Despite the economic slowdown brought about by the covid-19 pandemic, 2021 was an eventful and rich year for the local stock market. On May 5, 2021; MTN Rwandacell, a local telecommunications company, listed its shares for trading on Rwanda Stock Exchange (RSE).
A couple of months later; Energicotel, a local energy company, listed its corporate bond on the exchange on August 9, 2021.
In real numbers, the market was able to raise a total Rwf318 billion and register a total turnover of Rwf35 billion during the year 2021 bringing the total transaction value at the RSE to Rwf1.4 trillion or US$1.4 billion since the RSE officially launched its operations 10 years earlier.
These two transactions and the few other numbers highlighted above come to show the importance the stock market is increasingly having in the local economy even during difficult times of global crisis. Not only the stock market is able to raise the needed long-term funding for the economy, but it also provides more avenues for investment opportunities to the public both locally and internationally.
However, though these transactions clearly show a positive trend it is worth noting the fact that a big number is yet to understand and embrace the local stock market.
Hence, this article will be concerned about debunking myths and providing facts that the public has about capital markets.
Before proceeding, let’s give some definitions for people who may not be familiar with some terms:
Capital Market: This is a venue where funds are exchanged between people with money (savors) and those in search of capital (investors). Savers or suppliers of money may be individuals, banks, companies while investors may be companies, governments and individuals.
Rwanda Stock Exchange: this is the company that was set-up to carry out stock market operations in Rwanda. Currently, 10 companies are listed on the exchange.
Share: is a percentage of ownership in a company/corporation.
Bond: is a financial instrument used to raise money by borrowing from investors.
Investment account: or trading account is an account that holds the shares and bonds bought in the financial market.
Stock markets are for the rich
People tend to perceive stock markets as exclusively serving wealthy individuals and big corporations. This is closely related to another myth that buying stocks is expensive. Of course, these are wrong perceptions and contrary to the belief; stock markets are the only avenues that allow people with minimal capital to invest.
Consider this example, as of today I&M Bank shares are at Rwf43 per share. Given that the minimum number of shares one can buy are 100; it means that with only Rwf4,300 one can become a shareholder in I&M Bank.
Going a step further, one can also buy units from collective investment schemes (CIS) such as RNIT Iterambere Fund of which the minimum investment is Rwf2,000 or buy into Bank of Kigali’s Aguka fund with a minimum investment of Rwf100,000. One can also invest in government bonds with a minimum of Rwf100,000.
Difficult to open a trading account
People tend to think that opening an investment account is difficult and lengthy. The fact is that opening a trading account is easy as it requires only a form of national ID for Rwandan nationals and a passport for foreign nationals. Once those forms of identification are provided, you fill an official form within 15 minutes your account is set and you can immediately start investing and trading. Another unknown fact is that opening an investment account is FREE OF CHARGE and you can do all this online too.
You have to buy all your shares one time.
This is another myth that refrains people from investing in the stock market. Let’s use an example. Bank of Kigali shares are at Rwf 255 today. If person X wants to buy 10,000 Bank of Kigali shares, he/she will have to pay Rwf 2,550,000. Realizing how big that amount is, person X can get discouraged and stop his/her investment plans not realizing that stock markets give options, flexibility and cater to the different categories of investors. Here, person X has the option of buying 100 shares or 1,000 shares now, then continues on the next day, week or next month by buying 2,000 shares and continues the same process until he/she reaches the goal of buying 10,000 shares or more. The truth is that investing is more like saving, it is a continuous plan that eventually gets passed on to the next generation.
To summarize, stock exchanges can provide many benefits for individuals, small and medium enterprises, start-ups as well as established companies. Take the first step and contact your nearest stock broker, investment advisor or visit the Rwanda Stock Exchange at the office.
The writer of the Article is Mr. Lionel Mudandi, Financial Analyst at the Rwanda Stock Exchange with more than 10 years of experience in Investment, Capital Markets and Consulting.