Global Stocks

Pick your favourite stocks from around the world and trade via our on-line platform or through your portfolio manager

What are Stocks?

When you purchase stocks (often referred to as shares or equities), you become a part owner of the business. Stock represents a claim on the company’s assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater. By holding a company’s stock, it entitles you to vote at the shareholders’ meeting and allows you to receive any profits that the company allocates to its owners. These profits are referred to as dividends.

A stock is represented by a stock certificate – a piece of paper that is proof of your ownership. With advancement in technologies, you would not actually get to see this document because these records kept electronically to make your shares easier to trade. In the past, when a person wanted to sell his or her shares, that person physically had to take the certificates to the brokerage. Now, trading with a click of the mouse or a phone call makes life easier for everybody.

Risk of trading in stocks

It must be emphasized that there are no guarantees when it comes to stocks investments. Stocks are volatile, they fluctuate in value on a daily basis. Some companies pay out dividends, but many others do, in such cases, the only way that you can make money is when the stock increases in value. On the downside, any stock may have liquidity issues or may go bankrupt and you must assume the risk of losing some or all of your investment.

Although risks associated with stock investment might sound all negative, there is also a bright side. Taking on greater risk demands a greater return on your investment. This is the reason why stocks have historically outperformed other investments such as bonds or savings accounts. Over the long term, an investment in stocks has historically had an average return of around 10-12%.

Types of Stocks?

There are two main types, Common Stock and Preferred Stock.

Common Stock

Majority of stock is issued is in this form. Common shares represent ownership in a company and a claim (dividends) on a portion of profits. Investors get one vote per share to elect the board members, who oversee the major decisions made by management. Over the long term, common stock, by means of capital growth, yields higher returns than almost every other investment. This higher return comes at a cost since common stocks entail the most risk. If a company goes bankrupt and liquidates, the common shareholders will not receive money until the creditors, bondholders and preferred shareholders are paid.

Preferred Stock

Preferred stock represents some degree of ownership in a company but usually does not come with the same voting rights. With preferred shares, investors are usually guaranteed a fixed dividend forever. This is different than common stock, which has variable dividends that are never guaranteed. Another advantage is that in the event of liquidation, preferred shareholders are paid off before the common shareholder (but still after debt holders). Preferred stock may also be callable, meaning that the company has the option to purchase the shares from shareholders at anytime for any reason (usually for a premium).

What are common labels used in stock categorization?

Blue Chips

A label associated to stocks of well-established and financially sound companies. Blue chips generally sell high-quality, widely accepted products and services. Blue chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth. Blue chip stocks are seen as a less volatile investment than owning shares in companies without blue chip status because blue chips have an institutional status in the economy. Investors may buy blue chip companies to provide steady growth in their portfolios.

Red Chips

This label describes stocks in companies with business, assets, markets and ownership that have a strong Mainland orientation. Red-chip companies are not incorporated in the Mainland. The par values of their shares are expressed in currencies other than the RMB. There is another important difference between a red-chip company and a State Owned Enterprise listed in Shanghai or Shenzhen: normally, all of the shares in issue in a red chip are tradable.

H-Shares

“H shares” are foreign shares issued by enterprises incorporated in the Mainland, that are primarily listed in Hong Kong and traded in Hong Kong dollars. H-share companies listed in Hong Kong have to comply with the additional requirements set out in the SEHK’s Listing Rules for both the Main Board and the Growth Enterprise Market (GEM). Among such requirements are that (a) annual accounts have to be in accordance with Hong Kong or international accounting standards; (b) the articles of association must contain provisions which reflect the different nature of domestic shares and foreign shares (including H shares) and the different rights of their respective holders; and (c) investor protection provisions equivalent to those in the laws of Hong Kong must be written into its constitutional documents.

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