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How to generate passive income by investing in securities market

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How to generate passive income by investing in securities market

The securities market plays a crucial role in fostering national economic growth, and it is also an investment channel for Cambodians to earn and grow passive income to achieve future financial goals.

Investing in the securities market can bring the following benefits:

Capital gains are the profits investors obtain from selling stocks.

Example: An investor purchases equities or shares in Sihanoukville Autonomous Port at a price of 5,060 riel and sells them later at 13,860 riel. The capital gain is therefore 8,800 riel per share.

Dividends refer to the distribution of a company’s earnings to its shareholders and are determined by the board of directors as stated in the disclosure document.

Investing in stocks entitles a shareholder to own a portion of the company, with the level of ownership depending on the number of shares held and multiplied by the dividend per share. Dividends are often distributed quarterly or annually.

Example: An investor buys 100 shares from a company that has announced it is to give a dividend of 2,000 riel per share, so the dividend received is 200,000 riel.

Tax incentives are an important strategy in the development of the securities sector in Cambodia. Sub-Decree No 42 ANKr. BK on “Tax Incentives in the Securities Sector in Cambodia”, dated 24th February 2022, states:

“Public investors shall gain a 50 per cent deduction of withholding tax on interest and/or dividends that derive from holding and/or buying-selling government securities, equity securities, and debt securities for three years after the Anukret coming into force” – which means the period from February 2022 to February 2025.

Along with these aforementioned benefits, trading stocks on the Cambodia Securities Exchange is convenient and offers liquidity – referring to the convenient conversion of investment into cash – as investors can buy and sell their securities on the market at any time by placing orders via the CSX Trade mobile trading app.

Investors in the securities market receive Equitable Information, with all issuers presenting up-to-date information to the public and investors, such as periodic reports, information regarding the business and corporate governance, and financial statements, all of which are supervised, recognised and approved by the Securities and Exchange Regulator of Cambodia (SERC).

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All investments come with risk, and so does investing in the stock market, but investors can minimise investment risk and increase opportunities for profitability through the following three strategies.

The first strategy is to study the company’s financial statements – such as its net income and historical earnings – before making an investment decision.

Analyse the company’s earnings per share, with:

• P: Current stock price

• E: Earnings per share

Example: The current stock price of Company A is 6,000 riel per share and Company B’s is also 6,000 riel per share, but Company A has a net income of 1,000 riel while Company B has a net income of 600 riel.

In this example, investors should decide to buy shares from company A because it has higher profits if we compare its current stock price to earnings per share:

• The P/E ratio of Company A is 6,000/ 1,000, so the P/ E ratio is six;

• The P/E ratio of Company B is 6,000/600, so the ratio is 10.

So Company A should be invested in as it has lower P/E ratio, which means one riel would be earned from an investment of six.

The second strategy is analysing the price-to-book value per share, which is important as this can tell investors how much profit per share they would get should the company go out of business.

• The price-to-book value per share (P/B ratio).

• P: Current stock price.

• B: Price-to-book value per share.

Example: The current stock price of Company A is 6,000 riel per share and Company B’s is also 6,000 riel, but Company A has 1,000 riel of price-to-book value per share while Company B’s is 600 riel.

• The P/B ratio of Company A is 6,000/1,000 so the P/B ratio is six.

• The P/B ratio of Company B is 6,000/600, so the P/B ratio is 10.

So investors should invest in Company A as it has a lower P/B ratio.

The third strategy is the buy-and-hold strategy, whereby an investor buys stocks and holds them for the long term.

The buy-and-hold strategy is about riding out any ups and downs in stocks that are owned, rather than trying to swing-trade the price movement.

Saving money without the cash flowing – which is like putting money in a piggy bank – will face inflation, particularly in the digital era.

But prudently investing in the securities market and following recommended strategies can generate passive income to fulfil future financial goals.

Investing wisely today is saving for tomorrow!

References: Sub-Decree No 42ANKr. BK on “Tax Incentives in the Securities Sector in Cambodia”, dated 24th February 2022.

Conti, R (2023) How to Make Money in Stocks, Forbes. Forbes Magazine. Available at: https://www.forbes.com/advisor/investing/how-to-make-money-in-stocks/ (Accessed: February 16, 2023).

Prepared by: Securities and Exchange Regulator of Cambodia, Research, Training, Securities Market Development and International Relations Department;

Email: [email protected];
Phone: 023 885 611.


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