Kennedy Libingi

THE ZAMBIAN STOCK MARKET.

You may have already know that here we talk about business, I am so passionate about the way businesses operate and as an Economics student I feel a sense of responsibility to share in a simplest way so that every person who reads my posts understands.

So today I want to walk you through the Zambian Stock Market, please read this with an open mind, if you have additional information about the Zambian Stock Market or contributions or powerful insights, please share them in the comment session so that we learn together. Anyway let’s get started.

Let’s start with Securities.

A securities exchange is simply a regulated market where these things called securities get bought and sold. And securities themselves are just financial instruments that companies or firms issue to raise money. There are two kinds. Equity securities, which most people call shares or stocks, these gives you part ownership of a company and a right to a slice of its profits if it decides to pay them out. Debt securities are different. When a company or even a government issues a debt security they are essentially borrowing from you. They promise to pay it back after a fixed period, usually with interest along the way, but you never own any part of the business itself. You are a lender, not an owner.

Every time a buyer and a seller agree on a price for one of these instruments, that moment is called a trade. And a trade always happens in one of two places.

The first time a company ever offers its shares to the public, that is the primary market. This is what people mean when they talk about a company Going Public. I.e. A private company converts itself into a public limited company, a Plc in short, and then sells shares to ordinary people for the first time through something called an Initial Public Offering or an IPO. After that first sale, every single time those same shares change hands between one investor and another, that is happening in the secondary market. Almost everything you will ever buy on the Lusaka Securities Exchange happens in that second space or secondary market in this it’s investor to investor, long after the company itself has already collected its money. So what I am trying to say here is that primary market is the first IPO and after that when you buy stocks, your transactions happen in the secondary market. People that benefit from the First IPO are the early people that invested in the business, those that contributed money to keep the business functioning and going and the business itself.

The whole thing is governed by law, specifically the Securities Act, Number 41 of 2016, later amended by Act Number 21 of 2022. The Securities and Exchange Commission of Zambia, SEC Zambia, is the body responsible for enforcing it and for making sure the whole system stays fair (find time to read more about the law).

So not every company you can buy on our market is actually listed. Some are only quoted. A listed company is the one that has gone through the full requirements of the exchange and earned its place on the official board. A quoted company has registered its shares with SEC and is automatically placed on the exchange, but it has not yet cleared the full bar to be listed, and it is expected to work toward that over time. Every single security, whether listed or quoted, also carries something called an ISIN, an International Security Identification Number. It’s more like a fingerprint of that company. No two securities anywhere in the world share the same one.

So bane you cannot walk up to the LUSE yourself. You need a licensed stockbroker such as this Company called Money Acumen and others like them, these guys are authorised by SEC Zambia specifically to buy and sell on your behalf. To open an account with one you will need your National Registration Card or passport, some proof of your physical address, which could be a lease agreement, a title deed, a utility bill, or even a letter from your employer confirming where you stay, and two passport size photos.

One thing worth remembering here is that a stockbroker is not a bank. Any money you hand over is legally required to be kept separate from the broker’s own funds. Your investment and their business are two completely different pots.

Once your account is open you fill out something called an Order Form. If you want to buy, You list the company, how many shares, and at what price, and hand it to your broker. And if you want to sell, Same process, just the opposite. Your broker takes that instruction and places it on the exchange, where it sits until a matching order from someone on the other side appears at the same price. That matching moment is the trade. Brokers charge a guided commission of 1.375% of the value of your transaction according to SEC Zambia. On larger amounts that fee can be negotiated. On very small amounts you need to be careful, because most brokers have a minimum charge, and if you are only putting in a small sum it is worth asking first whether the commission will quietly eat a chunk of what you invested.

Once your trade actually settles, meaning the exchange has fully confirmed the transfer of ownership, your broker produces something called a Contract Note. This document is your official proof that you now own what you paid for. And behind all of it sits something called the Central Share Depository or the CSD, which is essentially more like a giant digital warehouse holding the records of every single share and debt security in the market. Every investor has an account inside it listing exactly what they hold, and since when.

I know the only question setting at the back of your brain is that how can I make money out of this, I know this because that was my goal as well when I was reading about it lol.

There are really only two ways you make money from owning shares or stocks. The first is a dividend, a payment the company makes to its shareholders out of its profits at the end of the year. The second is price appreciation, simply the share becoming worth more than you paid for it, also known as a capital gain.

Here is how the two work together in practice. Say you buy a share for K10. And as days or time goes by its price climbs to K12, and along the way the company pays you a dividend worth K1. Add the K2 you gained on the price to the K1 dividend and divide by your original K10, and your total return on that investment is 30%. That’s how this game is played.

Dividends themselves are shared out strictly according to how many shares you hold. If a company declares K1 per share and you own 10 shares, you receive K10. This is the Simple multiplication bane. How often this happens is entirely up to the company and how well it is performing. Most pay at least once a year. Some healthy, well run companies pay twice, once during the year, called an interim dividend, and once after the financial year closes, called the final dividend.

So dividend income is normally subject to a 15% Withholding Tax paid to the Zambia Revenue Authority, deducted automatically before the money ever reaches you. But to encourage ordinary Zambians to actually invest, government waived that tax specifically on dividends paid to individuals by listed companies. So let’s say that you personally receive a K100 dividend from a listed company, you keep the full K100. Before that waiver existed, K15 of it would quietly disappear to ZRA before it even touched your account.

Now the capital gain side of things works the same way whether the news is good or bad. If your K10 share rises to K15, you have made a capital gain of 50% or K5. If instead it falls to K5, you have taken a capital loss of 50% (-K5). There is absolutely no tax on capital gains in Zambia according to SEC Zambia. Whatever you make from your share price rising is entirely yours.

Between those two facts, the waived dividend withholding tax for individuals and the total absence of capital gains tax, our market is genuinely one of the more forgiving places in the region to build wealth quietly over time.

If you ever feel your interests as an investor are not being respected, you are not without recourse. You can lodge a complaint directly with SEC Zambia, whose entire job under the Securities Act is to protect people exactly like you. And keeping an eye on your investment does not require anything complicated either. Closing share prices are published freely by the Lusaka Securities Exchange and on its website, and maybe on ZNBC TV though I am not really sure about it.

For anyone who wants to go a little deeper there are a few simple tools worth knowing. Dividend Per Share, DPS, tells you how much dividend each individual share earned. Take the total dividend a company paid, say K1,000,000, and divide it by the number of shares it has in issue, say 500,000, and you get a DPS of K2. The Price to Earnings ratio, the P/E ratio, compares a company’s share price to its earnings per share. If a company made a profit after tax of K1,000,000 with 1,000,000 shares in issue, its earnings per share is K1. If its shares are trading at K5, its P/E ratio is 5. In our market a P/E of around 10 to 12 is generally considered fair value. Below that range and a share might still have room to climb. Above it and the share could be considered expensive, possibly worth watching carefully, though this is always a conversation to have with your broker rather than a decision to make alone from a formula. There is also the Dividend Yield, which simply divides your DPS by the current share price. A K10 dividend on a K100 share gives you a yield of 10%, telling you what percentage return you are earning purely from dividends at today’s price.

And for those exploring the debt side of the market rather than shares, government and corporate bonds work on their own version of the same logic. If a bond has a face value of K100, a coupon rate of 10%, and you manage to buy it at a discount for K98, your yield works out by adding the K2 discount to the 10% coupon and dividing the total by what you actually paid. In that example your yield comes to roughly 12.2%

I know you are tired, lets end here bane, but I highly encourage you that before investing seek professional advice from stockbrokers and people that know the system top to down. This information I have shared is not a business or investing advice, this is just me wanting to share what I learn for it becomes part of me if I share but anyway what you do with this information from here is up to you.

Happy weekend.