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The benefits of investing on the stock exchange over real estate

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Graph 1: Price trend of PPSP from 2020 to mid-2021

The benefits of investing on the stock exchange over real estate

There is no denying the strength of real estate investment in Cambodia, particularly over the past decade.

Much infrastructure, including housing, factories and industrial zones among many others, as well as in trade and tourism, have been built, greatly developing formerly unused land.

This rapid growth greatly boosted the value of real estate and naturally became desired by investors and landowners. Yet there are other ways to generate a similar passive income.

Stock investment is one possible alternative with similarly high future profit ratios to real estate, one in which even beginners can quickly get up to speed, while it is something existing real estate investors can easily familiarise themselves with.

Cambodia’s securities market, while still in its infancy, holds great growth potential.

While investors during initial public offerings (IPOs) hold great advantages over those on the secondary market, some stocks may of course see a decline after an IPO.

However, the majority of the listed companies on the Cambodia Securities Exchange (CSX) have seen gains, with some such as Phnom Penh Autonomous Port (PPAP), Sihanoukville Autonomous Port (PAS) and the newly listed JS Land Plc (JSL) having gone up to three time their IPO valuations.

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Chart 1: Increase ratio between IPO and current price of PPAP, PAS and JSL.

However, this isn’t to say that stocks that have declined or haven’t gained exponentially are without potential. Some stocks fall for a brief period owing to external circumstances rather than a drop in fundamental quality.

Nonetheless, these stocks usually rebound after a period of time. Investors able to identify such stocks can benefit greatly.

For example, Phnom Penh SEZ Plc (PPSP) once plunged as low as 1,160 riel per share around late 2020, only to recover to 2,420 riel just months later.

In general, stocks that experience substantial price movements like this are ideal for investors who can forecast price movement patterns and are willing to undergo risks in exchange for significant returns while also being able to handle any losses.

Investors with a more conservative approach can make long-term investments in steadily increasing stocks, while still reaping the benefits of dividends and capital gains.

With Cambodia’s securities market still developing, it is fair to expect its growth to reach greater heights and match the bourses of developed nations in due time.

The top publicly listed companies around the globe today would not have got to where they are without the existence of their stock exchange.

Tesla, for instance, is currently worth more than $650 billion, a value larger than other well-known car manufacturers like Toyota, BMW, and Nissan combined.

The company went public in 2010, offering 13.3 million shares priced at $17 each. Today, each share is worth around $760.

To put it into perspective, investors who put $1,000 into Tesla stock in 2010 would have approximately $44,000 today – a gain of 44 times the outlay.

While it may hold true that Tesla would still have been successful today even if it had not gone public, the company would have been no way near as large.

Stock investment also offers a variety of other conveniences over real estate, such as better liquidity, the ease of getting into it, low transaction fees, portfolio diversity and tax incentives.

Better liquidity means it is easier for investors to buy or sell stocks whenever they want – in comparison, finalising a real estate deal takes a long time.

Furthermore, stock investment does not require a big cash injection to get started as investors can embark on their trading journey by purchasing just one stock per transaction.

Currently, the pricing for each stock can range from just over 2,000 riel to around 16,000 riel.

Additionally, transaction fees for stock trading in Cambodia right now are very low, approximately 0.5 per cent. It is also easy to diversify investments in stock trading.

Investors can spread their assets across a variety of different industries such as ports, garments and banking, as well as real estate companies.

Finally, in the endeavour of promoting stock trading in Cambodia, the government has provided tax incentives, including tax exemptions and reduced taxation.

That is not to say investing in stocks comes with no risks. Stocks can be much more volatile than real estate. Investors are recommended to be careful with their investment, following up on their asset value at least weekly.

On the other end of the spectrum, there are stocks that require investors to play a long-term waiting game to see any sizeable gains. These stocks increase steadily for years and see minor activity. These are more suited for long-term investors than those seeking a quick buck.

Due to a lack of basic stock analysis, some investors may engage in emotion-driven purchases and sales.

Investors can be swayed by rumours, news or the opinions of peers, causing them to make regrettable purchase decisions. Hence, it is best to always do proper research and analysis when investing in any listed company.

While stock investment is known to be more liquid than real estate, it does not apply to every stock listed. It can become a hassle to sell and buy less demanding stocks. A way to combat this is to diversify purchases.

The bottom line is that while real estate and stocks are both financial products with their own set of risks and rewards, neither promises unqualified and endless gains.

However, the general public should always keep in mind that investing in stocks or the other financial products in the securities market is a simple method to get started in investment, especially for those with more modest financial resources.

Prepared by: Cambodia Securities Exchange (CSX), Market Operation Department.
Email: [email protected].
Tel: 023 95 88 88 / 023 95 88 85.

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