The Phnom Penh Post and the Securities and Exchange Commission of Cambodia (SECC) are jointly publishing a series of articles to create greater awareness of the role of the commission and the securities market in the Kingdom. This is the third in the series.

The securities market was set up primarily to develop Cambodia’s financial sector and to promote sustainable economic growth.

Investors can invest in a range of financial instruments in the securities market, such as stocks, corporate bonds and derivatives products, as well as unit funds of a joint venture project approved by the Securities and Exchange Commission of Cambodia (SECC).

To ensure a significant return from their investments in the securities market, investors need to have sufficient knowledge of the financial products they are intending to invest in.

Stocks

Stocks are much sought after financial instruments among investors around the world and in Cambodia. 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.

Shareholders receive dividends in proportion to the number of shares held, with the profit earned by the issuer and shared biannually or annually.

Shareholders are able to earn capital gains through selling their shares when the value increases, while they can convert stocks into cash easily and at any time by disposing of their shares in the market.

Corporate bonds

Corporate bonds are a type of debt securities that represent a loan agreement between bond issuers (including state-owned enterprises) and investors (bondholders).

Bondholders are lenders whose returns are based on predetermined interest rates (coupon rate), with its value fluctuating based on the prevailing market interest rate.

Additionally, bondholders will receive full payments from the company (principal and interest) after maturity (the maturity date could range from one to 10 years, or even up to 20 years).

The returns on a bond are also termed “yield”. Corporate bonds can be converted into cash by being sold in the market, but the conversion of bonds takes longer than stocks due to their lower liquidity.

In case of bankruptcy, bondholders have priority to receive payments before shareholders.

Derivatives

A derivatives product is a financial instrument where its value is based on one or more underlying assets. Such common assets are stocks, bonds, precious metals, crude oil, natural gas and agricultural products.

While investing in derivatives can result in high profits in a short period of time, it is associated with high risk, which is why they are often termed “high risk-high return” investments.

Investors can trade in major currency pairs – EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, NZD/USD, USD/CAD, EUR/GBP – crude oil, coal and agricultural products (corn, beans and wheat). Investors can trade 24 hours a day, five days a week, and they can withdraw their profits or cash in any time if they wish to exit the market.

Collective investment schemes (CIS)

Collective investment schemes (CIS) are a type of business model allowing any fund management company to raise funds or cash from a group of investors and/or the public to invest in a specified project.

Funds can be channelled into real estate, stocks, bonds, the agricultural sector, technology or other lower risk projects.

These investment portfolios are managed by fund managers who have years of experience in that field. The returns and profits are shared proportionally based on the amount of investment from each investor.

Prepared by: The Securities and Exchange Commission of Cambodia’s Department of Research, Training, Securities Market Development and International Relations.

E-mail: [email protected]; phone: 023 885 611

Disclaimer: This article has been compiled solely for informative and educational purposes. It is not intended to offer any recommendations or as investment advice. The Securities and Exchange Commission of Cambodia is not liable for any losses or damages caused by using it in such a way.