Reasons to Become a Chartered Financial Analyst (CFA)

There are more than 100,000 CFA charter holders in over 135 countries and increase of demand worldwide for the CFA Program, the charter has become global professional investment credential which allows the student to practice across the international boundaries. The recognition for this charter is base on the candidate’s knowledge and professional standard embodies in the program makes the CFA designation as a mark of global distinction of investment professionals worldwide. CFA Charter is recognised and rewarded by employers, respected by regulators and investment institutions.

The Breadth of Knowledge and Real-World Expertise

By studying the CFA Program, you can explore more knowledge on investment combined with comprehensive global views, and up-to-date practical skills allow the investment professionals expertise in quantitative methods, economics, financial reporting, investment analysis, portfolio management, etc. The analytical skills and the knowledge learnt from the CFA Program assist them in analysing the risks and rewards of a variety of investment types to address client-specific investment needs throughout their career which they can manage the investment anywhere due to CFA has mastered the Global Body of Investment Knowledge (GBIK). Since the practising of CFA charter holders around the world also practising on the evolution of Global Body of Investment Knowledge, it is standardised, consistent and based on knowledge relevant.

According to the CFA Institute, the top 10 employers for Chartered Financial Analyst are JP Morgan Chase, PricewaterhouseCoopers, HSBC, Bank of America, Merrill Lynch, UBS, Ernst & Young. RBC, Citigroup, Morgan Stanley and Wells Fargo.

Career Advancement Opportunities

The Chartered Financial Analyst (CFA) certification is almost a guarantee of advancement in an investment career path and to boost financial credentials. Besides, CFA Charter is also known as the toughest exam with an average passing rate of 42% over the ten years. Most of the people in the industry know that to become a CFA charter holder, one requires a lot of time for studying and one must have discipline enough to manage their time for their studies. There is also a global network of over 135,000 investment professionals in the world implies that there is an impressive club to join after becoming a CFA Institute member for the networking opportunities. After acquiring the CFA Charter, you can find a variety of investment-related jobs such as investment analyst, portfolio manager, risk analyst and so on.  Let us look at some of the few examples of employment job that charter can apply.

a) Research Analyst

Research analyst is a professional who serves as investigators to analyse the data such as financial information, performance trends, economic trends and news, political climate, and specific development of the companies for future performance. Sometimes, the research analyst also referred to as an equity research analyst, investment analyst or security analyst. They synthesise their analysis of the data into the research report on their methodology for investors client conclude with recommendations to advise them on whether to buy, sell or hold on specific stocks.

b) Financial Analyst

Financial Analyst is a professional who examines more on economic data and use their findings to help companies make a business decision. They use spreadsheet and statistical software package to analyse financial data, spot trends to develop a forecast. Some of the financial analysts will collect the industry data such as balance sheet, income statement, merger acquisition history and economic news for their clients. The financial ratios will be calculated from the data that they have gathered to help the client to read the bottom line of the company. However, not all of the financial analyst work in the stock or bond market. Some companies might hire a financial analyst to help them determine the strength and weakness lie in their business and make profit or losses forecast.

c) Portfolio Manager

Portfolio manager also can be referred to as an investment manager, wealth manager, asset manager and financial manager. The primary responsibility of a portfolio manager is to create and manage asset allocations for some clients. They spend a lot of their days working together with analysts, researchers, and clients based on the current market events, business news, and financial market. A portfolio manager with expert insight and experience can make an informed decision for their clients. They are also responsible for meeting with investors to have an explanation on their research, strategy and rationale for the arrangements.

In most of the cases, they follow a predetermined strategy of investment, dictated by investment policy statements (IPS), to achieve a client investment objective. Some of the portfolio managers may craft the investment packages supplied to the clients, while some of them manage the client expectation and transaction. They should buy and sell securities in an investor’s account to maintain a specific investment strategy or objective over time.


Based on the June 2018 CFA Program Candidate Survey from CFA Institute official website, the majority of jobs of employed candidates work as a research analyst, investment analyst and quantitative analyst which consist of 12%. 9% of candidates work as an accountant or auditor, 8% of candidate work as a corporate financial analyst and 7% of candidates work as a consultant, and 5% of candidates work as risk analyst or manager, relationship manager, account manager, credit analyst, and portfolio manager each.

Conclusion

By acquiring the CFA designation can help to distinguish the charter holders from other counterparts in the eyes of professionals and investors. As a result, you can expect your career to benefit more flexibility and higher compensation compared to if you do not have the CFA Charter.

Written by Stella Goh | 15th May 2019

What Should You Know Before Register for Chartered Financial Analyst (CFA)


What is Chartered Financial Analyst (CFA)

Chartered Financial Analyst (CFA) is a globally-recognised professional designation offered to finance and investment professional, administered and awarded by American-based CFA Institute. This program provides the most reliable foundation in investment, analysis and real-world portfolio management skills along with the practical knowledge you need in the industry.

Candidates who qualify in CFA exams will be designated with the CFA credential. Candidates are required to pass all three levels of exams covering areas such as Ethics, Quantitative Methods, Economics, Financial Reporting and Analysis, Corporate finance, Portfolio management, Equity investments, Fixed income, Derivatives and Alternative Investments. This credential is mostly sought after by finance and investment professionals looking forward towards building a career in investment banking, financial management, financial analysis on stocks, derivatives and so on.

Entry Requirement

First of all, before you register as a CFA candidate, you need to fulfil specific requirements. The CFA Institute requires that every CFA Program candidate must have a valid international travel passport to register or sit for the exam. All of the candidates must be prepared to take an exam in English because CFA Program exams are only in English. CFA charter holders, regular members, affiliate members, and candidate in CFA Programs must complete a Professional Conduct Statement form to attest that they comply with their requirement.

Besides, the candidate also must have either one of these:-

a) Have a bachelor’s (or equivalent) degree, OR

If you are not sure that your program is compatible with the CFA program, you can have enquiries from your college or university.

b) Be in the final year of a bachelor’s degree program, OR

If you are a student in final year program of your degree, you can also register for the Level 1 Exam, but you must complete your degree program before registering for CFA level II.

c) Professional Experiences

If you have a combination of professional work experience and education with a total of at least four years, you are also eligible to register for CFA Programs.

Practical Work Experience

CFA candidate must take note that they must have a minimum of four years which equivalent to 48 months of experience in evaluating or applying financial, economic, and statistical data as a part of investment decision making the process, supervising people who conduct or teaching activities. Almost 50% of your time must be spent directly in the investment decision-making process or producing a work product. They must work full time before, during or after they have participated in the CFA Program.

Exam Structure

To acquire the Chartered Financial Analyst, each of the candidates required to complete three levels of the exam.

a) CFA Level I

Tier I exam consist of 240 multiple choice questions separate into two sessions which are morning and afternoon. Each session is covering 120 multiple choice question with a duration of 3 hours per session.

b) CFA Level II

For the Level 2 exam, there are 18 sets of six multiple-choice questions, 3 sets with four multiple-choice questions, a total of 21 sets. It is also broke into two sessions, morning and afternoon, covering 60 sets of multiple choice question with a duration of 3 hours per session.

c) CFA Level III

For the morning session, it includes of constructed response (essay) which will be between 8 and 12 questions with several subparts. While for the afternoon session, there have ten sets of a subject with a total of 6 questions each part.

Percentages in CFA Exam Topic Area

Topic Area

Level I (%)

Level II (%)

Level III (%)

Ethical & Professional Standards

15

10 – 15

10 – 15


Quantitative Methods

10

5 – 10

0

Economics

10

5 – 10

5 – 10

Financial Reporting & Analysis

15

10 – 15

0

Corporate Finance

10

5 – 10

0

Portfolio Management

6

5 – 15

35 – 40

Equity Investment

11

10 – 15

10 – 15

Fixed Income

11

10 – 20

15 – 20

Derivatives

6

5 – 10

5 – 10

Alternative Investment

6

5 – 10

5 – 10

Total

100 %

100 %

100 %

 

Based on the illustration above, we can say that for CFA Level I, the Ethical & Professional Standards and Financial Reporting & Analysis consist of the highest marks compared to other subjects. While for CFA Level II, Ethical & Professional Standards, Financial Reporting & Analysis, Portfolio Management, Equity Investment, and Fixed Income may be the highest marks among other subjects. While for CFA Level III, the portfolio management may consist of the most top scores among the different topic.

Passing Rate

Based on the information from CFA Institute’s website, the passing rate for three levels of the CFA exams is not high. In June 2018 exam, the passing rate for Level I is 43%, Level II is 45%, and Level III is 56%. While for December 2018 exam the Level 1 passing rate is 45%.

Passing the CFA Program, one must have a solid discipline and an extensive amount of studying. They need to arrange their time very carefully because each exam typically required you to put hard work for more than 300 hours. With the given of the considerable amount of time that must spend on study, many candidates deterred from continuing the CFA Program after failing the first levels.

Each candidate who sits for the CFA Program exam will be provided with exam results and detailed information on their performance. After candidates receive their results, they can start to register for the next exam. Candidates who did not pass the exam can re-take the exam at a later date. They can take as much time as they need before registering for the next exam. To pass a CFA Exam, candidates must score a minimum score of 70% for each of the subjects.

Exam Fees

  Early Registration Standard Registration Late Registration
Program Enrolment (New Candidate Only)

USD 450

June 2019 Exam

Ended Sep 2018

Ended Feb 2019

Ended Mar 2019

December 2019 Exam

Ended Mar 2019

Ended Aug 2019

Ended Sep 2019

Exam Registration
(All Candidates)

USD 650

USD 950

USD 1,380


* Program fees are subject to change.

For the one who is the first-time register for CFA exam, you are required to pay a one-time program enrolment fees which are about USD450 together with the exam fees of USD650. After you have done your CFA Level I, you need to register for CFA Level II; you only need to pay USD650 for Level II if you register the exam earlier. The earlier you register for, the cheaper the fees which you can refer to the table as above.

The program fees are subject to change. However, the exam fees are in US Dollar, when you want to make the payment, it will base on the current currency exchange rate in the market. The costs of the exam fees are including the e-book for you to study. For the hardcopy of the original textbook, you need to purchase when you are making payment for your exam fees.

Self- Studying / Tuition Centre

You can choose to self-study in the house or study in a tuition centre across the country. There are few tuition centres provide CFA courses such as Noesis Exed, Kasturi, TARUC, Sunway College, etc. Different tuition centre may charge a varying fee. Noesis Exed charges a registration fee of RM500 in one time off, course fees plus revision course fees is around RM6,500 per level. However, they offer a discount for a student or ex-student from TAURC, RMIT Monash University, Help University, UiTM, UTAR & Sunway University, etc. If you are choosing self-study and currently have a full-time job, you need to manage your time very well. Sometimes, when the exam is around the corner, you need to take leaves to study at home.

Conclusion

Based on my experience, the CFA exams are challenging, the exam questions are tricky, but if you spent your efforts to study, you might pass the exams by studying over 300 hours by utilising all the alternative prep materials, do a lot of practising questions as possible. Companies across the finance industry recognise the CFA Program. CFA candidates, who completed all of the exams, can advance their investment careers through the knowledge they gain and their access to an extensive and impressive network of CFA professionals.

Written by Stella Goh | 8th May 2019.

Understanding on Types of Orders in Trading Platform


At most of the time, brokers and dealers will help to arrange trades by issuing the orders after communicate with buyers and sellers. In the stock market, there are bid price and ask price. Usually, investors or traders buy the stock at the asking price and sell stock at the bid price in the stock market.

In the stock market, the asking price is always higher than the bid price. The highest the bid price in the market is the best bid, while the lowest ask prices in the market are the best offer. Before you are buying or selling the stocks, you must know the different types of orders.

Let’s look at the types of orders in the market.

Market Order

The market order is an order to buy or sell the order immediately at the best available price. This type takes the execution directly but may not able to acquire the stock at the desired pricing. It may be filled in at a more higher price. Thus you may get more expensive share than anticipated if no willing seller to sell to you at the market price. For example, the market’s ask price for Stock ABC’s is RM3.00, and you may want to buy this Stock ABC immediately at this price. RM3.00 is the current price assuming that the market is open at the moment.

Limit Order

A limit order is an order to buy or sell a security at a specified price. There are two types of limit orders in the market, buy limit order and sell limit order. Limit orders do not execute if the limit price on a buy order is too low, or the limit price on a sell order is too high.

The buy limit order is an order to buy at lower than current market price and only will be executed when asking price drop to the preset level. For example, the current ask price for Stock ABC is RM5. If you wish to buy ABC Stock at RM4, submit a buy limit order of RM4 or lower. Then wait for the price to drop to RM4, the order will perform. If the price never drops to RM4 or lower, the order will not fulfil.

A sell limit order is an order to sell at a higher level than the current market price at a specified price. For example, the current ask price for Stock XYZ is RM12. If the investors or traders wanted to sell Stock XYZ at RM15 which is higher than the current market price, they need to submit a sell limit order at RM15. After that, they need to wait for the current price of the Stock XYZ rises until RM15 or higher; the order only can be executed. However, if the price never rises to RM15 or higher, that means the investors or traders will never sell.

Stop Order

Stop order is an order use to buy or sell a security once the price of the security reached a specified price which is also known as the stop price. There are two types of stop orders such as Sell stop and Buy Stop.

Sell stop order is an order placed below the current price, once it hit the program will execute sell. For examples, the investors or traders bought a stock at RM20 and may want to sell the stock if the stock price falls below RM10 to limit losses. Therefore, the investors or traders can submit a Good-Till-Cancelled Sell Stop at RM10 level. If the market price of the stock falls to or below RM10, the market order becomes valid, and it should immediately fill the order.

Stop buy order is an order which traders will use to buy at higher than the current market price. For example, the Stock EFG currently is traded for RM40. So you can place a Good-Till-Cancelled buy stop order on the stock for RM50. The reason why not use market order is some trader would like to see the stock reach specific price first for confirmation before buying the stock. Once the stock arrives RM50, their order takes effects.  Good-till-canceled is an order that investors or traders may place to buy or sell a security that remains active until the order is filled or the investor cancels it.

Conclusion

In conclusion, understand and familiar with the trading platform to execute transaction should be able to help trader/investor on advantages to better manage the entry and exit point for their investment.

Written by Stella Goh | 3rd May 2019

Understanding of Blue Chips Stocks

Blue chips stocks are stocks issued by well established and large market capitalisation firms, which have a sound financial performance for an extended period. It generally has a higher cost compared to other stocks such as small-cap or mid-cap stocks, as they have a good reputation and also a market leader in respective industries. Most of the time, blue chips stocks provide consistent dividends to its investors over the long run. It has share recognised features such as stable earnings, regular dividend payouts, robust financial database, more liquidity and less volatile.

Why Should We Invest In Blue-Chips Stock?

Stable Earnings

Blue chips stock offers stable earnings over a consistent period when it becomes reliable and earns the trust of investors. Therefore, in times of economic distress, investors will consider these stocks as a haven because of their secure nature with strong management teams and generate stable profits.  Therefore, the stable earnings of blue-chip stock are suitable for their portfolio which provide decent returns and remains the primary goals for all investors.

Regular Dividend Payouts

Blue chips stocks pay dividends to its shareholders on a timely and consistent basis. Blue chips stocks may not show a constant increase in share prices, but it covers up with uninterrupted dividend payouts over time. In the long run, investors not only can gain benefits from capital appreciation but also the dividend payments which can help to protect them against inflation.

Strong Financial Database

A typical blue chips stock has strong financials database because debts do not massively burden them. Investment in blue chips shares can be seen as a secure and steady investment, due to strong balance sheets and cash flows and sound business models which help to contribute to strong continuous growth. With this robust fundamental database, it leads to less volatility, minimal risks for investors which can help them to mitigate risks keeping the entire investment profile in view.

Promote Competitive Edge

Blue chips stocks have a competitive edge over the other players in their industry. By being a cost-efficient and holdings such as high franchise value, blue chips stocks have an excellent distribution control gaining a presence worldwide. They remain as market leaders, which provide top quality offerings and increasing goodwill. Some of the brands have become family names, their products sell regardless of the economic scenarios, and holdings their stock considered prestigious. They have seen a lot of ups and downs and have successfully survived turbulences in the market.

Disadvantages

Low Returns

The returns on blue chips stocks are commensurate with their risks. Blue chips stock provides a high degree of investment safety from their steady business operations as it is a low-risk investment. Because of this disadvantage, blue chips stocks are not suitable for aggressive investors who have a high level of risk tolerance in their investment approaches.

Slow Growth

Blue chips stocks are comprised of large-cap companies with maturing business and markets when compared to small and mid-cap companies that are still in their development stages and have a high potential for growth. Nevertheless, blue chips stock may not deliver earnings increase over time, but the growth is likely to be small and steady. Blue chips stocks may be an ideal investment for investors who are seeking value accumulation over the long-term, their slow growth represents a particular disadvantage to growth investors who expect it will grow above the average increase and significant share price moves in a short period.

Focus More on Rewarding More Than Investing

Blue chips stocks are more focusing on rewarding the shareholders more than investing in the business. Most of the smaller companies tend to reinvest their profits into their business by using share repurchases or taking on debts to encourage growth in the industry, which intends to lift their share prices. In contrast, a blue chips stock will tend to invest their profits into dividends to reward their shareholders. For investors who do not need the residual income that comes from these dividends, they may be better served to go with more aggressive stocks to build wealth.

Conclusion

In conclusion, blue chips stock may not always seem like a good short-term investment, while for long-term investment, it creates high value to investors due to steady growth and returns. Investors can invest based on their own investment goals and objectives to determine whether blue chips companies are the right match for them. Not all investors are created equally or want the same results. While some of it may prefer less risk, while others with a higher risks tolerance or more substantial net worth may prefer higher risk investment that can potentially generate high yields in shorter periods.

Written by Stella Goh | 10th April 2019

Understanding of Fundamental Analysis Vs Technical Analysis


Both fundamental analysis and technical analysis are common methodologies used by investors globally to research and forecast future trends in stock prices.  However, they are different in several ways. Which study is better?

Let’s look at the difference between fundamental and technical analysis.

Fundamental Analysis

Fundamental Analysis is a type of method used to evaluate the securities with an attempt to measure the intrinsic value of the stock which referred to as “Real Market Value” to identify undervalued stock. The most common data used in fundamental researches are to gauge company management efficiency, business competition environment,  financial data such as earnings, assets, liabilities cash flow and dividend payout ratio which can be found in the annual report of a company. All of these data can provide a clear picture to investors where the company currently stands and help them to decide on long term investment.

Fundamental analysis’s investors will study all the relevant factors that already exist; they will gauge to forecast future earnings and determine how much the stock value worth in future. They will only buy when the stock price is 20% below the intrinsic value which considers a range where they called ‘margin of safety’.

In summarise, with an in-depth understanding of the financial information of a company, it allows investors to understand more about the future development of the company which can affect the company value in future. However, using this technique may be time-consuming if to compare with technical analysis. It entails hours of reading and understanding of the company financial health and business durability.

Technical Analysis

Technical analysis is a short-term approach statistical method used to forecast the direction of future price through historical price and volume data. Instead of using the stock chart to identify patterns and trends, the technical analyst does not measure the intrinsic value of a security.  They will use the analysis of the company’s technical indicators, such as moving average and price action such as support and resistance. It is to measure buy/sell pressure, an overall market trend to determine the right price to open or close a position to maximise their return and minimise the losses.

Technical analysis use combined with stop losses and take profits order to traders to set their target profit and limit losses.

To summarise, traders can judge on how the overall market is heading based on past price and volume data by using technical analysis. However, by using too many technical indicators may produce confusing signals which may affect trader decision. Besides, technical analysis does not take into account the underlying fundamental of a company.

Conclusion

Investors use fundamental or technical analysis or by using both of these techniques to make an investment decision. Fundamental analysis attempts to calculate the intrinsic value of the stock by using the data such as revenue, expenses, growth prospects and competitive landscape. While for technical analysis, they will use the past market activity and stock price trends to predict future price movement. As with investment strategy, there are advocates and detractors of each approach. There can be different routes for different people.

Basis Comparison
Fundamental Analysis
Technical Analysis
Data Find intrinsic value by using  the company’s financial data Use price and volume data to predict future price movement
Time horizon Long-term approach A short-term and long-term approach
Function Investing Trading
Stock Bought When the price falls below an intrinsic value When they believe they can sell it for a higher price
Usefulness Identify underpriced and overpriced stocks To find the possible right price to enter and exit

Written by Stella Goh | 28 March 2019

Pros and Cons of Margin Trade


Margin financing is a facility extended to investors to borrow funds to buy a broader portfolio of products. Different investors with the different qualification will entitle to the different margin of finance (MOF). The margin is coming from the ratio of outstanding balance against the equity.

                                                    MOF= Outstanding Balance / Equity
Outstanding balance means the amount owed after deducting any cash deposit available. The equity means the sum of the value of securities pledged and purchased. An example, 50% of MOF given means the trader has to maintain an equity value of not less than 2 times of the outstanding balance. By using another word, as a short-term loan from a broker firm.

Benefits
Lower Interest Rate
Every borrowing comes with interest charged. However, the interest charged for margin trade is always the lowest compared to personal loan and credit card cash advance. Besides, this is the easiest way to increase your capital without all the paperwork, documents and application fees.

Repayment Flexibility
The repayment on loan and credit card are by a monthly, and your integrity might be affected if fail to pay on time. However, the terms of repayment on the margin debt are flexible, and you should be able to follow on your schedule as long as you do not exceed the margin given.

Increased Returns
MOF is to leverage your investments and to increase the returns when the capital is limited. Some people might experience short of capital to buy some potential stocks so with a margin account; you can borrow the money from the brokerage firm to buy some instruments and get a higher return with hassle-free.

Risks
Leverage Risk
Rather than saying its wrong way to invest, consider it as a calculated risk that will face by margin traders. When the margin trade makes a loss, the investor can experience losses up to 2 times the average. Before creating the maximum margin positions, it is essential to understand this risk and to be willing to accept it or, if not, to avoid margin trading.

Margin Call Risk
When the value of the underlying equity decrease and the outstanding balance exceed the MOF given, a margin call will be received. The investor will be required to add cash or securities to the account to increase the equity. If the investor does not act promptly, the brokerage firm has the right to sell the securities without the investor’s acknowledgement.

Conclusion
While brokers will execute margin call when the account in substantial losses to protect themselves, the investors may suffer losses beyond the margin call and need to pay back the brokers. The investor should set a personal trigger point in every trade to minimise the damage. Margin trade should only happen in assets with significant return potential as the cost of interest on the loan should be counted as part of the costing.

Written by Evelyn Yong | 22 March 2019

Future Contract Vs Option Contract

Derivatives are the securities which the value is derived from the underlying asset. Therefore, the underlying asset determines the price of the asset. If there are some changes in the price of the asset, the derivatives will also change along with it. There are few examples of derivatives, such as futures contracts, forward contracts and swaps contract which used by investors to hedge against risks. Today, we will look into the role of Future Contract and Options Contract.

 Future Contract

A future contract is a binding agreement between 2 parties, buyers and sellers where both of the parties promise to each other of buying or selling the underlying asset at a predetermined price at a future specified date. It is a standardized and transferable contract which traded on stock exchange. The future contracts include currencies, commodities, or financial instrument such as FGLD, FKLI, FCPO, FPOL, FUPO, FM70 and so on.

Futures contract put an obligation on the buyers to honour the contract on the stated date, so he is locked into the contract. Companies enter into these agreements because they need to buy or sell the underlying products anyway, and just looking to lock in the price.

 Risks

Both buyers and sellers in the future contracts face a lot of risks as the prices could move against them. Let us assume that the market value of the asset falls below the price specified in the contract. The buyers will still have to buy it at agreed upon price earlier and incur losses. In other words, future contracts could bring unlimited profit or loss.

Expiration Date

A future contract comes with definite expiration dates. Most of the future contracts are not held until expiration, because some short-term traders close their position before expired and there are only a few people or companies who are really want to buy or sell the underlying products will continue to trade and hold their position until expired date. Short-term traders do not hold until expiration because they simply make or lose money based on the price fluctuations that occurred after they buy or short a contract.

 Advance Payment

There is no upfront cost except commission when investors entering into a future contract. However, the buyers for the future contract are bound to pay the agreed-upon price for the assets eventually. This is done for the purpose of locking the commitment made by the parties.

Contract Execution

The execution of future contract can only be done on the pre-decided date as per conditions which have been mentioned in the contract. On this date, the buyer purchases the underlying asset.

Option Contract

An option is a type of derivative which provides holders with the rights but not obligation to buy or sell an underlying asset at a pre-determined price in the future.  Investors can compare the current market price (spot price) and the price on the option (strike price) to determine whether is it profitable to exercise in the option. By comparing both prices, investors can decide either to exercise the option or let it expire.

There are three positions on which the holder can find it themselves.

Call Option is “in the money” if the market price is greater than the exercise price. This is because the call option buyer has the right to buy the stock below its current trading price.

Call Option is “at the money” if the market price and exercise price are the same. In this case, an option contract may be exercised.

A call option is “out of the money” if the market price is less than the exercise price.  In this case, it will better to let the option expire and buy the commodity at the current market price.

Risks

The option seller (writer) can incur losses much greater than the price of the contract when compared to the option buyer (holder). The option buyers can opt out of buying it if the asset value falls below the agreed-upon price. This limits the loss incurred by the buyer. Option contract brings unlimited profits but it reduces the potential losses.

Expiration Date

The expiration date in the option contract is important to investors because it affects the price of an option contract. The longer the time for the expiration date, the higher the price should be and the longer the time the holders have for the option to exercise and potentially to make a profit. After the put or call option expired, time value does not exist anymore. In other words, once the derivative expired, the investor does not retain any rights to get along with owning the call or put option.

Advance Payment

In options trading, the options are either trade at a premium or discount offered by the seller of the option. The option premium is the price that you have to pay in order to purchase an option. The premium is determined by multiple of factors including underlying stock price, volatility in the market and days until the options’ expiration. The higher the premiums will be tied to the more volatile markets, even if the asset is priced less expensive, we also can see the premium rise when the market turns into a period of uncertainty.

Contract Execution

The buyer in an option contract can execute the contract anytime before the date of expiry. So, investors are free to buy the assets whenever they feel the conditions are right.

 Conclusion

In overall, both futures and options are derivatives contract which having its customization as per requirements of the counterparties. By reading this article, we will have more understand the difference between futures contracts and option contracts. As the name suggests, options come with an option (choice) while futures does not have any options but their performance and execution are certain.

Basic Comparison Future Contract Option Contract
Meaning Agreement binding counterparties to buy and sell a financial instrument at a predetermined price and a specific date in the future A contract which allows investors rights to buy or sell an instrument at a pre-agreed price. It will be executed on or before the date of expiry
Obligations / Rights A full obligation to execute the contract at the stated date Provides rights but not obligations to buy or sell
Risks High Restricted to the amount of premium paid
A degree of Profit / Loss Unlimited profit/losses Unlimited profit and limited losses
Expiration Date On expiry date, buy/sell underlying assets On expiry date, do not retains any rights
Advance Payment No advance payment Paid in the form of premiums
Execution of Contract On  pre-agreed date Any time before the expiry of agreed date

 

Written by Stella Goh | 10th March 2019

What is Exchange Traded Fund (ETF)?

ETF stands for an exchange-traded fund. It is an open-ended investment fund listed and traded on a stock exchange. There are 3 types of ETFs listed in Bursa Market, which are equity ETFs, fixed income ETFs and commodity ETFs. In Malaysia, the ETFs were managed under licensed asset management companies like Affin Hwang Asset Management Berhad, AmFunds Management Berhad, CIMB Principal Asset Management Berhad and i-VCAP Management Sdn Bhd.

Diversified Exposure

ETF combines the features of an Index fund and a stock, which you able to invest to a counter with various stocks or bonds or commodities included. The features offer you to gain exposure to a geographical region, market, industry, commodity or even specific investment style such as growth or value. For example, MYETF DOW JONES U.S. TITANS 50 (0827EA) is a Shariah-compliant equity ETF traded in US Dollar. It comprising the 50 largest companies listed on NYSE and Nasdaq. It is good for investors who like to diversify their capital in US market with just buying the ETF. Another example, CIMB FTSE ASEAN 40 MALAYSIA (0822EA) consists of 40 constituent stocks from 5 ASEAN countries namely Singapore, Malaysia, Thailand, Indonesia and the Philippines. Investors who like to diversify their capital throughout ASEAN countries, this ETF provides a good simplified solution.

Controllability

The combination basket of stock inside the ETF is predetermined and will be managed by the fund manager through the market. Once the transaction successful, the investor will become one of the unitholders of the fund. The controllability of an investor is just the same as holding a stock counter, can sell whenever it worth to sell and buy whenever it worth to buy with personal judgement.

Liquidity

The liquidity of an ETF relies on a combination of primary and secondary factors. The primary factors include the composition of the ETF and the trading volume of the underlying assets. ETFs can be invested in some asset types including real estate, fixed income, equities, commodities and futures. Within the equity universe, ETFs can focus on different market capital size and different level of risk. With the diverse selection of the ETF’s focus, the liquidity will be affected. Besides, the trading volume of underlying individual stocks does matter too. The more actively traded particular security is, the more liquid it is.

Secondary factors are the trading volume of the ETF itself and also the investment environment.  Taking an example to compare CIMBC50 with ABFMY1, CIMBC50 will get higher liquidity as more investors trading on. Due to trading activity is a direct reflection of the supply and demand for financial securities, the trading environment will also affect the liquidity. As Malaysia ETF market is not mature yet, investors could hardly to sell off their ETF at the desired price and make a big spread. Hence, it is more advised for a long-term investment for ETFs to trade on Bursa Exchange.

Transparency

The list of the ETF constituents will be updated on the ETF’s website by daily basis. Hence, investors can accurately know the current stocks or underlying assets been held within the ETF.

Conclusion

Overall, ETF is a financial product made up with the concept of a mutual fund but been sold or traded like a stock on the exchange. An investor can consider ETFs to diversify their portfolio and reduce their profile risk at a lower cost. However, for traders, ETFs are not that advisable as lower trading volume compared to stocks or commodities assets.

A comparison table between ETF with stocks and unit trust has been prepared and listed below.

  ETF Stocks Unit Trust
Purchasing platform Listed on Stock Exchange Listed on Stock Exchange Through unit trust consultant
Exposure High diversity on particular asset class Only individual shares Various diversity
Controllability Yes,

on volume, selling and buying timing

Yes,

on all decisions

No,

Had already passed the management right to the trustee

Price May change any time in trading hours May change any time during trading hours Disclose after market close
Liquidity Currently low,
as low trading volume
High,
anytime when match buying/selling price
Middle,

transaction available after market close

Cost-effectiveness Yes,
a minimum of RM10 or 0.1% of capital
Yes,
a minimum of RM10 or 0.1% of capital
No,
the various cost will be charged
Transparency High,

constituents updated by daily basis

High,

all actions were taken by own

Low,

the result of profile receiving once a year

Written by Evelyn Yong | 04 March 2019.

Understanding on Ordinary Shares Vs Preference Shares

Shares generally have two types, which will be known as “Ordinary Shares” and “Preference Shares”. Ordinary shares and preference shares are distinguishing from each other based on their characteristics, benefits and rights that they offer to the holders of such shares.

Let’s examine the different rights and benefits attached to them.

Ordinary Shares

Ordinary Shares are the equity shares of the company. Sometimes, ordinary shares are also known as “Common Stock”.  Shareholders who have ordinary shares indicate that they have ownership in the company based on the portion amount of shares that they owned. For examples, if you have purchased 30 shares out of 100 shares of XYZ Company, it means that you have held 30% of stocks of the company or you have owned the company 30%.

Ordinary Shares carry voting rights. Shareholders have some privileges to get voting rights at the general meeting. They can appoint or remove the directors and auditors of the company. Each of the shareholders has rights to gain profits that earned by the company as well as to take the dividend.

Ordinary Shareholders have rights to receive dividends if the company makes profits. The dividend paid by the company is not fixed. Usually, when a company is just getting started, they do not pay the dividend and the entire money earned will be reinvested into the business for further development. Sometimes, the dividend will be paid to the shareholders only after all the payment of the liabilities had been paid. They are referred to as “residual owners”. They received what is left after all other claims on the company’s income and asset that have been settled. However, equity shareholders have no rights to get arrears dividend for previous years.

In the event of winding up of the company, the company must pay costs, wages, statutory contributions and taxes first followed by its creditors. Any capital that remains after paying the creditors will then allocated to the shareholders. Ordinary shareholders receive their share of capital after the preference shareholders are paid.

When it comes to redemption, ordinary shares cannot be redeemed by the company.  Ordinary shares are also cannot be converting into preference shares.

Preference Shares

Preference shares represent an ownership stake in a company, and sometimes it called preferred stock. Preference shares can have both equity and debt characteristics, which favoured by investors who have different priorities and interests to safeguards. Preference Shares have a priority claim over the company’s assets and earnings. The shares are more senior than common stock but more junior relative to bonds in terms of claim on assets.

Preference shareholders do not have voting rights on preference shares. However, they have rights to vote on the matters that directly affect their rights like a resolution of winding up of the company, or in the case of reduction of capital. Besides, shareholders of preference shares may have statutory powers to claim if the dividend remains unpaid for not more than 12 months from the due date of the profit or lesser.

Preference Shareholders enjoy priority first in the payment of profits and dividend. It promises the shareholders with a fixed dividend, both when the business is operating, and also in the event of a company entering into liquidation in the future. However, they are not paid first since the company needs to pay off the liabilities. But, they get paid off before the ordinary stockholders. While for the arrears of dividend, the shareholders will get arrears of dividend along with the present year’s dividend if it does not pay in the last previous year.

In the event of winding up of a company, preference shareholders are entitled to receive payment of capital after the claims of the company’s creditors have been paid, at the time of liquidation. In short, preference shareholders have preferential claims over dividend and repayment of capital as compared to equity shareholders.

Sometimes, some of the companies may issue redeemable preference shares on the condition that the company will repay the amount of share capital to the holders of this category of stocks after the fixed period or even earlier at the discretion of the company. The redemption must come from available profits of the company which would otherwise have been available for distribution of dividends or it must from the proceeds of a new issue of shares that made for redemption.

There is also a share called convertible preference shares. Convertible preference shares are preference shares which are issued with the right or option to convert to ordinary shares in the future, often at a pre-determined time frame and rate.

Basis Comparison

Ordinary Shares

Preference Shares 

Meaning Represent ownership of shareholders in the company Carry preferential rights on the payment of dividend and repayment of capital
Voting Rights Have voting rights No voting rights.

In exceptional circumstance, they have

Payment Dividend  Paid or may not be paid Receive dividend In a fixed rate
Arrears Dividend  Not Entitled Entitled
Repayment Of Capital Upon Winding Up Repaid at the end Repaid before equity shares
Redemption Not Entitled Entitled
Convertibility Non-Convertible Can be converted into ordinary shares

 Conclusion

Investors must understand the difference between ordinary shares and preference share. Investors should consider preferred stocks when they want a steady stream of income. The preferred stocks dividends pay a higher income stream than bonds. Although lower, the income is more stable than stock dividends. Therefore, investors should consider themselves which types of stock are suitable for them.

Written by Stella Goh | 14 February 2019

Malaysia Best Performing Stocks in 2018

 

Price on
02-Jan 2018(RM)
Price on 31-Dec 2018(RM) Percentage changed
DUFU

0.78

2.06

164.10%

MERGE

0.34

0.885

160.29%

WATTA

0.32

0.795

148.44%

LEESK

0.35

0.85

142.86%

PANSAR

0.383

0.8

108.88%

PINEPAC

0.19

0.35

84.21%

PMBTECH

2.003

3.57

78.23%

SANBUMI

0.195

0.34

74.36%

SUPERMX

1.005

1.74

73.13%

IDEAL

0.675 1.09

61.48%

2018 was a turbulent year that experienced a lot of market changes. Now let’s see which the top 10 best-performing stocks in Malaysia are. The result is based on the initial price of 2018 annualize performance from ShareInvestor WebPro and stock warrant and convertible shares are not included.

The 10th – IDEAL (9687.MY)

The 2018 opening price of IDEAL was RM0.675 and rose to RM1.09 at the last trading day of 2018, total with 61.48% value appreciated in 2018. The business nature of IDEAL is developing properties at Penang area. The company had shown brilliant results in the 2nd and 3rd quarter results in the financial year of 2018. This good news had pushed their market price to a higher level.

The 9th – SUPERMX (7106.MY)

SUPERMX ranked at the 9th with 73.13% raised from RM1.005 to RM1.74. SUPERMX is a world-class latex glove conglomerate and leading among the international manufacturer. Their business activities are producing, distributing and marketing their high-quality medical gloves. In 2018, SUPERMX widely expanding contact lens business and get the license in Japan had contributed part of the share price rising as a good future prospect. SUPERMX had their uptrend throughout most of the time in 2018, however, there are few incidents causing their share price dropping. The biggest scandal, founder’s wife had been caught for insider trade and sentenced to imprisonment for 5 years and caused 2% drops in share price. Besides, a fire caught in a small plant had caused more than 20% drops in share price. Other than that, SUPERMX’s share price also slightly affected by the trade war and caused some drops in the middle and end of the year.

The 8th – SANBUMI (9113.MY)

With just 1.23% different, SANBUMI rank 1 place higher than SUPERMX. A total of 74.36% price appreciated from RM0.195 to RM0.34. SANBUMI is principally engaged in the business of investment holding. The principal activities of the subsidiaries are travel and tourism services, property development, general trading and other services. It was a hot counter in the 4th quarter in 2018, but the financial results were not performing well and causing the price fluctuated within gain and loss in 2018.

The 7th – PMBTECH (7172.MY)

Rising from RM2.003 to RM3.57, a total of 78.23% appreciation, PMBTECH has scored the 7th place among the highest price appreciated stock in 2018. PMBTECH is an established specialist in the designing, fabrication and installation of aluminium façade system for buildings. It is the largest aluminium smelter in South East Asia and the largest aluminium extruder in Malaysia. Few of the well-known successful projects are done by PMBTECH such as aluminium formwork system for KLIA, KLCC Skybridge, Bintulu Airport and UOA’s buildings, aluminium glazing works for Singapore’s Marina Bay Sand, Shanghai’s Plaza 66 and Hong Kong’s Chek Lap Kok Airport as well as aluminium scaffolding system for MRT Bukit Bintang, MAS-Airline, Pavillion, Sunway Velocity and Suria KLCC. There were experienced 2 up-trends in PMBTECH’s 2018 price chart, which are during the April and November period due to the announcement of high earnings by acquiring Leader Universal Aluminium Sdn Bhd, US Dollar appreciation, aluminium price rise and higher sales.

The 6th – PINEPAC (1902.MY)

84.21% of price appreciation gain by PINEPAC in 2018 from RM0.19 to RM0.35. PINEPAC’s main business activities is doing oil palm plantation and they have a total oil palm plantation area stands at approximately 3,723 hectares in Malaysia and 20,665 hectares of land for planting oil palm in District of Sintanf, West Kalimantan, Indonesia where around 170km away from Sarawak Kuching. PINAPAC had a thundering spike at the end of September due to the land sale to United Plantations. This land sale up to RM414 million has helped PINEPAC’s price spike up 286% in 2 days. The proceeds of selling 8,999 acres agriculture land in Perak will be used in bank loan repaid and the balance as financing and working capital.

The 5th – PANSAR (8419.MY)

PANSAR had experienced 108.88% of price appreciating in 2018. From RM0.383, has been doubled-up to RM0.80 before the market closed. PANSAR’s stock price was showing a strike-up line in the first quarter in 2018. PANSAR is engaged primarily in trading in hardware and building products. It has also become a major supplier and service provider of marine and industrial engineering products, construction and building materials and so on. PANSAR gain a high market expectation as the PE ratio for 2018 full year result is up to 30.

The 4th – LEESK (8079.MY)

LEESK had its uptrend since the starting of 2018 until August and gave 142.86% on the annual growth in 2018 from RM0.35 to RM0.85. It is a company doing mattress manufacturing which is one of the most extensive mattress manufacturers in South East Asia with one-stop production lines including natural latex foam, polyurethane foam and various spring productions. There are more than 50% of the producing are exported. Those countries involving include the United States, Australia, European countries, Singapore and China.

The 3rd – WATTA (7226.MY)

The opening price for WATTA in the first trading day of 2018 was RM0.32 and closed at RM0.795, showed a 148.44% appreciation. It is under industrial products and services industry and distributing automotive batteries and battery components in Malaysia. Besides, it also involves in the marketing and distribution of telecommunication equipment and its related products. WATTA has their long term cooperation with world-renowned brands such as Samsung, Sony, Microsoft, Huawei, Lenovo, Motorola, Xiaomi, Infinix and also local telecommunication giant YES.

The 2nd – MERGE (5006.MY)

MERGE has a 160.29% price gain in 2018 from the price RM0.34 to RM0.885. MERGE is a construction-based company listed on Bursa Malaysia Main Market since 17 November 1998. Their expertise in the construction is majorly in water treatment plants, sewage and sludge treatment plants, pipe laying and reservoirs construction, as well as refurbishment and maintenance. On 15 October 2018, MERGE received an unusual market activity (UMA) query from Bursa Malaysia regarding to the sharp rise in the share price and MERGE replied for the situation was due to few parties expressed interests in acquiring some stake in the company as well as to explore certain business opportunities.

The 1st – DUFU (7233.MY)

The hot technology stock, DUFU, from the 2018 opening price RM0.78 rose to RM2.06, showed a 164.10% gain and scores the highest percentage appreciation in 2018 among the Malaysia stocks. With the higher revenue grown, DUFU started the strike uptrend since the third quarter in 2018 and recorded its historic high at RM2.713 on 19 November. DUFU is a technology leader of micro precision components with running its business as an advanced one-stop manufacturing facility offering superior quality manufacturing, engineering capabilities and services. The second quarter result in 2018 shown their net profit rise by 72% compared to a year ago, due to higher demand of Hard Disk Drives components and favourable foreign exchange effect thanks to the strengthening of the US dollar.

Written by Evelyn Yong | 31 January 2019

Site last updated August 19, 2019 @ 6:52 am