Investing in Foreign Stocks: Could it be a nightmare?


Statistics show that approximately 20,000 native Ugandans participated in the Safaricom initial public offer (IPO) back in the year 2008. To the best of my knowledge, many of these were first timers that had heard of the Stanbic Bank Uganda (SBU) windfall and thought Safaricom, vis-à-vis SBU, to have been a Toyota Corolla compared to a black mamba bicycle. Well, the informed investor had learnt his or her lesson with the earlier Eveready Kenya IPO, a company which till to date is grappling to survive amidst meager profits. Whereas 20,000 native Ugandan investors were caught up in the Safaricom hype, you should be shocked that there are approximately 15,000 native Ugandans that have proudly decided to invest at the Uganda Stock Market.   This rather odd behavior with Ugandans, pardon me if you think otherwise, is what I would liken to the preference of Gucci branded items yet there are similar cheaper and quality local products in abundance. The sad story is that the first time investors at the Safaricom IPO now view the stock market like another casino. Could investing in foreign stocks therefore be a nightmare? What do you stand to benefit from on the other hand? 

Little or no passive income
The principal reason behind any investment is a return. When you invest in the stock market, you get to obtain passive income when the company pays out its dividends. My recent up-close with a few seasoned investors however revealed that dividends from foreign stocks are quite a nightmare. Mr. Andrew Muhimbise is an investor at several of the companies listed at the Nairobi Stock Exchange. He says that the trouble with receiving dividends from such companies is that they send you a Ugsh.3, 000 – dividend cheque that has to be cleared via Citi Bank which charges a premium of Ugsh.10, 000 for the service. The worry here is that you would have to part with Ugsh.7, 000 so as to enjoy your dividend! He however recommends that if you intend to make such an investment, it has to be sizeable enough so as to guarantee a reasonable return.  

Foreign exchange risk
The British American (a Kenyan based insurance company) IPO is now over, did you buy some for yourself? Hope you did because it was a perfect buy. The question here is not whether British American was a perfect buy or not... Safaricom on the surface too looked a perfect buy. The nightmare came when the 20,000 Ugandan investors started demanding for the Kenyan shilling. This sudden up – surge in demand pushed the Kenyan shilling to a record Ugsh.29 against the Ugandan shilling. The nightmare did not hit hard until the 80% refunds were effected and again quickly lowering the demand for the Ugandan shilling to a record low. This rather brutal turn of events led to many first timers vowing never to invest again. Our only hope is that British American is not over subscribed. 

Failure to attend Company meetings
Owners of a listed company are entitled to make a contribution to the company’s major decisions, say the election of new directors. The big question should be if a Mr. Ssendawula who holds only 2000 shares of British American, would be willing to sacrifice bus fare as well as other related expenses to attend a meeting( normally the Annual General Meeting) in Nairobi? The AGM may look irrelevant to our Mr. Ssendawula but it’s a major function through which he can get to learn more about his investment as well as partake in decision making.

Uncommon returns  
There is an old saying that a coward has never won a fair maiden. We must not only speak of the dangers of investing in foreign stocks but of the benefits too. Well, the biggest benefit of making such an investment is the ability to partake in a rapidly growing economy as well as emerging markets like Rwanda. Bralirwa Rwanda’s IPO that took place at the beginning of this year and saw the successful listing of the stock at the Rwanda Stock Exchange is a perfect example. On its first day of trading, the stock took an upward trend appreciating by an unprecedented 62% of its listing price. While the Safaricom debacle may have turned off cowards away from foreign stocks, Bralirwa has so far been a complete opposite.
Ultimately, the intelligent investor in foreign stocks will neither be wooed by bullish (upward) trends nor be petrified of bears (downward trends). It is his ability to weigh the existing risks against the potential rewards that will always guarantee him of the best stock pick.