Jýsan Invest offers you the opportunity to discover the world of investing in financial markets. We offer you educational materials that will help you understand the mechanism of work and earnings in the financial market. If you are interested in topics that have not yet been covered by us, please let us know, and we will consider your request in our next issue of materials.
The financial market is a system of relations arising in the process of buying and selling economic goods using money as an intermediary asset. In simple terms, this is a place where two parties, capital holders and borrowers, meet to create mutually beneficial relationships.
Types of financial markets:
- securities market
- money market
- currency market
- derivatives market
Without a financial market, it would be impossible to develop the world economy, since the financial market satisfies the needs and builds relationships of the participants not only in the domestic market of the country, but also in the external international market.
What is the stock market and stock exchange?
The stock market is a securities market: stocks, bonds, investment funds, etc.
It is easiest to enter into transactions for the purchase and sale of such securities on a specially organized trading platform — the stock exchange.
It allows you to safely and quickly buy securities and sell it at a fair (market) price.
Major participants and stock market processes
Why and how to issue securities?
Why and how to issue securities?
The issuer is the one who issues securities.
The company, the state or its separate region and even a city can become an issuer.
Securities are issued to attract money.
Before issuing, the issuer estimates how much money it needs and in what form. A company can simply “borrow” money from future buyers of securities, promising them to pay interest in the future — then it issues bonds. You can also get money by offering customers to become co-owners of the company, — divide its capital into microparts and sell them. It will be shares.
Then the company determines the parameters of the securities: their number, par value, that is, the value of one security, its validity. After that, the state registration of the issue takes place: a record of this paper is made in a special registry.
For example, a company wants to attract additional investment and issues stock. By purchasing them, you become the owner of a share in the company and get the right to a part of its profit, which is distributed among all shareholders (the so-called dividends), and the right to vote at the shareholders’ meeting. Or the company or the state (region, city) issues bonds in order to borrow some money on the market and give it back after a while with interest for use.
An investor is one who invests his money in order to make a profit. On the stock exchange, an investor buys and sells securities. But it is not possible to buy directly from the issuer or sell to another investor. To make transactions, an investor needs to open a brokerage account. This is a special account with which you can buy and sell securities, as well as see the entire history of operations. Your official representative on the stock exchange — a broker will work with such an account.
Who is a broker and how to work with him?
A broker is an intermediary between an investor and an issuer, a professional participant in the market that makes securities transactions for an investor.
Most often, the functions of intermediaries are performed by private brokerage companies and banks. To work with them there must be a special license issued by the National Bank of Kazakhstan.
You enter into a service contract with a broker and open brokerage account.
Broker on your behalf performs operations. The money is charged for the purchase and the broker’s commission (a fee for the help to make a transaction on the exchange) from brokerage account.
You can communicate with the broker via the Internet, if you set a special program — a trading terminal.
To work with a broker, you need to independently develop an investment strategy. So, it is only you who will make decisions about what and when to buy and sell. The broker does not bear responsibility for risks and transactions; he is only your “hands” on the securities market — he fulfills your instructions. Therefore, you will need to thoroughly understand how the stock market works, and constantly monitor the situation, analyze information and make decisions.
Работая с брокером, нужно самостоятельно разрабатывать стратегию инвестирования.
То есть принимать решения о том, что и когда покупать и продавать, будете только вы.
Ответственность за риски и сделки брокер не несет, он всего лишь ваши «руки» на рынке ценных бумаг — выполняет ваши поручения. Поэтому вам нужно будет обстоятельно разобраться в том, как работает фондовый рынок, и постоянно следить за ситуацией, анализировать информацию и принимать решения.
Who is the discretionary portfolio manager and how to work with him?
If you have little experience and you are not sure in your decisions, you can find another professional intermediary who will help you decide on which papers and when to buy and sell — the discretionary portfolio manager.
— Discretionary portfolio manager — an organization that you trust management of a package of securities according to a predetermined and approved strategy.
— It should also have a special license from the NBRK.
— The benefit of discretionary portfolio management is that you do not need to constantly monitor the situation on the stock exchange, the discretionary portfolio manager does it for you.
— In this case, your income will depend on his decisions, right or wrong. Therefore, it makes sense to figure out how the stock market works — to determine the strategy.
So, you execute a discretionary portfolio management agreement and negotiate a strategy of behavior on the exchange in advance. For example, you want your investment portfolio to consist only of bonds of the largest and most reliable companies with stable income indicators — with an interest rate of at least 3%. You define these conditions, and based on them, the manager will decide when and what securities to buy and sell.
I buy and sell paper - is it somehow taken into account?
There is a strict order on the stock exchange: all buying and selling operations are fixed so that all market participants know who owns this or that security. As soon as the investor has bought the issuer’s shares, the registrar and the depositary receive the details of the transaction.
A registrar is a special company that maintains registries where all shareholders are registered.
The registry is divided into many personal accounts, and they indicate which of the shareholders has how many shares. Such accounts help issuers to inform shareholders of important news, such as the dates of general meetings, and to accrue dividends.
For the investor, the securities account is kept by Central Securities Depository JSC, a company that stores and accounts for assets.
Central Securities Depository JSC is 100% owned by the state. In the depository company, a special depot account (depositary account) is opened for the client. It takes into account the client’s securities and there are records of all transactions — you always know how many securities you have and what they are.
When you sell securities, the depository guarantees that you are the owner of the securities and that you have rights to sell it.
Who regulates the stock market and stock exchange?
A regulator is an organization that ensures that everything happens legally on the stock exchange.
In the Kazakhstan market, these functions are performed by the National Bank of the Republic of Kazakhstan. It issues all professional market participants special licenses. Do not trust your money and assets to intermediaries who do not have a license. The regulator will not be able to protect you from the unlawful actions of such companies, because it does not have leverage over them.
What is a share?
SHARE is a security that gives its owner the right to participate in general meetings of shareholders, to vote and receive income in the form of DIVIDENDS.
The HOLDER of shares is the co-owner of the company.
For example, if a company has issued a total of 100,000 shares, then 10,000 shares are 10% of the company.
DIVIDENDS — part of the profits of the company, which is paid to shareholders.
For example, if the company received a profit of 1 billion tenge and decided to pay dividend 20% of the profits. Then 100 million shares account for 200 million tenge, and for each share the holder will be given 2,000 tenge.
Shares are of two types — ordinary and preferred.
The holder of ordinary shares may:
— vote at the general meeting of shareholders
— receive dividends in the presence of net income
— receive a part of the issuer’s property in case of its liquidation.
The holder of preferred shares is entitled to:
— receive a predetermined amount of dividends, but not less than ordinary shares’ holder receives
— receive a part of the issuer’s property in case of its liquidation.
Learn more about your rights by reading the laws of the Republic of Kazakhstan:
— “On securities”
— “On Joint Stock Companies”.
What is a bond?
A bond is a debt security certifying the relationship of a loan between its owner (creditor) and the person who issued it (the borrower), which is repaid within the period specified with the payment of fixed income.
Types of bonds by type of income:
|Fixed rate bonds||Floating rate bonds||Zero coupon bonds|
|Bonds for which the declared fixed coupon rate does not change during the whole circulation period of the bond.||Bonds whose coupon rate depends on the variable interest rate and can be adjusted, for example, by the rate of inflation.||Such bonds are issued at a discount, i.e. at a discount to the face value, and coupon payments are not provided.|
The benefits of investing in bonds
— the level of risk assumed by the investor is lower compared to shares — there is an obligation for the issuer to repay their initial value;
— advantage in the payment of income (coupon) by the issuer over dividends on shares;
— a fixed period of circulation of securities in the market;
— regular and fixed interest income, which allows you to accurately predict the amount of return on investment;
— the possibility of selling bonds without losing the accrued interest — if the bond is traded between the coupon payment dates, the seller of the bond has the right to receive the coupon accrued during the period of ownership of the bond.
Bonds: yield calculation
The total yield on the bond includes the amount of coupon payments and the amount of the discount on acquisition.
A simplified example of how depending on the market price the yield to maturity of a bond with a par value of $ 10,000 and a coupon rate of 13,00% per annum purchased before maturity changes:
1. when buying a bond at a nominal value of $ 10,000, the yield to maturity will be 13,00% per annum;
2. when buying bonds at a discount of $ 9,000, the yield to maturity will be equal to 14,00% per annum;
3. when buying bonds with a premium of $ 11,000, the yield to maturity will be 12,00% per annum.
The amount paid by the buyer to the seller is the agreed price of the bond, which includes the net price of the bond plus the accrued coupon for the period bond held.
There is an inverse relationship between the price of a bond and its yield — when the price of a bond rises, the yield drops, and vice versa.
In the secondary market bond yields fluctuate depending on market conditions and the financial status of the issuer.
Investment in bonds:
— the possibility of an investor receiving a return above deposit with a comparable investment period;
— regular (semi-annual) coupon payments allow reinvesting them and earning additional income;
— the possibility of choosing investments by time depending on the investment horizon;
— high transparency of issuers of bonds — current regulation of the banking sector places high demands on transparency and disclosure of information of banks;
— bonds, recommended for acquisition, are traded at KASE (included in the official list of the stock exchange, are traded, redeemed and coupons are paid at the rate of USD / KZT on the settlement dates);
— despite high yields and corresponding ratings of bonds, the probability of default on them seems to be moderate;
— the possibility of implementing tax preferences for debt securities (exemption of coupon payments from taxation and the use of discount amortization);
— the possibility of selling bonds without losing the accrued coupon.
What are mutual funds, mutual fund shares and shares?
A mutual fund combines the money of different investors in order to collectively invest them in some financial instruments: stocks, bonds, real estate or others.
You can buy a share or a few shares in this portfolio, their number depends on the price of the share and the amount you paid.
A share can be sold, bought or mortgaged. Ideally, its price is increasing every day. After some time, you can sell a share at a more expensive price than you purchased and get a profit.
The special financial institution — asset management company manages the funds of the mutual fund. The company decides what kind of securities or other assets to buy, when to buy it and when to sell.
Mutual funds also have different terms of sale and purchase of shares.
You can buy and sell their shares every business day. Money for redeemed units will be credited to your account not immediately, but in a few days.
You can buy and sell shares only at specific intervals, usually several times a year.
You can buy shares only when a fund is being formed and sell it only when the fund is closed.
Open funds invest, as a rule, in liquid assets, that is, those that can be quickly sold at a fair price. For example, in securities that are always in demand.
Interval and closed funds invest in less liquid assets. Those funds are riskier, but more profitable as well.
What are the advantages of mutual funds?
The initial amount of investments in the fund may be small.
Your money is managed by investment experts.
Likely high income
The profit from investing in the fund may be greater than the income generated on the deposit.
If you compare investments in mutual funds with self-investment, costs are lower. A mutual fund as a large investor has more favorable conditions for managing funds.
Shares of open-end funds can be sold at any time without additional losses.
In 2019 Kazakhstan should return preferential taxation for Mutual Funds investors
Legislation governing the securities market of Kazakhstan
Laws of the Republic of Kazakhstan
— Law of the Republic of Kazakhstan “On the Securities Market”
— Law of the Republic of Kazakhstan “On Joint Stock Companies”
— Law of the Republic of Kazakhstan “On investment funds”.
Resolutions of the National Bank of the Republic of Kazakhstan
— Resolution of NBRK No. 9 “Rules for broker and dealer activities in the securities market”.
Regulates the activities of brokers and dealers in the securities market of Kazakhstan.
— Resolution of NBRK No. 10 “Rules for the implementation of investment portfolio management”.
Regulates the activities of asset management companies in the securities market of Kazakhstan.