The news that 97% of all stock trading accounts in the country are unused has confirmed that investors in Kenya need to find new ways of trading that inspires them. What has caused the massive drop in trading activity and what can be done about it?

Source: PxHere

The Full Story

Figures from the Nairobi Stock Exchange confirmed that there are 2.03 million equities accounts held there, but that barely 61,000 of them have been active in the last couple of years.

To understand these numbers more fully, we need to go back in time to the IPOs boom of the 2000s. The KenGen stock market debut in 2006 was followed by the Safaricom IPO in 2008. These major events introduced a large number of new stock market investors to the Nairobi exchange.

Indeed, it’s estimated that about a million new shareholders appeared on the scene with the Safaricom IPO, which was oversubscribed by 532%. However, the poor performance of this stock helps us understand why the number of active investors has fallen so dramatically.     

This stock was worth less than the launch price for several years, meaning that investors had no return on their money during that time. Added to that, investors who never received their full allotment of shares are still waiting for a refund.  

That last point identifies another factor in the reluctance of Kenyans to trade stock. One of the reasons why these refunds haven’t gone through is that numerous transactions are believed to have been made using ghost accounts. In addition, many new traders took out loans to access stock with high levels of leverage, ultimately leading to losses.

The Mumias Sugar Company is another example of a Kenyan firm that has lost money in recent years, causing investors to suffer losses on the stock that they purchased in the 2007 IPO. In a six-month period in 2015, this company lost almost half of its market value.

Source: Pixabay

How Can Kenyans Get Back to Stock Investing?

It’s clear that public confidence has been damaged due to issues like poorer than expected returns and a relative lack of regulatory control. Therefore, investors will be looking for controls that give them more confidence, with the availability of highly-regulated overseas brokers becoming a popular option.

With the IPOs boom over, this could also be a good moment for Kenyan investors to consider other ways of entering the stock market. For example, by dealing with CFD shares for top brands, they can trade on familiar names like Apple, Amazon, and Netflix. This investment works with smaller margins and can be based on markets rising or falling.

The stock market in Nairobi could prove to be attractive for investors again in the future. However, for the moment, it appears that their confidence has been eroded and needs to be built up again. By looking at alternatives like steady, blue-chip stock in major firms, they can see another side of the stock market to the highly volatile, unpredictable IPOs.

There are millions of Kenyans who have shown an interest in stock trading in the past. Finding a way to help them get back into the market could help to give these people interesting new methods of investing their money.