Two: Let’s take a look on how stock market operates.
- Authority in regulating the behavior of the market.
As share prices on stock markets are determined, to a large extent, the return or the performance of share issuers, information in relation with business operations of issuers has significant impact in determining share prices. More over, as speculators may manipulate information in this regard, authority in regulating the behavior of market participating parties shall have to be established, in attempt to provide rules that govern the transparency on information release, fair play, as well as review and approval of listing applications. The ultimate goal for the authority is to protect the broadest interests of public, to sustain a healthy and proper development of stock market, and macro economy in general. Due to the strong powerful nature embodied in the authority, effective watchdogs must be applied in ensuring the justified actions done by the authority. Lessons from stock exchanges in less developed nations are considerably noticeable. Policies adopted by those authorities are either over regulated that market is much constraint in development or “policy dominated”, or big players may manipulate market prices when regulations are less effective.
- Share issuance.
As a company with limited liability, is it possible to issue shares and raise funds? Well, theoretically it is possible, yet depending on different prerequisites. General speaking, the following criteria must be met by potential issuers:
- Be profitable for the last 3 consecutive years;
- Profit margin must be over certain percentage;
- Committed to industries that is not against public interests or should be encouraged by government;
- Economic scale of the company should be over certain benchmark;
- Well established and structured;
- The overall capacity of stock exchange;
- Queuing up for a proper timing and approval.
- Other criteria considered necessary by authorities.
Why do they post all these conditions for potential issuers? The answer is simple: to protect the interests of investors and a healthy or steady performance of economy. Poor listing in stock exchange may lead to collapse of stock prices and panic of public, which in turn would have serious impact on the economy. Well, what about newly established companies with highly promising perspectives or newly initiated projects? Do they have the possibility to raise capital in any way? Apart from venture capitals or investment banks, NASDAC or second board of stock exchange provide the best answer. As listed companies on second board do not have a proven record of their performance, or they have not proved by the market, the risk of holding their shares is no doubtfully relatively higher. The realistic situation on second board matches with this perception, especially when confronting with the burst of .com bubble. Strong volatility of stock prices from the second board leaves people with painful lessons.
- Market players
There are a number of market players on the stock market, namely they are, issuers, regulator, brokers, investors/speculators, portfolio managers and those professional analysts who may provide with vague or clear reference/suggestions on buying and selling. We see full pages of stock prices listed on different newspapers everyday, as well as bulky commenting articles and advertisements. Even though we don’t buy or sell stocks, we are fed with information of the kind. Statistics show that average stock yield is much higher than average savings interest rate. I am also positive in the conclusion.
- Factors in determining stock prices
Factors affecting stock prices varied, which include micro and macro factors. But to my understanding, the core part is the actual profitability of listed companies. Stock price curve moves along with financial figures released by share issuers, but of course, it is not at all that simple. It has many things to do with economic policies, business cycles, speculating psychology, economic development trend, purchasing power, supply and demand, and many others. That’s why economists build up so many mathematic models, in trying to understand and summarizing the behavior of stock markets. Yet few of them have proved to be successful. Helpless people have to acknowledge the fact that stock market is, after all, irrational.
Three: The world’s most important stock exchanges
The world’s most important stock exchange include London, New York, Tokyo, Frankfurt, Hong Kong and Singapore. Capitalization in these markets occupies a dominant portion of global business turnover. There is no exception that world most famous corporations are listed on above said markets. Thousands of billions of dollars are traded each day through highly advanced and sophisticated telecommunication systems. A cough by these markets would result in serious flu in world’s economy. Legendary stories are told that millions of people are getting a big fortune by speculating stock prices, while other numerous people are getting bankrupted. It is a two sided sword that must be carefully watched, but we can’t imagine a world without stock markets.