In collaboration with the Cambodia Securities Exchange, The Phnom Penh Post is publishing a series of articles related to the securities market. This is the third in the series.
Across the world stock is one of the most popular investment vehicles in the financial market. As of last year, the global stock market reached nearly $90 trillion, making it one of the largest instruments in terms of market capitalisation among other financial assets.
However, investors should learn more about the stock market and fully understand the mechanisms involved before investing.
What are stocks?
Stocks are a type of equity securities that represent the ownership in a corporation and a claim on part of the company’s assets and earnings depending on the proportion of shares a person holds.
For example, if you hold 1,000 shares in a company, you are a partial owner of that company. When the company makes profit and announces a cash dividend, you are entitled to receive that profit in a form of a dividend dependent on the proportion of shares you hold.
Here are four solid reasons to invest in the stock market:
1. Investment opportunities and returns
Instead of or in addition to running their own business, investment in stocks offers investors the opportunity to participate in a business where no specific expertise and experience is needed or close monitoring is required. Meanwhile, the return from trading and holding a stock could be significant, generated from dividend and capital gains.
2. Affordability for small investors
The stock market allows investors with even only a small amount of money to partially own a large company and experience returns based on their holding proportion like other high-net-worth individuals and institutions.
In addition to your main source of income, such as salary or profit from businesses and other additional income – for example, interest from fixed deposit rent or real-estate investments – you can invest in the stock market to diversify your investment.
4. Daily trading
Investment in stocks is distinct from investment in real assets as the stock market allows investors to enter or exit their holding position daily and with ease. This means investors are able to convert their investment into cash easily in the stock exchange through daily trading. In contrast, direct investment into businesses or real-estate does not provide this privilege.
What risks are involved when investing in stocks?
Investment in stocks does carry risks that may results in losses. However, the majority of them can be managed depending on an investor’s knowledge of the stock market and their appetite for risk. We can classify those risks into three main categories:
• Systematic risk or market risk is the uncertainty regarding the market as a whole, such as the economic situation, rate of inflation, political risk and interest rate risk.
• Unsystematic risk is the uncertainty surrounding a specific company or industry. This can be reduced through diversification. Such risks can arise from a company’s financial health, risk of insolvency or cases of accounting fraud.
• Liquidity risk refers to the risk that buyers and sellers are unable to find each other in time to trade at a fair price.
Investing in stocks in Cambodia
In the Kingdom, the Cam-bodia Securities Exchange (CSX) is the sole stock market operator.
To date, there are six listed stocks, namely Phnom Penh Water Supply Authority, Grand Twin International, Phnom Penh Autonomous Port, Phnom Penh Special Economic Zone, Sihanoukville Autonomous Port and Acleda Bank Plc.
To start trading, an investor needs to first open a trading account with a broker who is a member of the CSX.
Contributed by: The Cambodia Securities Exchange, Market Operations Department Email: [email protected]
Tel: 023 95 88 88 / 023 95 88 85
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 Cambodia Securities Exchange is not liable for any losses or damages caused by using it in such a way.