Investing Offshore: BY ROBERT OCHIENG / ABOJANI INVESTMENT: Offshore markets provide opportunities for Kenyan investors. Most of the companies or brands that we interact with here in Kenya are listed in foreign stock markets. A stock exchange is a marketplace for the buying and selling of shares, bonds and securities.
Stock exchanges can serve as a measure for the health of the national economy, and can also be a key indicator of world economic strength.
Each and every Tuesday, Pizza Inn outlets in Nairobi have a Terrific Tuesday promotions for ‘Buy one Pizza and get one free’. The brand is owned by Innscor Kenya which is a subsidiary of Innscor Africa listed at the Zimbabwe Stock Exchange. Domino Pizza.
If you have friends who are football fans and they watch Dstv, it is owned by Multichoice Kenya whose parent company Multichoice Africa is listed at the Johanesburg Stock Exchange (JSE). JSE is the biggest stock market in Africa. The largest stock market in the world is New York Stock Exchange. The second largest stock market in the world is NASDAQ, also found in the USA. The two constitute about one third of market capitalization of all of the world stock markets.
Nairobi Securities exchange is the fifth largest in Africa after stock markets in South Africa, Egypt, Morroco and Nigeria. It is the largest stock market in East Africa followed by the Dar es Salaam Exchange, Uganda Securities Exchange and Rwanda Stock Exchange in that order.
Eliud Kipchoge became the first human to run under 2 hours on shoes designed by Nike. Nike is listed in the New York Stock Exchange (NYSE) in the US. One of its biggest competitors is called Under Armour which also designs and manufactures footwear, sports, and casual apparel. It is also listed in the NYSE.
In Kenya many people are now not buying newspapers from Nation Media with the company’s revenue falling every year in the past 5 years. You should ask yourself why. It takes little imagination to realize that many people now access news via social media apps such as Twitter, Instagram, Facebook and WhatsApp. This leads us to look at Facebook. Facebook is listed in the Nasdaq stock market in the US. Many technology or non-financial companies in the US are listed at the Nasdaq.
Facebook relies on digital adverts for its business but it is not the biggest online advertising company. The number one online advertisement company is Google. Google and Facebook run multi-sided business models with users who are doing searches or using their platforms on one side and companies looking to sell to these users on the other sides. Businesses then pay to have their products advertised on these platforms and increase their chances of increasing their sales. Google’s parent is also listed in the Nasdaq.
There is a saying that the rich keep getting richer, so let’s look at some of brands associated with moneyed people. One such brand is Apple. An ordinary person may not understand the buzz around the iPhone but Apple customers continue to buy more and more iPhones and the company’s revenues continue to grow and make no mistake, the stock of apple has more than doubled in the past 1 year.
The richest investor in the world, Warrant Buffet has also invested in Apple shares. Have you ever heard that someone went to B Club and spent over Ksh 30,000 on a bottle Hennessy? Well Hennessy brand is owned by LVMH a French company specializing in luxury clothing, jewellery, perfumes and cosmetics among other luxury brands. It is listed in the Euronext Paris exchange.
It recently acquired another luxury brand in the US known as Tiffany & Co. for $16.2bn with the deal expected to be closed by June, 2020. The sky is blue. The sun rises on the East and sets in the West and people will always buy luxury brands. LMVH has the biggest market capitalization in France and the entire Eurozone. Market capitalization is the total monetary value of shares in a company or the stock market eg Safaricom has got the biggest market capitalization of about KES 1.2T in the Nairobi Securities Exchange.
If many people in Kenya us Google as a search engine then let us ask ourselves if that is the case globally. Well that is not the case in Russia and South Korea. In Russia, Google equivalent is known as Yandex and it is listed in the Nasdaq. Yandex also doubles as Uber equivalent in Russia. It stock has tripled since 2016. Google equivalent in South Korea is known as Naver. It is listed in the Korea Stock Exchange.
In China you can do What M-PESA, WhatsApp and banking apps in one app known as WeChat. WeChat is owned by a company known as Tencent. It is listed in the Hong Kong Stock Exchange. The parent company of Dstv called Naspers (Owns Multichoice Africa) from South Africa has 31% stake valued at about $100bn in Tencent.
They spotted the opportunity in 2001 and invest $32 million for a 46.5% stake in Tencent. It was one of the best investments ever recorded in modern times. This just shows how looking beyond the borders can present us with investment opportunities and indeed over 2 million Kenyans live in the diaspora. We can also take advantage of growth opportunities outside Kenya while in Kenya by investing in offshore stocks.
China is like the rich uncle of Kenya funding big infrastructural projects such as SGR. It is also very efficient in manufacturing and some Kenya companies such as Sameer have opted to import what used to be their core products from China rather than manufacture them locally. You probable use vehicles riding on tyres from China!
So let us look at what business the richest man in China has invested in, we might get lucky! The richest Man in China is Jack Ma and he founded a company known as Alibaba which is listed in the New York Stock Exchange. Alibaba is the Amazon of China as Jumia is the Amazon of Kenya.
Since Yandex, the Uber+Google of Russia , Jumia the Amazon of Africa and Alibaba the Amazon of China are all listed in the New York Stock Exchange then it means that there is something special about this New York Stock Exchange. Well its market capitalization is over 100 times that of the Nairobi Securities Exchange. More still to come. Stay tuned as we learn to swim in the ocean of offshore investing opportunities.
At one Point in the 1989 Japanese real estate bubble, the Imperial Palace in Japan was said to be worth more than the entire state of California in the US. In fact in the late 1980s and early 1990s, the richest person in the world according to Forbes was a Japanese affair with the top 4 richest persons in 1987 all being Japanese.
John D Rockeller became the first dollar billionaire in the US in the 1910s. He founded Standard Oil which was an American oil producing, transporting, refining, marketing company, and monopoly. At one point his networth was equivalent to 2% of the US GDP. Standard Oil was split into 34 companies including Exxon and Chevron which dominated the list of most valuable US companies for most part of the last century. Oil too had its time.
Tables have since turned and since the 1990s only Exxon Mobil and General Electric have been in the list of the most valuable companies in the US stock markets. Currently 6 of the top 10 wealthiest people according to Forbes are founders or co-founders of technology companies. Many Kenyans are also familiar with the US technology companies’ product since they use some of their products on a day to day basis. Let us now look at some of the strategies for investing in the US technology stocks.
INVESTING OFFSHORE: TOOTHBRUSH TEST
On product, there is something called the toothbrush test. Is this something you will use once or twice a day, and does it make your life better? Hundreds of millions of People use Facebook suite of products which include Facebook, WhatsApp, Instagram and Facebook Messenger. Facebook and Google combined make more revenues from advertisement than all the print media combined globally.
INVESTING OFFSHORE: TOLL BRIDGE INVESTMENT STRATEGY
There is usually only one toll bridge and everyone must pass through it.The owner is thereby guaranteed of a steady income stream that in the long run will make him rich. A wonderful business to own in the stock market is one which functions similarly to a toll bridge. Safaricom’s Mpesa powers over 80% of mobile money transactions in terms of volumes. Each & very Financial Institution that wants to do money transactions must pass through the platform.
Billions of people who use laptops or personal computers use Microsoft products such as Windows Operating system that runs the machine and Microsoft Office products such as MS Word and MS Excel. Microsoft makes billions of dollars from these products.
Investing Offshore: OTHER TRENDS
According to eHarmoney, 40% of Americans use online dating. The biggest listed dating company is known as Match Group. It owns the following dating apps-OkCupid, PlentyOfFish, Tinder, Hinge and Match.com. The company made $ 1.7bn revenue in 2018 and it share has risen from $17 in 2017 to the current price of $76 as more people continue to look for love online.
Investing Offshore: Medical stocks
Demographics are another major tailwind. Most countries and continents have aging population except for African which as a median age of 18.USA has a median age of 38 while Japan 47 and Monaco 55. Many large countries in Asia and Europe are also aging quickly. This favors listed medical stocks. Some of the listed medical equipment companies include Intuitive Surgical and Medtronic.
The US markets (NYSE and NASDAQ) open at NYSE is open from Monday through Friday 9:30 a.m. to 4:00 p.m. Eastern time (5.30pm to midnight Kenyan time). Once you’ve crossed the hurdles to start investing such as saving and paying off debt, the next question is the how? It’s important to get the how sorted and that’s what today’s session is all about. So whether you’re a newbie or an intermediate investor, let’s get started.
One of my favorite movies is Christmas Story and it has this line “they looked at me as if I had lobsters crawling out of my ears”. A few years ago people had to go physically to the Nairobi Stock Exchange to place their orders for buying shares. Now we can not only buy shares online at the NSE but also in the US stock markets.
No one could have believed you if you told them in 1995 that it could be possible to buy shares from the comfort of your mobile phone. For this session we look at the platforms that you can use to buy shares listed in the US. We will then look at the necessary tools for investing or trading. Before investing you should ask yourself the following questions.
How much do I/we owe on the mortgage?
How much do I/we owe on credit card A? Credit card B?
How much do I/we owe on my car, house etc?
How much extra can I/we afford to pay towards the above debts?
How much can I/we afford to put towards trading and investing?
How much income do I/we want to make from the stock market per month?
How much money do I/we want to have during retirement?
To invest you will need either a brokerage account or an online trading app
Investing Offshore: BROKERAGE ACCOUNT
WHAT IS A BROKERAGE ACCOUNT?
Think of a brokerage account as the bank account for your investments. You can deposit cash into your brokerage account and use that money to purchase shares of stock and other investment products. The shares of stock that you purchase will also be held within this account. You can use this account to buy shares of companies such as Uber, Amazon, Coca Cola and Jumia.
Investing Offshore: What Options do you have?
To invest in stocks, you need to open a brokerage account. There are many online brokers that you may have come across, like E*Trade, Merill Edge and Fidelity among many others. While these may be good services, they do not all accept applications from Non-Resident Aliens and Non US Citizens across the globe.
Who are NRAs
- Not a citizen (or green card holder) of the United States of America; and
2. Not a resident of the United States of America, meaning that you stay in the country less than 31 days a year or 183 days over a 3-year period; and Not an “active” stock trader, meaning that you only occasionally buy and sell shares (less than a few transactions every month)
For Kenyans living in Kenya to invest in the US the two brokers that you can use are:
- INTERACTIVE BROKERS
Minimum Balance :$10,000
Commission :Minimum $1, Maximum 0.5% of transaction value
Monthly Fee :$10 – $20
2. TRADE ZERO
Minimum Balance: $2500
Investing Offshore: ONLINE TRADING APPS
There are online trading Apps such as Robinhood and Stockpile but there are not available to Kenyans.
Kenya has 2 Capital Authority Licensed Brokerage firms for investing in offshore shares
- Scope Market &
2. EGM Securities
They allow investors to buy into foreign shares using what is known as Contract for difference. These allow investors to use only a % of the actual share price to buy one unit eg if Amazon is trading and KES 200,000 you can spend only KES 20,000 to buy one piece and make gains or losses as if you had bought it using KES 200,000. It takes time to understand these instruments hence you will need to spend more time and resources to familiarize yourself with how they work before getting started.
You can also trade CFDs using an app known as Etoro
Stocks and their related financial instruments by nature can gain and lose value quickly, so please take the time to do your homework and really understand what you are putting your money in to before making a purchase or sale.
Once you have decided on which platform to use, you will need a news app such CNBC to keep you posted of what is happening across the global and a calendar app to help you track events relating to the company of interest.