How to Buy Shares in South Africa

So you’re in South Africa, and you’re wondering how to buy shares.

You’ve already taken a step in the right direction. ✅

The country has Africa’s second-largest economy and the most developed one. And this isn’t breaking news—it has been that way for some time now. Suffice to say, investing in the South African stock market is a pretty wise decision.

But now we arrive at the complicated part: Where do you begin?

If you’re wondering this, you’re not alone. Investing isn’t exactly mainstream—at least not yet. On top of that, South Africa is often overlooked by investors—without good reason. If you’ve decided to take your financial destiny into your own hands, the stock market is a popular path to take. Yes, it can seem daunting and hard to grasp—but don’t throw in the towel just yet. We’re here to help.

Buying shares allows you to protect your money from inflation, work toward long-term goals, and it will help you better understand finances and the economy. Investing is a dynamic, multifaceted sphere of life—and even though may not know it yet, it’s quite interesting.

Still, there are many questions at first: How do you open a brokerage account? What types of shares exist? How do you pay taxes on shares?

Let’s be real, these are boring questions—but they’re necessary, and you have to ask them. Unfortunately, the answers can be a bit hard to find sometimes—there isn’t a lot of helpful content out there that deals with investing in South Africa. 

You have to ask these questions—and we’ve taken it upon ourselves to answer them in a simple, easy-to-understand way. We’ll go over everything you need to know.

Ready? Let’s jump in!

How Buying Shares in South Africa Works 🇿🇦

A share represents a small amount of a company. When you buy a share, you become the owner of a very small part of that business. If you buy more shares, your stake in the company becomes bigger.

So, why should you buy shares? What are the benefits of buying shares? Well, shares could allow you to vote in a company’s annual meetings and make your voice heard regarding the future of the business. They can also allow you to collect dividends—small payments that a company gives to shareholders.

But these aren’t the most important reasons. They might even be completely unimportant, actually. The real reason that you want to buy shares is because it is a great way to make money.

If you buy shares in businesses that are doing well and will continue to do well in the future, the price of their shares will increase. When this happens, you can sell them later—and pocket the profits. 

The stock market has historically offered much greater returns than savings or other investments—allowing you to easily avoid the ill effects of inflation. Looking at the data from when the JSE opened in 1887, the average annual return is 8.4%. 

If you focus on the JSE Top 40, an index that tracks the performance of the 40 largest companies on the JSE, they’ve netted returns of 42.14% in the last 5 years.

Is Trading on the JSE Actually Profitable? 💸

There is a lot of nuance and subtlety to good investing, but it all boils down to simple ideas and principles—you find a stock on the JSE. If you believe that the company the stock belongs to is doing well—that it shows promise for the future, has strong management, quality products, and solid earnings that will continue to grow—then you buy the stock. If your assumption was correct, then the stock will rise in price.

Let’s say you buy shares in Sibanye-Stillwater (SSW), Sasol (SOL), and Naspers (NPN). The companies do well in the next five years, meaning that more people will want to buy their shares—which drives the price up. You’ve bought them five years ago for a smaller price—and the increase in share price is the profit that you’ve made.

How You Can Approach Investing in South African Shares 👇

There are a couple of ways to approach investing in shares. The biggest difference is between long-term and short-term approaches.

Long-term investing is usually just called investing. It relies on finding good companies with solid foundations that you believe will stand the test of time. If you’re right, the stock price will appreciate in time, and you’ll be free to pocket the profits. 

This approach requires research and commitment, but it is less nerve-wracking than short-term trading. In general, long-term investing requires you to commit to holding a stock for at least five years.

The most common method of long-term investing is referred to as buy-and-hold investing. But it is far from the only one—value investing relies on finding undervalued stocks, for example, while dividend investing can net you a handy source of passive income—although dividends aren’t doing well in South Africa at the moment.

Short-term investing is usually referred to as trading. It has the potential to bring you profits that surpass long-term investing by far, but these approaches are inherently risky. 

Trading relies on volatility, and doing it successfully requires a lot of experience and a solid education. Traders utilize strategies such as day-trading, swing trading, scalping, and news trading to pocket profits from the short-term fluctuations in stock price.

If you’re new to the stock market, you should focus on investing in stocks for the long-term. This will allow you to get familiarized with the world of investing with as little risk as possible. A couple of years down the line, who knows—if you learn how to trade stocks, maybe trading will play an important role in your overall financial strategy—but you shouldn’t start off with it.

What Kind of Shares Can You Buy in South Africa? 🗂

There are numerous types of stocks available for purchase in South Africa. In fact, most stock types are represented on the JSE. Let’s outline a couple of them—this way, you’ll get a better sense of how stocks differ from one another.

Blue-Chip Stocks 🔵

Blue-chip stocks are stocks that belong to large, well-established names. These companies have consistent earnings, large market caps, and are generally safe, stable investments.

You’ll find most of them in the JSE top 40. Think Shoprite Holdings (SHP), MTN Group (MTN), or Sasol (SOL) for example. However, that isn’t to say that investing in these stocks is a guarantee of success—it isn’t, as even blue-chip stocks can underperform.

Growth Stocks 📈

Growth stocks have the potential to see a huge increase in value. However, they’re riskier—if the underlying companies don’t end up being industry leaders, the investment can actually end up costing you money.

Value Stocks 🏆

Value stocks belong to companies that are undervalued. With value stocks, the idea is to find companies that have solid fundamentals, but trade at low prices. 

This can happen due to a number of reasons—a bad quarter or year, bad press, or simply low investor confidence. If you’re correct in your analysis, the undervalued stock’s price will correct itself in time—allowing you to make a profit.

Dividend Stocks 💰

For those that don’t know, dividend-paying stocks typically belong to companies that have consistent, high earnings. To reward investors, these companies pay out dividends—small, regular payments that all shareholders are entitled to. 

Some companies even have decades’ long histories of raising dividends each year. Dividend stocks are a great way to build a source of passive income—however, South Africa taxes dividends at a rate of 20%—so investing in dividends won’t work for everyone.

Penny Stocks 📊

Penny stocks are unfortunately not related to Penny Penny—they are stocks that trade for less than 10 rands apiece. They’re risky, volatile, and difficult to predict—this is because these stocks mostly belong to new companies that have not yet proven their worth. 

Unlike blue-chips, penny stocks suffer from a bad reputation, but they can net you large profits—if you find a good penny stock broker. However, trading penny stocks is a skill that takes a lot of experience—so we recommend staying away from them until you have a lot of notches under your belt.

How to Buy International Shares in South Africa 🌍

The JSE lists plenty of companies that you might be interested in—but when most of us think of investing in stocks, we dream of getting in on the action early when the next Facebook, Google, Amazon, or Tesla appears.

These companies aren’t listed on the JSE—but you can still buy their shares. To do so, you’ll have to find a brokerage that offers access to other stock exchanges. 

A lot of international brokers operate in South Africa—and plenty of them will allow you to trade on the NYSE, LSE, and NASDAQ, along with many other stock exchanges worldwide. Some, like Interactive Brokers, allow you to trade on more than 150 exchanges across the globe.

How to Begin Trading Shares in South Africa 🏁

Before you can begin investing in the JSE, you’re going to have to open an account with a brokerage. This is a necessary step—there’s no way to buy shares directly in South Africa. Later on in this guide, we’re going to explain how to look for a good broker.

For now, let’s deal with the process of opening an account, and the documents that you’ll need to submit to do so. In recent years, the process of signing up for a brokerage account has been streamlined—it can be done entirely online and doesn’t take up much time—although getting your account approved can take a while.

There are no fees associated with opening an account. No matter which broker you choose, you’re going to have to submit the following documents:

• A copy of your ID (or passport if you are a foreign national)
• A proof of residence that is less than three months old
• A copy of a South African Revenue Service (SARS) document to confirm your income tax number
• A copy of a bank statement that is less than three months old

Learn How the JSE and FSCA Operate 🎓

The JSE was founded way back in 1887. It is the largest stock exchange in Africa and currently lists 442 companies. The JSE is open from 9AM to 5PM, Monday to Friday.

The FSCA (Financial Sector Conduct Authority) is the regulatory body that deals with investing in South Africa. It replaced an earlier body, the Financial Services Board (FSB) on April 1st, 2018. 

The FSCA is the market conduct regulator of financial institutions and seeks to maintain an efficient, transparent, safe market. It, together with the Prudential Authority (PA) forms the so-called Twin Peaks model of financial regulation that is present in South Africa.

Using a Broker to Buy Shares in South Africa 🏛

You will have to use a stock broker in order to buy shares in South Africa. Before we move on to how exactly you can do that, let’s rewind a bit and ask a simple but important question—what are stock brokers?

Stock brokers are companies that link investors and stock exchanges. They operate as market makers—connecting buyers and sellers so that business can flow smoothly. You can’t buy shares without a stock broker in South Africa—but don’t fret—there are plenty of affordable options out there.

To jump right into it, there are two popular brokers in South Africa. Pepperstone has a unique CopyTrader feature, which allows users to copy of the trades of professionals. This a great way for newer, inexperienced traders to get started. Interactive Brokers offers powerful tools, making it very popular among seasoned investors.

To take things a step further, stock brokers generally fall into one of two categories—full-service brokers and discount brokers. So, what are the major differences between the two?

Full-service brokers are more expensive, have steeper minimum investment requirements, and usually charge a commission for each trade executed. However, they offer a wide variety of services beyond the ability to buy shares—from education and retirement planning to access to financial advisors and wealth management.

Discount brokers, on the other hand, usually charge a flat fee per order. They don’t offer the wide variety of services that full-service brokerages do, but they’re much more affordable, and no less profitable, provided that you educate yourself on investing.

So, what should you pick? For a majority of people, discount brokers are the superior option by far. The lack of high minimum investment requirements is the key reason here—most people that are interested in trying out investing aren’t exactly sitting on heaps of spare cash.

Be that as it may, the things that make or break a broker are the same, whether we’re talking about discount or full-service brokers. So let’s take a closer look at what the most important factors are.

Picking the Right Broker 🤝

So, you’ve set aside some money, read up on stocks, perhaps even zeroed in on a trading strategy. You’re ready to start trading on the JSE—but you’re going to need a broker.

Opening an account with a stock broker is not difficult. Knowing how to pick a good stock broker, however, can be. There are a lot of factors to consider—particularly if you’re just starting out. We’re going to go over the most important things to consider down below.

Price and FSIC Regulation 👨‍⚖️

The first topic that should be dealt with is price. Brokerages differ in how they make money—some charge flat fees, some charge a percentage, and some charge commissions. Be that as it may, all brokers charge fees—and having a good sense of how much they charge is crucial.

You don’t want to overshoot your budget. Pick a broker that is within your means—fees can easily eat away at a large chunk of your profits. Another important fact to consider is the minimum investment requirement—how much a broker requires you to invest to be able to use their services.

Next but no less important is safety and legitimacy. The financial sphere is heavily regulated—and for good reason. Investing is risky, and putting your money in unproven hands is a recipe for disaster. Regulations ensure that business is done ethically, responsibly, and transparently.

Always check if a broker is regulated by the appropriate bodies and financial institutions. For South Africa, that is the FSCA .

FSCA-regulated brokers are legitimate—but it’s always good to go one step further. Read the broker’s reviews, see if they were involved in any past mishaps or if they were fined by the FSCA.

Last but not least, as we are living in the digital age, consider online security. What sort of encryption does a broker use, have they experienced cyberattacks in the past, and do they support safe practices such as two-factor authentication? All of these questions will allow you to get a good overview of how secure a broker is.

Access to the JSE, Other Exchanges, and Different Securities ✅

The JSE is South Africa’s largest stock exchange—but it isn’t the only one. In fact, South Africa has five stock exchanges—but seeing as the other ones only have a limited number of listings, you’ll want to focus exclusively on the Johannesburg Stock Exchange.

Due diligence pays off. Before you commit to a brokerage, make sure that it will allow you to access the JSE. But you shouldn’t stop there—while South Africa’s stocks show much promise, having access to other exchanges such as the NYSE, LSE, and NASDAQ allows you to diversify much more easily.

You should also consider what other types of securities a brokerage offers. This article is focused on shares—but you’ll eventually want to branch out into other types of investments later on.

ETFs, mutual funds, bonds, futures, and even cryptocurrency can all play an important role in your investment portfolio. In fact, a robust portfolio should be diversified across asset classes—so make sure that the brokerage you pick offers a wide selection.

Platform and Ease of Use 💻

A brokerage’s platform is a key element to consider before making your final choice. Brokers generally offer three types of platforms—desktop, online, and mobile. Nowadays, most brokers offer all three options—but not all platforms are made equal.

A lot of brokerages use the MT4 and MT5 platforms. These are solid, dependable, tried-and-true pieces of software, but many brokers offer their own addons that provide additional functionality—meaning that even two brokers that use the same platform might not end up giving you the same experience. 

Many of the leading stock brokerages on the market use their own, proprietary platforms that should be thoroughly researched before committing. Be that as it may, the criteria that you’ll use are always the same.

Is the platform user-friendly? What charting tools does it offer? Does the platform offer level 2 and level 3 quotes, and how much does it charge for market data packages? How many order types—particularly advanced order types does it support? All of these are important questions that should be asked ahead of time.

It’s hard to overstate the importance of top-notch mobile stock apps in today’s trading environment. Everything moves at a rapid pace nowadays—and you’ll want to have easy, on-the-go access to your broker at all times. Pay attention to the reviews of a broker’s mobile app before making a decision.

Last but not least, don’t ignore demo accounts. They’re a great way to try a platform out and get a feel for it before committing. There’s an element of subjectivity in what constitutes “user-friendly”—even platforms that are famed for being easy to use might not sit well with you. Always try a platform out before making a final decision—it’s the best way of making sure that it is a good choice for you.

Customer Support 🤝

A broker’s customer support is another key factor to consider. Everyone hopes that there will never be a need to contact customer support—but when the need arises, and it will, you’ll be thankful if the team is quick to respond and helpful.

When mistakes and accidents happen, it can end up costing you quite a large sum of money. A good customer support team can help save you from losses, as well as keep you from stressing out too much.

Before you pick a broker, find out how often their CS team is available, how you can contact them, and what the average waiting time is.

Where to Learn about Trading in South Africa 📚

Learning how to trade well takes perseverance, dedication, and quite a bit of effort. But that education will pay for itself many times over. But if you’re new to the world of finance, you might not be exactly sure where to begin.

There are many books, podcasts, webinars and so forth available online that deal with investing. Some of them are fantastic—but if you’re just starting out, it can be difficult to tell apart a good source and a bad one.

Actually, the easiest way to learn about trading is by opening a brokerage account. There are a couple of reasons for this.

First of all, it will help you familiarize yourself with a platform, and it’s much easier to stay motivated and focused when you’ve got something real in front of you. Second of all, brokers offer two significant advantages when it comes to educating yourself—educational materials and paper trading.

A lot of brokerages offer educational materials—and this factor should definitely be high on your list when choosing a broker. Some have a specific focus on education—with expert analyses, helpful guides, and well-made, easy-to-understand courses. 

Some also have active user forums, allowing you to communicate with and learn from other traders. Others, like Pepperstone, have copy trading features—which allow you to copy the trades of well-established investors as they are made.

Paper trading is another important piece of the puzzle. Paper trading is done with demo accounts and uses simulated money. This allows you to try your hand at investing, test out strategies, and learn from mistakes without actually exposing yourself to risk. Above all, we always recommend using a paper trading account before actually taking the plunge and starting to invest real money.

Taxes on Trading Shares in South Africa 💸

Any profits that you make by trading will be taxed. However, the amount of tax that you’ll pay can vary dramatically depending on whether you’re a short-term trader or a long-term investor.

Profits made by short-term trading are considered income, and taxed at the personal income tax rate of your earnings bracket, much like your salary. The personal income tax rate in South Africa varies from 18% to 45%.

However, if you profit by selling a share after holding it for a longer time, you will be subject to the capital gains tax—which is far lower.

Effective Tax Rates ⚖️

We’ll try to simplify it as much as we can. When you sell a share after holding it for a longer period (3 years is a safe bet, according to South African courts), only 40% of the gains that you’ve earned will be taxed at your personal income tax rate. This means that for capital gains, the effective tax burden that you’ll have to shoulder varies from 7.2% to 18%.

On top of that, the first R40 000 in capital gains that you make in a year are excluded from taxation. Once all of that is factored in, it becomes apparent that South Africa’s tax structure favors and encourages long-term, buy-and-hold investing.

Although the COVID-19 pandemic will likely cause the South African government to introduce some changes to the tax system this year, personal income tax rates are unlikely to be affected.

Tax season in South Africa lasts from July to November, depending on how you file your taxes. The form that you’ll have to submit to SARS is called ITR12. Capital losses can be offset against capital gains—however, net losses cannot be offset against taxable income. 

However, in 2015 tax-free savings accounts were introduced in South Africa—and they’re definitely something you should look into.

Taxes for Non-Residents 🌎

Non-residents are subject to the same tax rates as residents are in South Africa.

Non-residents do not pay capital gains tax unless their investments are in real estate or shares in companies that primarily deal in real estate. Non-residents will only be taxed on the income that they acquire in South Africa.

How to Pick Stocks in the JSE 💡

Navigating the JSE can be complicated. It currently lists 442 stocks. To narrow down your search, start with companies in industries that you’re familiar with. 

Invest in what you know—if you work in a particular industry, you’re already at an advantage when it comes to investing in it—you know how companies operate, how they make money, and how they are faring.

Focus on the fundamentals. Look at a company’s long-term performance, and how it has fared over the past 10 years. Does the company have a positive cash flow, and what does its net income look like? Investing in stocks isn’t a guessing game—numbers matter and these metrics are important—no matter what business you may be investing in.

When investing in stocks, you want to experience the effects of capital appreciation. If a stock’s price increases, you make money. That’s much easier to do when a particular stock is undervalued—so try to find undervalued stocks.

Perhaps a company’s had a rough couple of years, or they’ve had some bad press recently—but if the underlying business is sound, that price will bounce back in time—allowing you to pocket the difference.

Last but certainly not least, keep your ear to the ground regarding current events and politics. Companies that comply with BEE stand a better chance of securing government contracts, for example. Other sections of the market, like the alcohol industry, are susceptible to legislation that can dramatically impact the underlying businesses. Factors like these should be kept in mind before investing. 

Diversification and Volatility 📉

You’ll also want to properly diversify. Don’t focus all of your investments in one sector. If all of your investments are focused on the South African energy sector, for example, any developments regarding it will have a dramatic impact on your entire portfolio—and that’s just too much risk. Later down the line, you’ll also want to expand into other securities such as ETFs, mutual funds, and bonds.

Pay attention to a stock’s volatility when you consider buying it. Volatility is measured by Beta—which contrasts the volatility of the stock compared to the average of the exchange—in this case, the JSE. Volatility isn’t automatically bad—it also allows for large profits, but it does come with risk.

The overall risk of your portfolio should be balanced—or to put it another way, your portfolio should be as risky as you’re comfortable with. A healthy mix of stable stocks that will perform well in the long-term, along with some defensive stocks and a couple of risky, volatile stocks that have the potential for good growth in the future usually works best.

Learning how to properly research stocks takes time, but it is well worth the effort. Net worth, cash flow, technical analysis, reading stock charts fundamental analysis—these might seem like hard to grasp concepts right now, but in time, they’ll become like second nature.

Popular South African Shares—Are They a Good Investment? 💼

As we’ve previously discussed, blue-chip stocks, which are the most popular among investors aren’t a completely safe bet. However, when we take a look at the JSE Top 40 index, we see that returns for the past year amount to 20.4% and returns for the past 5 years amount to 42.14%.

Those are great numbers, once everything is taken into consideration. And although this index only tracks 10% of the companies listed on the JSE, those companies account for over 80% of the total market cap. 

Let’s take a look at a few concrete examples. Northam Platinum (NHM) has seen a return of 511.5% when looking at a five-year period. Looking at the last year, it has seen a return of 46.44%, spurred on by higher metal prices.

Sibanye Stillwater (SSW) has seen an average annual return of 44.95% when looking at the last five years, and a return of 44.83% last year, owing to the company’s soaring profits, debt reduction, and shift to green technologies.

On the other hand, retail businesses such as Truworths (TRU) and Massmart (MSM) aren’t faring well, with Truworths seeing a loss of -48.73% in the last 5 years, and Massmart seeing a loss of -51.04% in the same period.

Other popular stocks, such as Naspers (NPN) offer solid returns, and have performed well as of late, but still struggle with structural issues.

So, how does the performance of some of South Africa’s most popular stocks stack up when compared to popular American stocks, for example? The truth is, South African stocks can’t compete—but this is due to the vast international interest in American stocks that just doesn’t exist (at least yet) for companies listed on the JSE.

The South African stock market, as well as its most popular stocks, have performed much better than expected—and the JSE may continue to rise even further. There’s no need to choose between domestic and foreign markets—the more the merrier is very much the case in this scenario.

JSE During Covid-19 😷

The JSE has outperformed many global indices since the start of the pandemic. Although the very beginning of the pandemic saw a large drop, the market bounced back in approximately five months. 

The increase in volatility brought about by the pandemic saw the advent of record-breaking trading volumes, and by December of last year, the JSE was already breaking new ground and reaching new heights.

In particular, the South African mining sector has outperformed all expectations. As we’ve discussed, a majority of the most popular South African companies have performed well in the midst of the COVID-19 pandemic. In fact, the JSE closed at a record high on February 17.

At the moment, the future seems bright—the advent of vaccine rollouts, decent economic growth throughout 2021, and hopefully a return to normalcy show much promise.