Capital Markets

The Capital Market is a financial market for securities, where companies and the Government go to in order to raise long term funds. A security is generally a fungible, negotiable financial instrument representing financial value. Securities are classified as equity or debt. (Wikipedia)

In Malawi equity securities are shares that are traded on our local stock market, the Malawi Stock Exchange (MSE). When an investor buys shares, they do so in anticipation of getting a return on their investment in the form of dividends paid out by the company, or capital gains made after selling the shares at a future date at a higher price than they originally bought them. Shares can be bought from the primary market; this is when a company issues new shares to the public, or when a company lists on the stock market for the first time. They can also be purchased on the secondary; where existing shares are sold by their owners to investors.

To buy shares in Malawi an individual must go through a Stockbroker, who will take their order; which shares they want and how much they want, and the stockbroker will manage the stock for their client after making the purchase. The same also applies when an investor wishes to sell their stock; they will give their stockbroker instructions to sell their shares and at what price. In Malawi they are 5 stockbrokers registered with the Malawi Stock Exchange, and these stock brokers meet every working day at 11am to trade shares amongst each other on behalf of their clients. The stockbrokers are namely;

• Stockbrokers Malawi Limited
• Trust Securities Limited
• FDH Stockbrokers
• African Alliance Securities Limited
• CDH Stockbrokers Limited

Debt securities in Malawi are the recently introduced Reserve Bank of Malawi Bonds. The Reserve Bank of Malawi issues bonds on behalf of the Government, in order for the Government to be able to borrow money from the general public to finance its operations, but sometimes as the Reserve Bank of Malawi recently did, bonds can be issued as a form of monetary policy to soak up extra cash in the economy and prevent inflation. Bonds are long term and the current RBM Bonds are redeemable after 3 years and an annual interest is paid out to the bond holders. Application forms for RBM bonds can be downloaded at, http://www.rbm.mw,and the Reserve Bank has a limit on the value of bonds it sells the current being MK5, 000,000,000.

The writer recommends RBM bonds for those wishing to save money for the long term either for retirement or for their children. Bonds are risk free and pay interests that are higher than any type of bank account.

Unlike bonds, shares are not risk free and if an investor does not invest wisely they could make a loss on the stock market, because the value of shares is never consistent and may go up or down depending on the performance of the company and more especially the amount of dividends the company pays out.

The advantage of shares is that an investor may get lucky and have the price of their shares double or even triple, over a period of time, but this has rarely happened since 2008, due to the Global Financial Crisis and that saw many foreign investors pulling out the Malawi Stock Exchange causing the demand of Malawian stocks to drop, therefore leading to many companies’ share prices falling or remaining stagnant.