South Africa is far and away the most economically developed of African states, and, as such, will likely be the continent’s economic gateway for the foreseeable future.
Truth be told, however, the Johannesburg Stock Exchange (JSE) isn’t exactly the most bullish of markets these days. The MSCI South Africa Index has sunk more than 13% over the past 12 months after accounting for depreciation of the nation’s currency, the rand. In fact, the market is now at its lowest point in nearly two years.
But this isn’t necessarily bad news for value investors. Falling prices mean an increasing number of bargains are on offer. Earnings multiples are dropping and dividend yields are rising.
And because the Johannesburg Stock Exchange is one of the most sophisticated in the world, investors can scoop up these deals with a click of their mouse. The market’s accessibility and convenience make it an ideal place for new Africa investors to get their feet wet.
Here’s how to get started.
Comparison Shop South African Stockbrokers
Your first step is to open an account with a South African stockbroker.
Dozens of stockbrokers facilitate trades on the JSE, but only 12 offer online share trading to individual investors.
Online trading platforms are still relatively new to Africa, and they’re not a necessity to invest successfully there, but I find them more convenient. So, I limited my broker research to those that offer them.
I sent an email to each one, asking them if they catered to foreign investors, how much of a deposit they required to open an account, what documentation was required, and for a copy of their fee schedule.
Five of the brokers confirmed that they do take foreign clients and responded to my questions within three business days. I’ve listed them below with their minimum initial deposit amounts, monthly administration fees, and my calculation of the cost of a hypothetical ZAR20,000 trade through each one.
|Broker||Minimum Initial Deposit||Monthly Admin Fee||Fees and taxes on ZAR20,000 (roughly $2,000) share purchase|
|Anglorand Securities||$50,000||ZAR121.46 (roughly $12.00)||ZAR270.96 (roughly $27.00)|
|Imara S.P. Reid||None||ZAR20.83 (roughly $2.00)||ZAR285.96 (roughly $28.00)|
|Nedbank Online Trading||None (but does charge ZAR250.00 account opening fee)||ZAR33.50 (roughly $3.00)||ZAR200.96 (roughly $20.00)|
|PSG Online||None||ZAR40.00 (roughly $4.00)||ZAR240.96 (roughly $24.00)|
|Sanlam iTrade||ZAR1,000.00 (roughly $100.00)||ZAR50.00 (roughly $5.00) or monthly brokerage in excess of ZAR300.00 (roughly $30.00)||ZAR235.96 (roughly $23.00)|
As you can see, commissions and fees are pretty comparable across all five brokers, but Anglorand requires a much larger deposit than its peers.
[Be aware that, for South African residents, value added tax is added to many of the above items. If you are not a South African resident, you should not be charged value added tax (VAT). If you do much trading, this can be a significant charge as it amounts to 14% of brokerage and fees. So keep an eye on your trading statements and ask your broker to refund any VAT should it appear.]
Discretionary vs. Non-Discretionary Accounts
Note that some of these brokers offer discretionary accounts. Discretionary accounts give brokers the authority to make trades in your account without the consent of the account holder. They typically are managed in a way that the broker believes is the best way to achieve the investment objectives and acceptable levels of risk that you specify. It’s like having your own personal portfolio manager. You might want to consider this option if you aren’t interested in doing your own investment research.
I’m a bit of a control-freak, so I personally prefer non-discretionary accounts. I want to make my own investment decisions and don’t like the idea that a broker could buy or sell my shares without my permission. If you’re at all like me, make sure you open a non-discretionary or “execution only” account.
What Documentation Will You Need?
To open an account be prepared to provide the following:
- Certified copy of your passport
- Bank details (i.e. a canceled check or a certified copy of a recent bank statement)
- Copy of a recent utility bill showing your physical address (not older than three months)
- Signed letter to your broker stating that you are not registered with the South African Revenue Service for tax in South Africa (some brokers may require your Social Security number)
You will also need to fill out a form or three for the broker that you’d like to open a trading account with. Here’s a rundown as to what else is required by each one.
- Anglorand requires completion of a 12-page trading mandate (only the first six are necessary for non-discretionary accounts) and a three-page particulars schedule.
- Imara SP Reid’s application is a 14-page monster. Fortunately, individual investors who wish to manage their own accounts can skip many of the sections.
- Nedbank, PSG Online, and Sanlam iTrade all offer nifty online registration applications. Find Nedbank’s here,PSG’s at this link, and Sanlam iTrade’s right here.
How to Fund Your Brokerage Account
After opening your trading account, your broker will provide you with its bank details so that you can fund your account and begin buying shares. The most efficient way to do this is via wire transfer. If you haven’t sent an international wire before, I suggest that you take your broker’s bank details to your local bank branch and ask them to walk you through the process. They’ll make sure that your funds arrive securely. Note that most US banks charge about $25 for outgoing international wires.
Making a Trade
The actual process of making a trade varies depending on the broker you use, but from what I’ve seen their trading platforms look pretty intuitive. You simply buy and sell shares in a similar way that you would through an ETrade or TDAmeritrade account.
In my experience, collecting dividends paid by your South African stocks is a piece of cake. If you bought the shares through an online broker, your dividends will deposited directly into your trading account. You can then decide whether to bring the cash back home or to reinvest them in the market.
Clear as Mud?
Do you have questions about investing on the Johannesburg Stock Exchange that we haven’t covered here? If so, let’s hear them in the comments!