in shares and bonds on the USE?

USE and its “bull market” period

The USE has only been in existence considering the fact that June 1997 and is now in its 15th year. It is nevertheless very substantially an rising market place as of training course when in contrast to markets this kind of as the New York Stock Trade (NYSE) which was fashioned in 1792, the London Stock Trade (LSE) which was started in 1801 and the Tokyo Inventory Exchange (TSE) in 1878.

This nonetheless performs to its benefit. Rising markets’ stock exchanges generally have substantial enhance/growth in the early decades as they build and as this kind of are typically “bull marketplaces” (a sector where by price ranges are increasing or predicted to rise). The stats for the development of USE’s All Share Index (ALSI) a measure of all the firms listed on the exchange for illustration reveals that the share value has normally been soaring except for 2008 the peak of the credit history crisis.

The bond market is also encountering enhanced growth and for each the 2010 USE once-a-year report the activity improved 4%.

The earlier mentioned looks promising so is it worth investing in stocks and bonds through USE?

Initial THE Drawbacks (of training course)

1. Very low Liquidity owing to low quantity of investing

In spite of the growing action on the USE, as we are nevertheless an emerging sector, the volume of buying and selling is really lower and some shares on the foundation of the trading statistics in actuality have no exercise for a day or pair of times.

This means to take into consideration investment in this, primarily for earnings reasons, the emphasis really should most possible be on those people shares which have the highest trading volumes as you can hope these will be most representative of an energetic current market in which you can purchase or choose as you desire without time delays in acquiring a seller or consumer.

2. Overseas Exchange (Fx) losses

A important thought in investing in the USE particularly if a Ugandan in the diaspora is to give thing to consider to the trade price movements. The shilling has above the very last 5 several years been depreciating against the pound sterling (GBP) and the US Dollar (USD) and hence if you are investing say in a 3 yr bond then you will need to look at how the exchange charge depreciation may possibly shift and thus influence the worth of your investment decision.

AND NOW THE Professionals

1. Fantastic returns for stocks owing to bull market tendencies

In light-weight of the Drawbacks highlighted, the very clear edge for the investor who has access to other inventory exchanges but who wishes to spend in the USE is to consider investing in holding stocks in the short-time period i.e say a calendar year just before selling them as in a bull market (as happens with USE), it is predicted that share prices will rise.

2. No money gains tax

One of the essential advantages of shares is that there is no funds gains tax (CGT) chargeable. Capital gains are the gain made when you offer shares at a greater price tag than you bought them. The trader can as a result get pleasure from their financial gain tax-absolutely free. It is not uncommon to pay out CGT in a lot more designed economies.

On the basis of the Professionals earlier mentioned, I hence summarise the monetary model underneath.

  • Start up Capital (A): Shs. 18,931,650
  • Revenue for every yr (B): 12, 586,182
  • Other costs (C) (broker costs and Foreign exchange losses): Shs 1,145,357
  • Return on Financial commitment/Capital (several years to get money back) (A/ (B-C)): 1.65 many years

Now the essentials you ought to get suitable prior to investing.

  • Act via a broker. As the obvious winner is considering equity investments for a shorter even though, it is most possible needed to have an financial investment broker who will give you regular stories and guidelines so you can carry out your purchase and promote method. Cash Markets Authority (CMA) the regulator for USE has a listing of brokers, fund professionals and investment decision advisors.
  • Investigate. If you pick out not to use a broker, then the least you can do is exploration extensively on facts these as charges and qualitative information on your goal. The economical statements and push experiences/stories give you an indicator of the mother nature of the entity. There is of program a restrict to this exploration past functionality does not equivalent to future overall performance. Your broker/advisor can most very likely aid you in this part as very well.

Ultimate Word

Whilst you may well not be a pro at the open up cry auction method that the USE utilizes and contemplating you could not be interested in the intricate specifics of how stock markets operate, there is absolutely a ton of benefit in investing in the USE contemplating that inspite of the Negatives this sort of as Foreign exchange actions, there can be returns in just above 1 calendar year which can be much far better than expenditure say in preset financial savings accounts in the United kingdom or US.