What you need to know about investing in stocks and bonds

Stocks and bonds are two types of investments to consider as part of any portfolio. PROVIDED

Stocks and bonds are two types of investments to consider as part of any portfolio. But what are the differences, and which would suit you best?

What are stocks and bonds?

Stocks are equity securities in which an investor holds partial ownership of a company.

Investing in shares allows the shareholder to own part of the business, 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 made by the issuer being shared semi-annually or annually as indicated in the information document.

Shareholders can realize capital gains by selling their shares when the value increases.

Shares are financial instruments highly sought after by investors around the world and in Cambodia.

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Bonds are a type of debt securities that represent a loan agreement between a bond issuer (including corporations, public enterprises, and governments) and investors (bondholders).

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

Bondholders will receive full payments from the company (principal and interest) when the bond reaches maturity (maturity date can range from 1 to 10 years, and even up to 20 years).

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

Advantages

For investors

• Dividends or interest (passive income);

• Profits from securities trading (capital gains);

• Diversification of investments;

• Ownership;

• Tax incentives.

For issuers

• Obtain sources of long-term funding;

• Benefiting from tax incentives;

• Achieve business sustainability through strong corporate and internal governance;

• Improve the reputation of the company and increase its potential.

For the national economy

• Enable corporations, state-owned enterprises and government to raise capital directly from the public to expand business or develop infrastructure;

• Renewable capital flows through the optimal use of idle capital;

• Enable those with less capital to invest in the securities market rather than letting their money sit idle;

• Create greater opportunities in the country.

How to trade securities?

To trade on the Cambodia Securities Exchange (CSX), members of the public must have an Investor Identification Number (Investor ID) and a trading account.

An Investor ID can be requested directly from the Securities and Exchange Regulator of Cambodia (SERC) or through any SERC-approved securities firm.

They can also be requested online at the SERC website at https://id.serc.gov.kh/kh.

After obtaining an Investor ID, a trading account must be opened with a SERC-approved securities firm.

Although an investor can only have one investor ID, he can open multiple trading accounts in different securities companies, which basically means one securities company, one trading account.

To reduce investment risk, investors should have a good knowledge of fundamental analysis and technical analysis.

Fundamental analysis:

Fundamental analysis is the study of various factors that affect a company’s earnings and dividends.

It studies the relationship between a company’s share price and key elements of its financial statements.

Fundamental analysis uses past data to predict the future, with the goal of predicting a company’s future value and growth.

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 charts showing trading volume or average volatility, for example.

Prepared by: Securities and Exchange Regulator of Cambodia, Securities Market Supervision Department
E-mail: [email protected]
Telephone: 023 885 611

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