When you are particularly a Ugandan within the diaspora or have awareness on the rates of interest in markets for example the US plus the UK you can expect to understand that the Bank of England’s base rate is 0.5%. The Fed rate within the US is presently 0.25%. This can be the rate that fundamentally determines lending rates by commercial banks and thus the interest rates they spend on savings. The UK rate is just not expected to adjust for say the next 3 years i.e till 2015, I expect exactly the same for the US rate. You’ll be able to hence anticipate that the interest you may get on your savings will be close to zero.
The search for investments paying a “good” return is never-ending in these difficult instances. A single alternative is to think about investing in stocks and bonds inside the Uganda Securities Market place (USE).
Stocks also called shares or equities are a “slice” of the share capital of a organization which can be offered towards the public. If a firm has say UGX 1m in share capital and each share is say worth UGX 1 (nominal price), you will discover hence 1 million shares. The company can then decide to say present 20% of those shares for the public. It in other words gives 200,000 shares towards the public. It on the other hand does not offer you them in the nominal price tag but problems them at UGX 2 each and every (thus at a premium).
As an investor, you could buy say the 20% of your shares ie (200,000 shares) at Shs 400,000 (UGX two x 200,000). It is possible to then decide to sell these shares say at UGX four each hence for Shs 800,000 and make a profit of UGX 400,000. The sale and buy of shares is truly how the stock exchange works, it connects buyers and sellers of a public company’s equities.
Just like shares are a means of a corporation raising financing (as ordinarily the shares are issued at a premium) as in the above example, bonds are also one more signifies of a enterprise (or say government) raising finance. The difference is the fact that a share gives you part ownership in the enterprise whereas a bond is comparable to an “IOU” in other words the issuer on the bond (say the corporation) promises to pay you on a future date (say three years) the principal quantity of the bond (or the amount that you are lending it) plus interest.
A “3 year 10.25% Treasury bond of UGX 1m” consequently signifies that the issuer with the bond (within this situation the Government of Uganda (GOU) will in three years spend you back the principal of Shs. 1M plus interest of ten.25%. The interest is typically paid semi annually.
Just like shares, bonds may be traded on a stock market. In other words an institution including National Social Security Fund (NSSF) will purchase bonds for the duration of an auction but say in the unlikely circumstance that they do not wish to hold the bonds for the maturity period i.e. the 3 years, they can choose to sell their bonds on the stock industry. The person getting the bonds will typically invest in them at a premium or discount (dependent out there rates of interest). If the investor purchases the bond at a discount, it means the investor pays less than the face value on the bond and will appreciate the interest on the bond for the rest with the maturity period plus the discount on acquire of your bond.
The USE has only been in existence given that June 1997 and is now in its 15th year. It is nevertheless pretty much an emerging market place as certainly when compared to markets including the New York Stock Exchange (NYSE) which was formed in 1792, the London Stock Exchange (LSE) which was founded in 1801 and also the Tokyo Stock Exchange (TSE) in 1878.
This nonetheless functions to its benefit. Emerging markets’ stock exchanges typically have important increase/growth inside the early years as they develop and as such are commonly “bull markets” (a market exactly where prices are rising or expected to rise). The statistics for the growth of USE’s All Share Index (ALSI); a measure of each of the organizations listed on the exchange for instance shows that the share price has frequently been rising except for 2008 the peak in the credit crisis.
In spite of the rising activity on the USE, as we are still an emerging market place, the volume of trading is pretty low and some shares on the basis on the trading statistics in truth have no activity to get a day or couple of days.
This means to think about investment within this, especially for profit purposes, the concentrate must probably be on these shares which have the highest trading volumes as you may anticipate these will be most representative of an active marketplace in which you’ll be able to obtain or choose as you wish devoid of time delays in obtaining a seller or buyer.
A crucial consideration in investing within the USE particularly if a Ugandan within the diaspora would be to give consideration for the exchange rate movements penny stock egghead. The shilling has more than the final five years been depreciating against the pound sterling (GBP) along with the US Dollar (USD) and therefore if you are investing say within a three year bond then you’ll need to take into account how the exchange rate depreciation may possibly move and therefore affect the value of the investment.
In light from the CONS highlighted, the clear benefit for the investor who has access to other stock exchanges but who wants to invest in the USE is to contemplate investing in holding stocks inside the short-term i.e say a year ahead of promoting them as in a bull industry (as takes place with USE), it is expected that share costs will rise.
One of the essential benefits of shares is the fact that there is certainly no capital gains tax (CGT) chargeable. Capital gains are the profit made when you sell shares at a higher price tag than you bought them. The investor can therefore get pleasure from their profit tax-free. It is not uncommon to pay CGT in a lot more developed economies.
Start off up Capital (A): Shs. 18,931,650
Profit per year (B): 12, 586,182
Other expenses (C) (broker fees and Forex losses): Shs 1,145,357
Return on Investment/Capital (years to get capital back) (A/ (B-C)): 1.65 years
Act via a broker. Because the clear winner is thinking about equity investments for a short while, it is most likely necessary to have an investment broker who will offer you regular reports and guidelines so you’ll be able to carry out your purchase and sell method. Capital Markets Authority (CMA) the regulator for USE has a list of brokers, fund managers and investment advisors.
Research. When you opt for not to make use of a broker, then the least it is possible to do is study extensively on information for example costs and qualitative data on your target. The monetary statements and press reports/stories offer you an indicator of your nature of the entity. There’s certainly a limit to this research; past efficiency does not equal to future performance. Your broker/advisor can most likely make it easier to within this aspect at the same time.
Whilst you could not be a pro in the open cry auction technique that the USE uses and considering you might not be enthusiastic about the intricate particulars of how stock markets perform, there is certainly definitely many merit in investing inside the USE thinking of that despite the CONS for example Forex movements, there might be returns in just over 1 year which can be a lot superior than investment say in fixed savings accounts within the UK or US.