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育教 日八廿月正年未辛腦
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16929
lifi
E
Commerce (24)
1991 中學會考預習專欄
明酒出版社
MILI & DALE PRESS
The Stock Exchange
Studying Areas
The main studying areas in this unit include:
a. types of securities and its features,
b. functions of a stock exchange,
c. stock indices,
d. Factors affecting shares prices,
e. development of the securities trading in Hong Kong
S.K.. LA
f. advantages of the unification of Hong Kong's four stock
exchanges, and
g. speculators of the stock exchange.
11. Types of securities and its features
Securities are the collective names given to investors, with which the stock exchange is concerned. These include:
a stocks or shares: ordinary shares and preference shares.... b. debentures, and
.c. bonds.
Large companies usually raise their chpital by issuing securities in the stock exchange,
1. Features of shares
Types of shares include: ordinary shares and preference shares.
Ordinary shares are sold on a par value and its shareholders: are the true owners n the company. Moreover, preference shares.can be cumulative or non-cumulative.
Thain features are compared in the following table:
Types, of
shares
a. Ordinary
shares
b. Preference
shares
Dividends
They are -varying and
dependable on
the amounts
of profit.
1. Cumulative They entitle
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11.Non-
cumulative
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to a fixed
rate of
dividend.
Dividends
junpaid in any
one year or
years are.
carried forward.
when enough
profits are
earned.
They usually
entitle to a
fixed rate of
dividend, If
profits are
not enough,
lost.
dividends are
2. Features of debentures
Voting rights Order of
For each share shareholder. holds; it confers one vote.
They usually .carry.no
voting rights.
(same as the
Debentures are loan capital to the company.
dividend paid:
& capital repayment Shareholders are the last for dividend payment.
There is no reed to return capital to shareholders.
Dividends are
paid before ordinary
shares but after
debentures.
紅
Debentures holders have the following features:
a. They are not the owners of the company, but are its
creditors.
b. They are entitled to get a fixed interest in return to
their investments irrespective of trading profits.
c. They cannot vote at the Annual General Moge
d. In the event of bankruptcy, they havefority in
repayment of their funds.
Moreover, debentures can be secured and unsered. For secured debentures, they are usually secured by the fixed assets of the company; while unsecured debenturesory that repayment of capital is not guaranteed.
3. Bonds
9
Bonds are fixed rate of interest shares issued government or semi-government organizations used to p finance large projects.
They are very safe. form of investment backed by government. Thus, bonds are regarded as the least risky of all types of securities.
They are generally issued for a fixed period of time and are usually redeemable.
11. Functions of a stock exchange
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Its functions are described as follows:
a. Individual
investors or corporations can buy and sell
cecurities in the stock exchange. In doing so, it provides a
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market, where quoted shares can be quickly realised.
a. There have been fair trading and open biddings since strict legal control has been adopted to prevent fraud and stock brokers follow strict conducts of profession of the exchange.
c. It opens the channel for the business enterprises to raise their funds. To an end, the stock exchange has to tap savings from overseas and local, investers. or corporations. In this way, both the business enterprises and investors have enjoyed the mutual benefit.
d. Equitability for all securities tradings and applications for listing has been ensured by the surveillance of listed companies, the provision of regulation governing. its broker members, and efficient trading systees and management. Thus, the interests of the listed companies, investors and members) have been protected.
Stock Indices
Stock indices are an important economic indicator. They gauge the underlying economic conditions within particular industries and in the country as a whole.
In Hong Kong, there are two kinds of stock Parket index:
a. Hong Kong Index, and
b. Hang Seng Index.
A stock index refers to an evenage of the current market price) of selected constituent stocks.. It measures any price fluctuation of stock market..
Introduction of Hang Seng Index (HSI).
Hang Seng Index has been widely quoted as the constituent performance indicator of stock exchange in Hong Kong.
There has been a total of 33 constituent stocks in the Hang! Seng Index. The constituent stocks are selected on the basis of trading values and market capitalisation.
The four sectoral industries of the 33 constituent stocks are listed as follows:
a. Financial Companies
East Asia
Hang Seng
HK. Bank
JH5
b. Utilities Companies
Chind Light
HK & China Gas
HK Electric
HK Telecom
K348
c. Property Companies
Cheurg Kong
Great Eagle
Hang Lung
Henderson Land
HK Land
Hopewell
Hyson
New World
SHK Properties
b. Commerce/Industrial Companies
Cathay Pacific
Cavendish
Dairy Farm
HAECO
IK Hotel's
Hutchison Whanpoa
Jardine Matheson
Lai Sun International Mandarin Oriental
Miramar Hotel
Swire Pacific(A)
IVB
Wharf
Winsor
World International
By formula, the Hang Seng, Index(HSI) is calculated as follows:
· HSI at
dayd
ty Market Capital M
urities x 100 tangarket Capit jez of 33 Securities o
Market italisation market price of the eucy at that!
day X the number of issue shares)
base day refers to 31 July 1964.
Factors affecting share prices
1. A particular share's price
Factors that influence rise or fall in a particular share
price are described below:
a. Supply and demand for share.
The economic principles of supply and demand for share determine price.
b. Recert performance of the company
The price of share is to be high whenever good! profits Come out. On the contrary, shareholders sell their shares in case of 'poor' profits.
c. Development of new techniques or products
The good news of product innovation may generate optimism towards future profits in the view of shareholders.
d. Possibilities of mergers
.
The share price will cause to be changed if there has been possibility of a merger with another company, e. Change of government policies
The share prices of companies in any particular industry would be affected if the government policies aimed at that industry are changed.
f. Value of shares
I terms of financial analysis, a high price-earning ratio, or a high dividend yield is a good indicator of 'best buy' in the view of investors. Investors are willing to buy these kinds of shares. Any industrial disputes
2. Share prices inspeneral.
L BLAC
Facts that dense is in the general. share price are described loy
a. General economic conditions
All shares prices are affected by the country's general
economic conditions. If investors are optimistic about
economic condition and market performance, higher profits
are expected and share prices, rise.
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b. Any change of political factors
The political stability of a goverment has made impact
upon the investment confidence of shareholders.
Development of the securities trading in Hong Kong
Trading in securities has a long history in Hong Kong.. The First stock exchange, the Association of Stockbrokers in Hong Kong, was set up in 1891. In 1914, the Association was renamed the Hong Kong Stock Exchange.
The second stock exchange, the Hong Kong Stockbrokers - Association, was established in 1921, In 1947, the Hong Kong Stock Exchange was formed after the merging of these two exchanges. The new exchange adopted the old name.
In the four year period from 1969 to 1972, the securities industry in Hong Kong experienced its rapid expansion: the Far East Stock Exchange (December, 1969), the Kam Ngan Stock Exchange (March, 1971), and the Kowloon Stock Exchange (January, 1972) were established successively.
The prosperity of securities trading promising; however, there- had been difficulties to be confronted: the effective communication of the stock exchanges with their business partners and the government, had been hindered by the different practices and working: regulations among the four exchanges. Moreover, their further opportunities of expansion into the world market were hindered,
was
In 1977, a working party was formed, upon the consultation, of/ government, by the four stock exchanges. It functioned to make. in-depth studies related to the requirements for unification. In 1980,. the Stock Exchange of Hong kong Limited, incorporated and the drafts of the Stock Exchange Unification Bill werd introduced to the Legislative Council. With effect from 1 February 198, the Stock Exchange Unification Ordinance became operative.
Being the only stock exchange in Hong Kong, the Stock Exchange of Hong Kong Limited began, securities' trading in 2 April 1980. The emergence of the new Unified Exchange nad been brought about by ten years of fruitful preparation and planning. The Stock Exchange of Hong Kong Limited was formed by merging the former: Far East Stock Exchange, Hong Kong Stock Exchange. Kam Ngan Stock Exchange and Kowloon Stock Exchange.
At the end of 1989, 298 public. companies, with a total market capitalisation of 3605 billion, were listed on the Hong Kong- stock exchange.
VII. Advantages of the unification of Hong Kong's four stock
exchanges
The major advantages are as follows:
a. The principles of economies of scale would be experienced in
the operation of the exchange..
The physical equipment, clearing and supporting facilities can be shared.
b. To supervise and operate one unified stock exchange is more
efficient than the four separate ones.
c. The diverse practices, and regulations of the four exchanges
can be standardized.
d. The Unified Exchange creates a more favourable image upon
the investors confidence- through the professionali administration strict legal control
r and
modern computerized clearing system.
VIII.Speculators of the stock exchange
ix.
GARRY ON THAVE
5244549 0
Investors are willing to buy shares in the hope of gaining' dividend or some capital appreciation.
peculator expects to gain a quick profit by anticipating
es in share prices.
peof speculators include:
bulls,
b. bears, and
c. stags.
1. Bull
set1
those speculators
with optimistic views hare prices to rise. They buy or hold now and
higher price so as to make a profit. Imà. hare prices are usually rising.. Be are thosa speculators with pessimistic views
stie anticipating share prices to fall. They sell now and buy. them back later at a lower price so as to make a profit. In a bear market, share prices are usually Falling,
3. Stags are those speculators who specialize in the purchase of new issue of shares.. They anticipate to resell the new issued has when the shares are first quoted on the stock exchange
Finally if the share prices move in the opposite direction to thocipated by bulls, bears or stags, the monetary losses day occur. Any individual may be a bear at one time or a buy another.
Self-assessment question
1. De briefly the functions, performed by the stock
exchanges. Bifferentiate between a bull market and a bear market.
3hat are the factors which affect the share price of a
public limited company on the stock exchange?.
4. Types of securities include shares, debentures and bonds. As
a means of raising capital, distinguish between ordinary. shares and debentures.
5. (a) Describe briefly the main methods of raising capital by
issuing shares to the public.
(b) Outline the three main methods of selling shares to
existing shareholders by the public limited companies.
6. How is the. Hang Seng Index calculated and what does it.
indicate?
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