Thursday, January 22, 2009
current issues on stockexcange
What is a Stock Exchange? A stock exchange, securities exchange is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation).
There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that bonds are traded. Increasingly, stock exchanges are part of a global market for securities.
A Stock Exchange is an organized market for trading of securities, i.e. shares (or equities), government and corporate bonds, and their derivatives. The Nigerian Stock Exchange has eight branches situated in Lagos Head Office, Abuja, Ibadan, Onitsha, Port Harcourt, Kaduna, Kano, Benin and Yola.
There are two ways you can benefit from owning shares. The first way is through the growth of the company. Say, for example, ABC Plc earns revenue of £100,000 in one year. After deducting its costs, it has £50,000 left – its profit.
It then reinvests this money in the business, perhaps by investing in better technology, which enables it to cut costs and, therefore, make a bigger profit the following year. If it can continue to improve its profits, demand for its shares will grow and the share price will rise. This type of company, known as a growth stock, is popular with investors who do not need income from their investments.
Many companies also pay a dividend. Say, for example, XYZ Plc earns revenue of £100,000. After deducting its costs and reinvesting in the business it has £10,000 left over. It decides to return this money to shareholders by paying a dividend. If the company has 100,000 shareholders, each share will get a dividend of 10p per share. So, if you own 100 shares, your total dividend will be £10.
Shares that pay dividends are generally known as ‘Income’ stocks. Companies can return money to shareholders in other ways too such as buying back their shares. This increases the value of those shares still in circulation.
By investing in shares you are also linking your financial wealth to the health of the UK and overseas economies. The proportion of goods and services sold in the UK and abroad typically rises when economies are growing and falls when in recession, thus affecting profits.
The fact economies spend longer in a growth period than in recession has helped shares produce better returns than other assets and, crucially, beat the effects of inflation. If you left £10,000 under your mattress, for example, it would be worth just £9,750 a year later, assuming inflation had increased the cost of goods and services by 2.5% that year. After five years it would have fallen to just £8,810.
Savings accounts do little to protect your money from inflation as your real rate of return is small, averaging 1.8% a year after inflation according to Credit Suisse First Boston’s Equity Gilt Study 2003. Shares, on the other hand, do have the ability to produce better gains, averaging 6.8% a year after inflation.
But, as investors who had money in the stock market between 2000 and 2003 will testify, share ownership is not without its risks.
It can be used to collect loan from banks.Shares which is of the securities banks need of can trust will be demanded by banks as a coratara.
The income still flows decipite the death of the owner.This is because the dividend is been paid to the decised next of ken.
The risks of investing
Inflation may eat away at your savings over the long term but if share prices fall, you run the risk of losing money. If a company you invest in goes bankrupt, your shares could become worthless.
But companies do not have to go under for you to lose money. Other investors may simply decide that the company is not worth as much as when you paid for it, perhaps because it is losing market share, and if enough of them think that, your investment will fall in value. Shares also tend to fall when the economy is deteriorating as investors recognise profits will be lower.
These are not, however, reasons for you to stay out of the stock market. But they should help you recognise the importance of building a broad portfolio with shares in different companies, industries and, even, countries. A good way for a beginner to do this is to invest in a fund, which spreads your money across 50-100 companies.
It is also worth noting that apart from those companies that go bust, shares that have fallen in value can recover in time. Sometimes if a share has fallen in value it can be worth holding on until it recovers but at other times it may be better to cut your losses and invest in a company that has better prospects. The option you choose will depend on the company you are invested in and your individual circumstances. Read more about How to build a portfolio and reducing investment risk
The role of stock exchanges
Stock exchanges have multiple roles in the economy, this may include the following:
-Raising capital for businesses
The Stock Exchange provide companies with the facility to raise capital for expansion through selling shares to the investing public.Also and debenture and securities.
- Mobilizing savings for investment
When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels and firms.
-Facilitating company growth
Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.
-Redistribution of wealth
Stocks exchanges do not exist to redistribute wealth. However, both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses.
-Corporate governance
By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors). However, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies. The dot-com bubble in the early 2000s, and the subprime mortgage crisis in 2007-08, are classical examples of corporate mismanagement. Companies like Pets.com (2000), Enron Corporation (2001), One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002), Parmalat (2003), Fannie Mae (2008), Freddie Mac (2008), Lehman Brothers (2008), and Satyam Computer Services were among the most widely scrutinized by the media.
- Creating investment opportunities for small investors
As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.
-Government capital-raising for development projects
Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.
-Barometer of the economy
At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.
What are shares, stocks and bonds? Shares or stocks represent ownership rights in companies. In other words, those who own the shares of a company own the company. Depending on the nature of the company, the shareholders accept limited or unlimited liability for losses borne by a company. In the case of a limited liability company, the liability of shareholders is limited to the contribution made when purchasing the shares. On the other hand, in the case of an unlimited liability company, the liability of shareholders to cover the losses of a company is not limited to the contribution made by shareholders via the purchase of the shares held. In this case, liability extends to the personal property of shareholders. Likewise, shareholders own all excess profits made by a company after obligations such as corporate tax and loan obligations have been serviced. It is important to note that all companies listed on the stock exchange are limited liability companies
Let us take a look at nigeria stock exchange.
The Nigerian Stock Exchange was established in 1960 as the Lagos Stock Exchange. In December 1977 it became The Nigerian Stock Exchange, with branches established in some of the major commercial cities of the country. At present, there are six branches of The Nigerian Stock Exchange. Each branch has a trading floor. The branch in Lagos was opened in 1961; Kaduna, 1978; Port Harcourt, 1980; Kano, 1989; Onitsha, February 1990; and Ibadan August 1990; Abuja, October 1999 and Yola, April 2002. Lagos is the Head Office of The Exchange. An office has just been opened in Abuja.
The Exchange started operations in 1961 with 19 securities listed for trading. Today there are 262 securities listed on The Exchange, made up of 11 Government Stocks, 49 Industrial Loan (Debenture/Preference) Stocks and 194 Equity / Ordinary Shares of Companies, all with a total market capitalization of approximately N287.0 billion, as at August 31, 1999.
Most of the listed companies have foreign/multinational affiliations and represent a cross-section the economy, ranging from agriculture through manufacturing to services.
The market has in place a tested network of Stockbrokerage Firms, Issuing Houses (Merchant Banks), practicing corporate law firms and over 50 quality firms of auditors and reporting accountants (most with international links). The Stock Exchange and most of the nation’s stock broking firms and issuing houses are staffed with creative financial engineers that can compete anywhere in the World. Therefore, the market has in place a network of intermediating organizations that can effectively and creditably meet the challenges and growing needs of investors in Nigerian.
Integrity: is the watchword of The Stock Exchange. Market operators subscribe to the code “Our word is our bond”. Thus, public trust in the Nigerian stock market has grown tremendously, with about three million individual investors and hundreds of institutional investors (including foreigners who own about 47% of the quoted companies) using the facilities of The Exchange. The Stock Exchange’s 39-year history is devoid of any fraud, shocks, scandals or insider dealings.
Trading: The call over trading system was in April replaced with the Automated Trading System (ATS), with bids and offers now matched by stockbrokers on the Trading Floors of The Stock Exchange through a network of computers. This is done every business day from 11.00 a.m. till all bids and offers have been executed (about 1.30 p.m. on the average).
Pricing: Prices of new issues are determined by issuing houses/stockbrokers, while on the secondary market prices are made by stockbrokers only. The market/quote prices, along with the All-Share Index, are published daily in The Stock Exchange Daily Official List, The Nigerian Stock Exchange CAPNET (an intranet facility), The Nigerian Stock Exchange website (www.nigerianstockexchange.com), Newspapers and on the stock market page of the Reuters Electronic Contributor System. Our on-line code in the Reuters Network is NSXA-B.
Pricing and other direct controls gave way to indirect controls by the regulatory bodies (Securities and Exchange Commission and The Stock Exchange) following the deregulation of the market in 1993. Deregulation has improved the competitiveness of the market, in addition to making it more investor-friendly.
The All-Share Index: The Exchange maintains an All-Share Index formulated in January 1984 (January 3, 1984 = 100). Only common stocks (ordinary shares) are included in the computation of the index. The index is value-relative and is computed daily.
Clearing, Delivery and Settlement: Clearing, Settlement and Delivery of transactions on The Exchange are done electronically by the Central Securities Clearing System Limited (CSCS), a subsidiary of The Stock Exchange. The CSCS Limited (“the Clearing House”) was incorporated in 1992 as part of the effort to make the Nigerian stock market more efficient and investor-friendly. Apart from clearing, settlement and delivery, the CSCS Limited offers custodian services. (See the write-up on the Central Securities Clearing System Limited for more about clearing, delivery and settlement on The Exchange.)
Stock Market Legislations: Transactions in the stock market are guided by the following legislations, among others:
¨ Investments & Securities Decree No. 45, 1999.
¨ Companies and Allied Matters Decree 1990.
¨ Nigerian Investment Promotion Commission Decree, 1995.
¨ Foreign Exchange (Miscellaneous Provisions) Decree, 1995.
Regulation: Transactions on The Exchange are regulated by The Nigerian Stock Exchange, as a self-regulatory organisation (SRO), and the Securities & Exchange Commission (SEC), which administers the Investments & Securities Decree 1999.
Internationalization of the Stock Market: Following the deregulation of the capital market in 1993, the Federal Government in 1995 internationalised the capital market, with the abrogation of laws that constrained foreign participation in the Nigerian capital market.
Consequent upon the abrogation of the Exchange Control Act 1962 and the Nigerian Enterprise Promotion Decree 1989, foreigners can now participate in the Nigerian capital market both as operators and investors. Also, there are no limits any more to the percentage of foreign holding in any company registered in the country.
Ahead of this development, The Exchange had since June 2, 1987, linked up with the Reuters Electronic Contributor System for online global dissemination of stock market information - trading statistics, All-Share Index, company investment ratios, and company news (financial statements and corporate actions).
In November, 1996 The Exchange launched its Internet System (CAPNET) as one of the infrastructural support for meeting the challenges of internationalisation and achieving an enhanced service delivery.
The Internet System facilitates communication among local and international participants in the market, as subscribers to the system include stockbrokers, quoted companies, issuing houses, etc, who now use the facility to receive and send e-mail, globally and locally. But more importantly, they can, through this medium, access key market information - trading statistics (current and historical), corporate trading results, etc.
How do I invest in the Nigerian Stock Market? Opportunities to buy shares exist via two channels, i.e., by:a. Investing through public or private offers of new or existing shares- Several quoted and unquoted companies as well as the different tiers of government offer shares or stocks to the public to fund development and other projects. In the case of public offers, the securities are advertised in the print and/or electronic media and application forms are made available with stockbrokers, such as FSDH Sec, banks and other avenues. In the case of private offers, the shares are not advertised to the general public but are offered to a selected number of prospective investors. Investors subscribe to these offers by filling out an application form and attaching payment for the securities they wish to purchase. Subsequently, the issuing house to the public or private issue of the security processes all applications and allots shares to subscribers in accordance with agreed criteria. Certificates are then sent to successful ====================================================subscribers and serve as evidence of ownership. Shareholders may trade these certificates in the future. Meanwhile, cheques for the amount paid for subscriptions are mailed to unsuccessful subscribers.b. Buying securities on the Stock Exchange - Investors may purchase shares on quoted securities in The Nigerian Stock Exchange. Investors can only buy shares through agents called stockbrokers. Investors are advised to contact stockbrokers who would provide the necessary documentation to open an account with the Central Depository. Subsequently, investors should discuss their orders with the stockbroker who would then purchase the shares.
The NSE Today 22-01-09
The Nigerian Stock Exchange All Share Index depreciated today by 2.50% to close at 24,762.50 points, down from 25,397.26 points yesterday. The Stanbic IBTC Banking Index depreciated today by 3.63% to close at 29.50 points, down from 30.61 points yesterday, while Stanbic IBTC Insurance Index depreciated today by 2.12% to close at 44.43 points, down from 45.39 points yesterday.
The market recorded a turnover of 210,169,065 shares in 7,223 deals valued at N1.356 billion (US$9.323 million) compared to a volume of 280,639,775 shares in 7,270 deals valued at N1.730 billion (US$11.898 million) yesterday.
The banking sector led on the activities table with a turnover of 100,975,764 shares worth N0.783 billion (US$5.385 million), thus contributing 48.05% and 57.76% of volume and value of shares traded today respectively.
The price gainers for today reduced to ten (10) as against fourteen (14) yesterday. Among the gainers for the day include Unic Insurance plc (4.82%), Dunlop Nigeria plc (4.48%), Union Homes Savings and Loan plc (4.47%), Omatek Computers plc (4.35%) and Union Diagnostics and Clinical Services plc (3.95%).
Sixty- eight (68) stocks recorded price depreciation today as against sixty (60) yesterday. Some of the losers for the day include Presco plc, Unilever Nigeria plc, GlaxoSmithKline Consumer Nigeria plc, Afribank Nigeria plc and Cappa & D’Alberto plc. They all lost 5.00%.
Sources: NSE; Bloomberg.
Topic for thex edition is how minimax loss in the stockmarket.