CHAPTER 4: CAPITAL MARKET - Coggle Diagram
CHAPTER 4: CAPITAL MARKET
Capital market can be divide into two which are
equity and bond market:
Equity market provides avenue for the trading of common stocks and preferred stocks.
Equity market also helps companies to raise funds for the by issuing of common stocks through IPOs and provide platform of its trading in the secondary market.
Bond market is a place where corporations and governments can raise funds by issuing private and government debt securities.
Can be divided into two;
➡Sets of rules and regulations that need to be followed and adhered to by market participants.
Example: Companies Act 1965, Securities Industry Act 1983 and Securities Commission Act 1993
➡Established to monitor and supervise all investment activities.
Example: Securities Companies, Bursa Malaysia Securities Berhad and Companies Commission of Malaysia.
Securities Commission (SC)
To advise ministry of finance matters relating to securities and futures contract industries.
Regulate issue of securities.
Approving corporate bond issues.
Promote and encourage proper conduct of members.
BURSA MALAYSIA SECURITIES BERHAD
is an exchange that provides facilities for both retail and institutional investors to buy and sell securities.
The Main Market
✔Comprised of large capitalization companies and can be divided into several sectors of economy such as consumer product, industrial products or construction.
✔Trading of unit trusts in properties such as REITs or close-end fund.
✅A market for the trading of shares of companies that engage a sponsor to access the suitability of listing.
✅Must have sufficient level of working capital at least 12 months.
✅5 sectors in ACE market are consumer product, industrial products, trading/services products or technology and finance.
Current price behavior of representative group of stocks in relation to a base value set an earlier point in time.
The arithmetic average price behavior of a representative group of stocks at a given point of time.
Bursa Malaysia Composite Index.
Criteria to be included as the 100 component stocks of the composite index:
the activities of company has substantial contribution to the economy.
it has large market capitalization or annual volume.
the newly listed companies must be traded at least 3 months.
Example indices in Malaysia are FTSE BM 100 Index and FTSE Large 30 Index.
Initial Public Offering (IPO)
Reasons for the public listing as follows:
To raise funds for business expansion.
To settle existing debt.
To enhance credibility and reputation.
To obtain easier funds for future expansion.
such as Malaysian Issuing House (MIH) supports the process of new issue (initial public offerings)
Important document such as prospectus is important for the process of new listing.
is an official formal statement or brochure issued by the company seeking listing providing details of the new issue.
⭐A financial intermediary that provides an advisory role on any major financial transaction and specialize in advising firms on new issues of securities.
⭐Investment bank role is stock trading is to become intermediaries between client and the operations of the exchange.
Secondary market are in a market which securities traded are not issued by the issuer but by another investor.
Bursa Malaysia Berhad
To regulate and maintain facilities for conducting the business of a stock exchange in Malaysia.
To continually promote and develop capital market and protect and protect interest and welfare of members.
To provide and enact listing requirement and enforcement of rules on listed companies.
RISK OF INVESTING IN STOCK MARKET AND FACTORS AFFECTING STOCK PRICES
Risk of investing in stock market
❌Purchasing power risk
❌Interest rate risk
Factors affecting stock prices
⭐International stock market condition
✔Voting and preemptive rights
✔Easy to trade and low transaction cost
✔Variety of choices.
❌Fluctuation of the prices.
❌Lower current income.
❌Difficulty in determining the intrinsic value.
Types of Common Stocks
Belongs to the large, well-established and financially strong companies.
To those that have recorded a higher than average sales, earnings and dividend.
Known for its stable records of paying higher than average dividends.
Shariah Compliant Stocks
Companies will be classified as Shariah Non-Compliance securities if they involve in riba, gambling and gaming or conventional insurance etc.
: Acts and intermediary where funds can flow from the surplus to the deficit unit.
Fixed periodic term
Risk is low.
Enjoy priority ranking.
Not able to participate in any incremental income
Declining in creditworthiness of issuer.
Regulatory Authorities in Malaysian Bond Market.
a) Bank Negara Malaysia (BNM)
regulates the activities of financial activities via the banking and financial institution act 1989.
BNM is required for any issuance of bonds.
b) Companies Commission of Malaysia.
c) Companies Commission of Malaysia.
Bond Market Participants
are financial institution, Bank Negara Malaysia, corporations, and insurance companies etc
Types of Government Bond Market
⭐Malaysian Government Securities
⭐Malaysian Treasury Bills
⭐Government Investment Issues
Instruments issued by corporations, Islamic or conventional, fixed or floating or can be issued without interest.
Corporate bond does not required for government bonds.
➡Provides a complete, accurate, and reliable information of the issuer of the bond.
➡It creates awareness on the creditworthiness among the bond investors.
➡Provides easily understood scale for the investors to access a bond issue.
Based on the present value of all future expected stream of cash flow to be received by shareholders.
Bond yield measures can be divided into two which are current yield and yield to maturity.