High transaction costs and lack of information have discouraged individual investors from participating in Kenya’s stock market, a new study has shown.
Consequently, the country’s stock market has been dominated by institutional investors such as investment firms and pension funds.
The study by the Institute of Certified Investment and Financial Analysts (ICIFA) sought to find the challenges facing retail investors in Kenya’s financial markets.
“The key challenges have been high transaction costs and insufficient information to aid in making sound investment decisions,” reads part of the study which was conducted between March and May this year.
Other factors that have discouraged the participation of individual investors at the Nairobi Securities Exchange (NSE), the study found, include the prolonged listing drought at the NSE and poor communication from investment institutions and regulatory bodies.
President William Ruto has promised to have up to 10 State-owned firms listed at the NSE in a year to breathe life into the Nairobi bourse.
Awareness of service or product providers and trading companies is also low among retail traders.
“There is a need for education on players in the market, products, services, and listed companies,” the report says.
The Nairobi bourse has also suffered from a prolonged bear market, where share prices are falling, with investors recording paper losses.
ICIFA, a professional body for investment and financial analysts, described a typical Kenyan retail investor as an individual with or without professional knowledge of the financial sectors.
These individuals, the report noted, tend to have an average monthly income ranging between Sh50,000 and Sh200,000 and have been investing for one to six years and/or 10 years or more.
Such an investor is also both a long-term and short-term investments, and their primary reason for investing is a combination of income and capital growth.
The Capital Markets Authority (CMA) has been increasing awareness campaigns to lift the participation of individual investors in the stock market.
Respondents in the study by ICIFA noted that players in the financial markets well-known to them included stockbrokers (33 per cent), investment banks (26 per cent), and insurance companies (26 per cent).
