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Introduction toIntroduction toEquity MarketEquity Market
Presented by
Vergis Mathew
dtsb33@tm.net.my
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Today’s RoadmapSession 1
Introduction to Equity Market
/ Stock Exchange
Bursa Malaysia information
World Exchanges
Coffee Break
Session 2
Why seek listing on Bursa?Bursa products
Lunch Break
Session 3
Bursa Rules & Regulations
Tea Break
Session 4
Market Regulators
Q & A
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EquityEquity
investment
generally refers to the buyingand holding of shares of stock
on a stock market
by individuals and funds in anticipation of income
from dividends
and capital gain
as the value of thestock rises. It also sometimes refers to theacquisition of equity (ownership) participation in a
private (unlisted) company or a startup (acompany being created or newly created). Whenthe investment is in infant companies, it isreferred to as venture capital investing and is
generally understood to be higher risk thaninvestment in listed going-concern situations.
Wikipedia
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What is a Stock Market / Exchange?
A Stock Exchange is an organization that provides a
Private
or Public
marketplace for both physical
or
virtualtrading of shares, bonds, warrants and other
financial
products.
Here investors, directly or via stock broker, may
buy and sell shares etc of companies listed on thatExchange.
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Stock Market –
Functions and purposeRaising capital
for business
Mobilising savings
for investment
Facilitating growth
in CompaniesRedistribution
of wealth
Corporate governance
Create investment opportunities for small
investors
Government
raising capital for development projects
Barometer
of the economy
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Major Stock Exchanges worldwideLondon
Stock Exchange
New York
Stock Exchange
Tokyo
Stock ExchangeShanghai
Stock Exchange
Hong Kong
Stock Exchange [Hang Seng]
Stock Exchange of Singapore
[SES]
Australian
Stock Exchange
Bombay
Stock Exchange
Paris
Stock Exchange
etc, etc
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Malaysian Stock ExchangeKLSE
Main board Second board MESDAQ
What are listing requirements for each?
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Brief history of BURSA Malaysia
1960 Malayan Stock Exchange formed
1964 Stock Exchange of Malaya [SEM] formed
1965 SEM renamed Stock Exchange of Malaysia[SEMS]
1973 SEM separated into KL Stock Exchange and
Stock Exchange of Singapore2002 Mesdaq Exchange merged with KLSE
2004 Demutualised 5 Jan 2004 and renamed BURSA
Malaysia Bhd 14 April 20042005 BURSA listed 1 Mar 2005
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Malaysian Stock Exchange growth
Market valuation of Listed Companies
Year
No of Co’s
Market Valn[Bill]
1998 736
375
2000
798
4442006 1027 849
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Listing advantages
IPO [Initial public offering] is first sale of sharesby a private company to the public. So thecompanies are usually smaller, without long
history seeking capital for expansion. Some will belarge private companies wanting to be publiclytraded. Note: Role of underwriters
Raising fresh capital
for company –
in future rightsissues
Founders
selling out
Access to cheaper
funds An acquistion
vehicle
Stock options
OpportunismReputation
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Listing drawbacks
Increased accountability
and additional obligations
Need to maintain dividend and profit growth
More vulnerable to hostile takeoverHave to observe and ahdere strictly to rules and
regulations
Increased costsRelinquish partial
control
Loss of privacy
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Major products on BURSA
All guided by terms of issue
Ordinary shares –
highest profit, highest lossPreference shares –
interest bearing, priority
Warrants / TSR [Transferable Subscription Rights]
CULS / ICULS
REITS
Closed end fund
Options / Exchange traded funds
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CULS & ICULS
Preference shares
Preference shares are also a form of equity hybrid, which carry a prior right to a
fixed dividend (ordinary shares do not have a right to a fixed dividend). This fixed
dividend is usually expressed as a percentage of the share's nominal value, and ispaid when sufficient profits are earned. Preference shares that also carry the right of
any arrears of preference dividend which has not been paid, is known as cumulative
preference shares. Preference shares that are not entitled to such arrears in
dividends are called non-cumulative preference shares.
CULS can be issued in the form of redeemable (RCULS) or irredeemable (ICULS)
convertible unsecured loan stocks. If the loan stocks are irredeemable, the holder
must convert the ICULS into shares on maturity (normally after four to five years) at
a predetermined conversion ratio and conversion price. If redeemable, then onmaturity the holder can either convert the RCULS into shares or redeem the RCULS
from the issuing company at their par value.
SIDC website
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REITS
REITs are trust funds that hold or invest in rental properties and are
required to distribute most of its profit as dividend to its holders.
REITs could boost and help reduce capital cost.REITs create conditions for building an integrated property business and
attracting foreign capital.
IT could also help develop the broader economy and bring in new players,
citing S-REITs as an example in attracting established property developerslike Capital Land Ltd and Keppel Land Ltd.
The local REITs industry needed consistent improvement in the regulatory
environment and the removal of withholding tax.
extract from The Edge
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Closed end funds
A closed-end fund, sometimes called an investment trust, issues
shares and then uses its capital to buy shares in other
companies.
In contrast, a unit trust issues units that represent holdings ofshares.
A unit trust is open-ended in the sense that its size depends on
its success in selling units, while the number of shares
issued by a closed-end fund are fixed.
Unlike unit trust holders, who are able to sell their units back
to the fund manager, holders of closed-end funds buy and
sell shares to other investors.Like unit trusts, closed-end funds offer investors similar
benefits of diversification and professional management. In
addition to capital growth, investors in closed-end funds are
also paid dividends from investment profits.
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Closed end funds
An open-ended fund doesn’t have a fixed amount of units.
Today it can have 13 million units and tomorrow it can have 10million units, depending on how many people have bought or soldthe funds. The price that you buy or sell an open-ended fundis based on the NAV of the fund, which is calculated daily by thefund companies and is published daily on the newspaper. [NAV =Net Asset Value = how much the fund is worth = the exact price ofthe fund]
A closed-end fund has a fixed amount of units. For example,ICAP has a fixed 140 million
units available. Tomorrow, it will
still be 140 million units no matter how many people sell or buy
it.The bid and ask price do not depend on the NAV butactually depends on supply and demand.
When you buy a Public Mutual fund, you are buying from PublicMutual directly at the NAV + entry fee (6.5%). If you sell, you are
selling to Public Mutual directly at the NAV. You don’t need toworry whether there are buyers or sellers available, Public Mutualwill always buy or sell to you.
Since ICAP only has a fixed 140 million of units, you can only buy froman existing ICAP holders who wants to sell to you. And so the price
is determined by supply and demand.
Extract from iCap website
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Options
Options
are financial instruments that carry the right, but not
the obligation, in a future transaction. For example, buying a
call
option gives the right to buy an agreed quantum of
stock at an agreed price [strike price] at some future date. Aput
option gives the right to sell when the option is
exercised.
•
Exchange traded options
(also called "listed options") are
a class of exchange traded derivatives having standardizedcontracts that are settled through a clearing house.
Standardized contracts facilitate accurate pricing. These
include:
stock options,
commodity options, bond options, interest rate options
index (equity) options, and
options on futures contracts
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BURSA classification
MAIN BOARD
Consumer
Industrial Products
Construction
Trading / Services
Infrastructure
Finance
Technology
Hotels
Properties
PlantationMining
REITS
Close-end Funds
Exchange Traded Funds
SECOND BOARD
Consumer
Industrial Products
ConstructionTrading / Service
Technology
Properties
Plantation
MESDAQ
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Major indices
KL Daily Composite Index
Tracking the KL Composite
Index [Day]
Consumer
Industrial Products
Construction
Trading / Services
Finance
Technology
Properties
Plantation
MiningWhat was yesterdays KLCI
closing index?
Sample price quotation
Turnover
Main Board
Vol & Value
Off Market
Vol & Value
Second BoardVol & Value
Gainers
Losers
Unchanges
Untraded
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KLC Index
Kuala Lumpur Composite Index (KLCI) [as
at 30 November 2007]
Base year
1977
Calculation mode
Weighted by marketcapitalisation
Index
Current aggregate Market
Capitalisation
x 100
Base Aggregate Market Capitalisatio
Note: Largest stocks by market capitalisation
havemost impact
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Computing indices
Method varies
Simple average closing price
Weighted average
BURSA calculates indices on a realtime basis. These
are made available to Stock broking companiesand other real time market information
subscribers
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Rules and Regulations
Listing requirement –
detailed requirements [296
pgs]
Practice notes –
Sec 2.08 of Listing requirements
Application of Listing Requirements
Guidance notes –
Sec 2.09 of Listing requirements
Documents to comply with Listing Requirements
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Trading Rules
Execution of trades –
via stock broker, or etrade
Settlement –
T + 3
Failed trades –
selling or buying price not available
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Trading
Buy, Sell via stock broker, bank –
T+3, margin trading, short selling,gains tax, dividend, bonus, rights
Full service brokers -
give investment advice, more personal service.
More expensiveDiscount brokers -
no investment advice but charge less
Contract notes
Central Depository System [no share cert]
BURSA website:
DMA is direct automated order routing. This means that when theinvestor keys-in an order via his broker there is no manualintervention. The system routes the order directly to the Exchangeafter a process of checks and validations. The investor thus has
direct electronic access to our trading platform -
Bursa Trade.
This is why it is also known as “zero-touch”.
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Trading
Arbitrage
Listing on more than one exchange may creatediscrepancies which could create opportunities in
expectation of their eventual convergence. This isknown as an arbitrage trade. However withelectronic trading, these discrepancies, if any will
be short-lived and acted upon quickly due tomarket efficiency.
Direct or Pooled holding [eg unit trust]
Fund managers charge fees
Diversification
Share in expensive stock
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Share analysis
Identifying good
investment:
Technical
analysis includes study of price history of
both share [incl volume] and the stock market.Technical analysts can be very complex.
Fundamental
analysis includes study of relevant
information re the stock and the market.
Fundamental information studied will include the
annual financial statements, industry and product
data (eg sales, orders), financial and economic
environment (eg interest rates). Aim is to forecastshare price movement
based on future business
and financial developments.
Supply and Demand
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Share analysis
52-week High Low
Code
Shares
Close
+/-
Vol (’00)
PE
DY
Day’s High Low
No of Shares (m)
MCap (RMm)
NTA
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Price quotes
STOCK
CODENAME REF HIGH LOW LAST CHANGE VOLUME
1295 PBBANK 11.100 11.400 11.100 11.400 0.300 28591
1295CD PBBANK-CD 0.125 0.135 0.120 0.135 0.010 37639
1295CE PBBANK-CE 0.240 0.245 0.240 0.240 0.000 5180
1295CF PBBANK-CF 0.140 0.155 0.140 0.155 0.015 12850
1295F PBBANK-O1 11.200 11.500 11.000 11.400 0.200 38077
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Efficient Market Hypothesis
EMH
says that investing is rational, so price of aparticular stock at any given time will representrational
evaluation of known information.
Therfore share price will be efficiently
priced.
According to ‘Behavioral Finance’, humans often
make irrational
decisions especially re the buyingand selling of shares based on fears andmisconceptions eg dot.com bust
The ‘greater fool theory’
says that becausereturns are made from sale to another investor,always select shares that someone else will valuehigher in future, thus relying on other investors
irrationality.
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Terminology
Bull & Bear
Types of orders –
market,
stop, limit
Averaging
Blue chips
Insider trading / dealing
Transactions based uponmaterial non-public,
company owned
information
Market capitalisation
Odd lots
Golden Share
Penny stocks
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Order TypesMarket OrdersThis is an order placed for immediate
execution at
the best available bid or offer price in themarket.
Limit Order
A limit order stipulates a price limit
for atransaction execution. A buy
limit orderindicates
that the futures contract may be purchasedonly at
the designated price or at a lower
last done
price.On the other hand, a sell
limit orderindicates that
the futures contract may be sold at adesignated
price or at a higher
last done price.
Stop Order
This is used to stop loss, protect profit orinitiate
strategies based on stipulated price levels. A stop
order converts into a market orderwhenever the
futures contract trades at or beyond thedesignated
price of a loss order. This conversion isautomatic
Day Order or Good for The DayThe limit or stop order will lapse at the end
of the
trading day if no particular date has beenset for
validity.
Good Till Cancel Order (GTC)This order remains valid until it is either
filled or
cancelled. It is prudent that records of suchorders
are kept and monitored daily.
Good To Date (GTD)This order remains valid until
the end of a
specified trading date.
Basis Order
It is also known as spread order and isused for
taking a spread position, which issimultaneous
purchase and sale of contracts withdifferent
expiration dates (different contractmonths).
CIMB website
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Regulators
From listing application to day to day operations
SC –
oversee Capital Market
BURSA –
oversee Trading
SIDC –
The Secuities Industry Development
Corporation
incorporated in March 2007, is the leading capital marketseducation, training and information resource provider in
ASEAN.
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Introduction toIntroduction toEquity MarketEquity Market
THE ENDTHE END
THANK YOUTHANK YOU
Presented by
Vergis Mathew
dtsb33@tm.net.my