Stocks and bonds are two types of investment to be considered as part of any portfolio. But what are the differences, and which would be the most suitable for you?
What are stocks and bonds?
Stocks are equity securities in which an investor has partial ownership of a company.
Investing in stocks entitles the 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 profits earned by the issuer shared biannually or annually as set forth in the disclosure document.
Shareholders are able to earn capital gains by selling their shares when the value increases.
Stocks are much sought-after financial instruments for investors around the world and in Cambodia.
Bonds are a type of debt securities that represent a loan agreement between a bond issuer (including corporations, state-owned enterprises and governments) and investors (bondholders).
Bondholders are lenders whose returns are based on predetermined interest rates (the coupon rate), with its value fluctuating based on the prevailing market interest rate.
Bondholders will receive payments from the company (principal and interest) in full when the bond has reached its maturity (the maturity date can range from one to 10 years, or even up to 20 years).
In the case of bankruptcy, bondholders have priority to receive payments before shareholders.
Benefits
For investors
• Dividends or interest (passive income);
• Profits from securities trading (capital gains);
• Investment diversification;
• Ownership;
• Tax incentives.
For issuers
• Obtaining long-term funding sources;
• Benefiting from tax incentives;
• Achieving business sustainability with strong corporate and internal governance;
• Improving the company’s reputation and increasing potential.
For the national economy
• Allowing corporations, public enterprises and the government to raise capital directly from the public to expand the business or develop infrastructure;
• Revolving capital flows through the optimal utilisation of idle capital;
• Enabling those with less capital to invest in the securities market rather than allowing their money to go unused;
• Creating greater opportunities in the country.
How to trade in securities?
To trade on the securities Cambodia Securities Exchange (CSX), members of the public are required to have an investor identification number (Investor ID) and trading account.
An Investor ID can be requested directly from the Securities and Exchange Regulator of Cambodia (SERC) or through any securities company licensed by the SERC.
They can also be applied for online on the SERC website at https://id.serc.gov.kh/kh.
After obtaining an Investor ID, a trading account needs to be opened with a securities company licensed by the SERC.
While an investor can only have one Investor ID, they can open more than one trading account at different securities companies, which essentially means one securities company, one trading account.
To reduce investment risk, investors should have good knowledge of fundamental analysis and technical analysis.
Fundamental analysis:
Fundamental analysis is the study of various factors that affect a company’s revenue and dividends.
It studies the relationship between a company’s share price and the key elements in its financial statements.
Fundamental analysis uses past data to predict the future, with the purpose to forecast the value and future growth of a company.
Technical analysis:
Technical analysis is the study of past price movements of a particular stock or the market as a whole.
Charts are the indicators used in technical analysis, such as graphs illustrating trading volume or average volatility, for example.
Prepared by: Securities and Exchange Regulator of Cambodia, Securities Market Supervision Department
Email: [email protected]
Telephone: 023 885 611
