Latest Economic news China central bank pledges more
Latest Economic news China central bank pledges more co-operation to stem global financial crisis 中国央行投入更多合作来遏制全球 金融危机 0
l l BEIJING, Oct. 10 (Xinhua) -- China's central bank on Friday said it will continue international cooperation to tackle the global financial crisis and maintain market stability. The pledge came two days after the People‘s Bank of China (PBOC) announced an interest rate cut in a co-ordinated(共同调整) global move to revive solvency(偿付能力) in the international financial system. 1
l The PBOC on Wednesday cut the benchmark lending and deposit rates(存 贷款基准利率) by 0. 27 percentage points and the reserve requirement ratio by 0. 5 percentage points amid growing fears of a slowing economy and falling equities market. 2
l "The PBOC will continue close contacts and cooperation with counterparts and international financial organizations to jointly maintain stability of global financial market, " PBOC spokesman Li Chao told Xinhua. 3
l The PBOC would closely watch the developments and effects of the crisis and take timely and flexibly measures according to changes in the domestic and international situations to guard against financial risks, Li said. 4
l l The global economic slowdown(放缓) reduced demand for Chinese exports and inevitably(不可避免的) affected China's economy, he said. The central bank was fully confident and capable of dealing with the crisis and maintaining stable and relatively fast economic growth. 5
l “China has a huge domestic market and the liquidity is abundant, ” he said. “As long as we take strong measures to boost(推进) domestic demand, the economy has big potential for sustainable(持续的) growth. " 6
l l A PBOC statement on the third-quarter meeting of its monetary policy committee said it would take flexible and prudent(谨慎) macro-economic control measures to boost economic growth. The PBOC was not optimistic in its global economic outlook(展望) as intensifying (加 强的)fluctuations in the financial markets had affected the real economy. 7
l It said it would boost coordination between monetary policies and fiscal( 财政), industry, export and financial regulation policies to help transform economic growth mode(方式) and boost domestic demand to balance international payments(国际支付). 8
Part 3 Corporate Finance l l l l 3. 1 Venture capital 3. 2 Stocks and shares(1) 3. 3 Stocks and shares(2) 3. 4 Shareholders 3. 5 Share price 3. 6 Describing charts and graphs 3. 7 Bonds 3. 8 Futures 9
Chapter Outline(2) 3. 9 Derivatives l 3. 10 Asset management l 3. 11 Hedge funds and structures products l 3. 12 Mergers and takeovers l 3. 13 Conglomerate l 3. 14 Raiders l 3. 15 Financial planning l 10
3. 1 Venture capital l 3. 1. 1 raising capital l Venture capital = risk capital = start-up capital, means funds for new enterprises. New business, called start-ups, are all private companies that aren’t allowed to sell stocks or shares to the general publics. In this case, venture capital can give a help. Some rich people, called angles or angel investors, also invest in star-ups. l l 11
3. 1. 2 Return on capital l At first, entrepreneurs(企业家) should provide a business plan(商业计划). Because of the high level of risk involved, investors in start-ups usually expect a higher than average rate of return(回报率). If they can’t get a quick return in cash, they can buy the new company’s shares. If the company is successful and later becomes a public company(上市公司), the venture capitalists will be able to sell their shares, at a profit. This is exit strategy(退出战略). 12
l l l If these companies need further capital to expand before they join a stock exchange. This is called mezzanine financing(二次融资). It usually consists of convertible bonds(可转 换债券) or preference shares(优先股) that receive a fixed dividend(固定股利). Investors at this stage have a lower risk of loss than venture capitalist, but less chance of making a big profit. 13
3. 2 Stocks and shares(1) l l Stocks and shares are certificates representing part ownership of a company. The word equity or equities is also used to describe stocks and shares. In Britain, stock is also used to refer to all kinds of securities(有价证券), including government bonds. The place where stocks are bought and sold are called stock markets or stock exchange(股票交易所). 14
3. 2. 1 Going public Procedure of going public: • Get advice from investment bank about A detailed how many shares to offer and at what examination of a price; company and its An offer of a Afinancial document stating the • Get independent accountants to produce a situation company’s shares to due diligence report (尽职调查报告 ); financial terms of sale, investors results to public; and other • Produce a prospectus(公告书) information about the • Make a flotation (浮选) or IPO (initial public company offering); • An investment bank underwrites the stock Guarantees. to buy issue (承销股票发行) l the shares if there are not enough buyers 15
3. 2. 2 Ordinary and preference shares l l Except the ordinary shares(普通股), some companies also have preference shares whose holders receive a fixed dividend that must be paid before holders of ordinary shares receive a dividend. If the company goes into liquidation(进入清算) , holders of preference shares are repaid( 偿还) before other shareholders, but after owners of bonds and other debts. 16
3. 3 Stocks and shares(2) l l After newly issued shares have been sold for the first time---this is called the primary market(一级市场), they can be repeatedly traded at the stock exchange on which the company is listed---this is called the secondary market(二级市场). Most companies use over-the-counter (OTC) markets, such as NASDAQ in New York and the Alternative Investment Market (AIM) in London. 17
3. 3. 1 Buying and selling shares(2) l l The nominal value(票面价值) of a share is rarely the same as its market price(市场价值). It can change every minute during trading hours, because it depends on supply and demand. Most customers place their buying and selling orders with a stockbroker(股票经纪人). Some stock exchange have computerized automatic trading systems(自动交易系统), others have market makers(做市商): traders in stocks who quote bid and offer prices. 18
3. 3. 2 New share issues l l Companies that require further capital can issue new shares. Rights issue(增股): the existing shareholders have the first right to buy new shares. Scrip issue(发红利): issue new shares to existing shareholders instead of paying them a dividend, also called capitalization issue, or bonus issue(红利股). Own shares(自持股): buy back some their own shares on the secondary market. 19
3. 3. 3 Categories of stocks and shares l l l Blue chips(蓝筹股): stocks in large companies with a reputation for quantity, reliability and profitability. Growth stocks(增长股): be expected to rise regularly in value. Income stocks(收入股): have a history of paying consistently high dividends. Defensive stocks(防御股): provide a regular dividend and stable earnings(稳定收益), not to rise or fall much. Value stocks(价值股): nominal worth less than the real value. 20
Exercises: l l 1. A stock whose price has suddenly fallen a lot after a company had bad news could be a value stock, as it will probably rise again. 2. The stocks of food, tobacco and oil companies are usually defensive stocks, as demand doesn’t rise or fall very much in periods of economic expansion or contraction. 21
l l l 3. Pension funds and insurance companies, which can’t take risks, usually only invest in blue chips. 4. The best way to make a profit in the long term is to invest in growth stocks. 5. This stock used to be considered an income stocks, but two years ago the company started to cut its dividend and reinvest its cash in the business. 22
3. 4 Shareholders l l 3. 4. 1 Investors in stock market are named by animals. • Bulls: investors who expect prices to rise; • Bears: investors who expect them to fall; • Stags(鹿): investors who buy new share issues hoping that they will be oversubscribed(超额订购), and immediately sell them at a profit. 23
3. 4. 2 Speculators l l l Speculator(投机者): people who buy and sell shares rapidly, hoping to make a profit. These include day traders(日交易者), who buy stocks and sell them again before the settlement day. Day traders usually work with online brokers (网上经纪人), who charge low commissions. Take a short position: 做空 Take a long position: 做多 24
3. 4. 3 Dividends and capital gains l l Companies that make a profit either pay a dividend to their stockholders, or retain their earnings by keeping the profits in the company, which causes the value of stocks to rise. When an investor buys shares on the secondary market they are either cum div(带息) , meaning the investor will receive the next dividend the company pays, or ex div (不带息), meaning they will not, but to sell their stocks to make a capital gain(资本收益). 25
3. 5 Share prices l l Stock markets are measured by stock indexes(股指), such as Dow Jones Industrial Average (DJIA)(道琼斯 业指数). A period when most of the stocks on a market rise is called a bull market(牛市); A period when most of them fall in value is a bear market(熊市). When these indexes fall considerably on a single day, the stock market crashes happen (崩盘). 26
Latest Economic news Citigroup posts another loss amid credit woes 花旗集团宣布在信用危机中的另一 项损失 Thursday October 16, 8: 16 am ET By Madlen Read, AP Business Writer 27
l l NEW YORK (AP) -- Citigroup Inc. suffered its fourth straight quarterly loss due to credit-related missteps(失误) and cut another 11, 000 jobs. The New York-based bank said Thursday that it lost $2. 8 billion, or 60 cents per share, in the third quarter, compared with a profit of $2. 2 billion, or 44 cents per share, a year ago. 28
l l That deficit for the June-to-September period brings Citi's total losses over the past 12 months to $20. 2 billion. The shortfall(赤字) for the quarter was narrower than anticipated. Analysts polled(调查) by Thomson Reuters(汤 姆森 路透) expected a loss of 70 cents per share. 29
l “While our third quarter results reflect both a difficult environment as well as continued write-downs(价值缩水,减记) on our legacy assets(遗留资产), we are making excellent progress on the parts of our business we control, including expense reduction, headcount(员 总数), and balance sheet and capital management, " said CEO Vikram Pandit in a statement. 30
l The frailty(弱点) of the financial system has led the government to pledge $25 billion to each of the big four U. S. banks -- Citigroup, JPMorgan Chase & Co. , Bank of America Corp. and Wells Fargo & Co(美国富国银行). 31
l Of these four institutions, Citi appears to be on the shakiest footing(最动摇的 基础). It is the only one to have posted quarterly losses over the past year, and it is shrinking while its peers are growing. 32
l Citi not only eliminated 11, 000 jobs during the third quarter -- bringing its total headcount reduction so far this year to 23, 000 -- but it also shed(流出) $50 billion in assets. 33
l Pandit announced in May that Citi intends to rid itself of(消除) nearly $500 billion in assets to get out of businesses such as risky mortgages; the bank said that over the past year, it has lopped off(消减) $308 billion in total assets. 34
l Meanwhile, the bank has not made any major acquisitions. While JPMorgan Chase snapped up(迅速买下) Bear Stearns Cos. (贝尔斯登 )and Washington Mutual Inc. , and Bank of America Corp. bought Merrill Lynch(美 林), Citigroup lost a bid for Wachovia Corp. (瓦乔维亚银行 ) and its massive deposit base to Wells Fargo. 35
Paper task(20分) l l l 1. The impact of RMB appreciation to China’s export. 2. How will US financial crisis affect China’s economy? Requirement: 条理清楚,内容充实,文题相符; 二选一,字数 6000(字符) 36
3. 5. 1 influence on share prices l Points that influence the share price: • The financial situation of the company; • The situation of the industry in which the company operates; • The state of the economy in general; • The beliefs of investors; l When price-sensitive(价格敏感) information arrives, a share price will change. 37
3. 5. 2 Predicting prices l Theories to predict share prices: • The random walk hypothesis(随机游走假 设): the day-to-day change of stock prices are completely random(随意的) or unpredictable(不可预测的). • The efficient market hypothesis(有效市场 假设): share prices always accurately or exactly reflect all relevant information. 38
• Technical analysis(技术分析): studying past share prices to forecast future price changes. • Fundamental analysis(基本面分析): the analysis of macro-economic indexes, capital markets and political factors. head price Left shoulder Right shoulder neckline sell time Head and shoulders pattern 头肩图形 39
3. 5. 3 Types of risk l l Unsystematic risk(非系统风险): things that affect individual companies, such as production problems, which can be reduced by making a diversified portfolio (分散化的投资组合). Systematic risk(系统风险): things that affect the whole market, cannot be avoided by diversification(分散化). If a stock market falls, all the shares listed on it will fall to some extent. 40
3. 6 Describing charts and graphs l 3. 6. 1 Increase and decrease Upward movement (向上运动) verbs nouns to rise to increase a rise an increase to grow to climb a growth an improvement to improve to get better 41
3. 6. 1 Increase and decrease Downward movement (向下运动) verbs to fall nouns to decrease a fall to decline to deteriorate a drop to get worse a decrease a decline a deterioration 42
3. 6. 2 Rate of change Large changes Fast changes Regular changes considerable dramatic sharp significant substantial gradual-gradually steady-steadily abrupt-abruptly quick-quickly rapid-rapidly sudden-suddenly Small changes Slow changes moderate slight slow - slowly 43
3. 6. 3 High points, low points, and staying the same To reach the highest point To peak To top out to reach a peak To stay at the same level To remain stable To stabilize To remain constant To level off To reach the lowest point To hit bottom To bottom out To reach a low point To go up and down To fluctuate 44
3. 7 Bonds l l l Bonds are loans to local and national governments and to large companies. Bondholders are creditors, not owners, of a corporation. The holders of bonds generally receive fixed interest payments(固定利息支付), once or twice a year, and get their principal(本金) back on a given maturity date(到期日). 45
l l In Britain, government bonds are known as gilt-edged stock(金边债券); In the US, they are called Treasury notes(国库券), which have a maturity of 2 -10 years, and Treasury bonds, with a maturity of 10 -30 years. A municipal bond(地方债券) is a debt issue of a state or political subdivision(政治机构), such as county, city, township, or village. 46
secured bonds l A secured bond is backed by specific pledges( 抵押) of company assets. • Mortgage bonds(抵押债券) are backed by real and • • personal property owned by the firm, such as machinery or furniture. Collateral trust bonds(间接信用债券) are backed by stocks and bonds of other companies owned by borrowing firm. Equipment trust certificate(设备信托债券), railroads and airline companies use rolling stock(全部车辆) and airplanes as collateral(担保品). 47
Unsecured bonds l l Debenture(信用债券): a bond backed only by the reputation of the issuing corporation or governmental unit. Junk bonds(垃圾债券): pay a high interest rate but with a low credit rating. 48
Other types of bonds l l Convertible shares(可转换债券) or convertibles: pay lower interest rates than ordinary bonds, because the buyer gets the chance of making a profit with the convertible option. Zero coupon bonds(零息债券): pay no interest but sold at a discount on their par value (票面价值), and repaid at 100% at maturity. 49
Credit rating l l l Governments issue bonds to raise money and there is almost no risk that the borrower will default(违约). Companies issue bonds, called corporate bonds, which should be given credit ratings(信用分级) by credit agencies, according to their ability to repay the loan to the bondholders. The highest grade is known as AAA, or Aaa, lower grades are Baa, BBB, C, etc. 50
3. 8 Derivatives l l Derivatives(衍生品) are financial products whose value is derived from(源自) another financial product, such as a stock, a stock market index, or interest rate payments. They can be used to manage the risks associated with securities, to protect against fluctuations in value(价值波动), or to speculate. 51
3. 8. 1 Forward contracts l l Forward contracts are agreements by two parties to engage in a financial transaction at a future point in time. The advantage of forward contracts is that they can be as flexible as the parties involved want them to be. 52
l l l However, forward contracts suffer from two problems that severely limit their usefulness. The first is that it may be very hard for an institution to find another party to make the contract with; The second is that forward contracts are subject to default risk(违约风险 ). 53
3. 8. 2 Futures l l l Forward(远期) and future contracts(期货合 约) both are agreements to sell an asset at a fixed price on a fixed date in the future. Futures are standardized(标准化的) contracts, with fixed quantities, fixed time periods, traded on a special exchange. Forwards are individual, non-standardized contracts between two parties, traded overthe - counter. 54
Futures Contracts l l l Standardizing Features: • Contract Size • Delivery Month • Daily resettlement(每日结算) Initial Margin (about 4% of contract value, cash or T-bills held in a street name at your brokers). 原始押金(大约是合约价值的4%,你的经纪人户头上持有 现金或者支票) 55
Commodity futures l l Futures are traded on a wide range of agricultural products (including wheat, maize, soybeans, pork, beef, sugar, tea, coffee, cocoa and orange juice), industrial metals (aluminium, copper, lead, nickel and zinc), precious metals (gold, silver, platinum and palladium) and oil. Futures were invented to enable regular buyers and sellers of commodities to protect themselves against losses or to hedge(避险) against future changes in the price. 56
Financial futures l l l Financial futures are standardized contracts traded on exchange, to buy and sell financial assets, such as currencies, interest rates, stocks and stock market indexes. Financial futures are used to fix a value for a specified future date. Futures trading is a zero-sum game(零和游戏), because the amount of money gained by one party will be the same as the sum lost by the other. 57
Reading a Futures Quote Highest and lowest Daily Change prices over the Closing price lifetime of the Lowest price that day contract. Highest price that day Number of open contracts Opening price Expiry month 持仓量 58
In Time of Crisis, Candidates Present Economic Plans l l l This week, the two major presidential candidates gave new details of their plans to help Americans deal with the economic crisis. On Monday, Democrat(民主党人) Barack Obama offered proposals totaling sixty billion dollars over two years. The next day, Republican(共和党人) John Mc. Cain announced proposals totaling about fifty-three billion dollars. Both plans call for new tax breaks(减免税务 ). 59
奥巴马 Senator(议员) Obama proposes to suspend the capital gains tax(资本收益税 ) on small businesses. He also wants to give businesses a three thousand dollar tax credit (税收减免) for each new employee they hire in the United States over the next two years. 60
Senator Mc. Cain proposes to cut the fifteen percent tax on longterm capital gains(长期资本收益) in half for two years. And he would let investors reduce their taxable income by up to fifteen thousand dollars for stock losses, five times the current limit. 麦凯恩 61
l l Both candidates want to temporarily suspend taxes on unemployment aid(失业补贴). Senator Obama would also extend the payments. To deal with the housing crisis, he proposes a ninety-day ban on some home repossessions by banks. And he says he would provide twenty-five billion dollars in aid to states, along with assistance in restructuring troubled mortgages. 62
l Senator Mc. Cain recently proposed to have the federal government buy troubled mortgages. These would be replaced with government-guaranteed( 政府担保) loans at a lower cost. The plan would cost three hundred billion dollars. The money would come from the rescue measure passed by Congress to bail out the financial services industry. 63
l To help older Americans, both candidates want to temporarily suspend withdrawal requirements(意指可自由取款) for retirement savings accounts. That would give investments more time to recover lost value. Senator Mc. Cain also wants to reduce taxes to the lowest rate, ten percent, for two years on withdrawals up to fifty thousand dollars. ( 在两年内,退休人员从养老金账户中提取不超过5万 美元资金,可享受 10%的低税率 ) 64
l l With the Obama plan, workers could withdraw up to ten thousand dollars in retirement savings without an early withdrawal charge. That policy would also be in effect for two years. In other news this week, the Treasury Department said it will inject(注入) up to two hundred fifty billion dollars in banks. 65
l The government will gain partial ownership(获得部分所有权) in return but not have voting rights. America‘s nine largest banks agreed to the plan under pressure from Treasury Secretary(财政 部长) Henry Paulson. He warned them not to hold on to this new capital “but to deploy(配置)it. " 66
3. 8. 3 Options Contracts l Options are like futures except that they give the right, but not the obligation, to buy or sell an asset in the future. • Call options(看涨期权) gives the holder the • right, but not the obligation, to buy a given quantity of some asset at some time in the future, at prices agreed upon today. Put options (看跌期权) gives the holder the right, but not the obligation, to sell a given quantity of some asset at some time in the future, at prices agreed upon today. 67
Options Contracts l European vs. American options • European options (欧式期权) can only be exercised on the expiration date. • American options (美式期权) can be exercised at any time up to and including the expiration date. • Since this option to exercise early generally has value, American options are usually worth more than European options, other things equal. 68
l l l Selling or writing options contracts involves the obligation either to deliver or to buy assets, If the buyer exercise the option. For this the seller receives a fee called a premium from the buyer. Strike price = exercise price, 执行价格 69
Options Contracts l In-the-money • The exercise price is less than the spot price of the underlying asset. (期权的预购价格小于潜在资产 的即期价格) l At-the-money • The exercise price is equal to the spot price of the underlying asset. (期权的预购价格等于潜在资产的 即期价格) l Out-of-the-money • The exercise price is more than the spot price of the underlying asset. (期权的预购价格大于潜在资产 的即期价格) 70
Options Contracts l l Intrinsic Value 内在价值 • The difference between the exercise price of the option and the spot price of the underlying asset. Speculative Value 投机价值 • The difference between the option premium(权 利金) and the intrinsic value of the option. Option Intrinsic = Premium Value + Speculative Value 71
3. 8. 4 Warrants 权证 l Warrant is a derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. stock warrants are often added to new issues of stocks or bonds to make these issues more attractive. 72
l The main difference between warrants and call options is that warrants are issued and guaranteed(担保) by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months. 73
l l However, like call options, warrants can be traded freely in the open market(公开市场) after their initial issue and before their expiry date. If you own warrants, regardless of how you purchased them, the easiest way to exercise them is through your broker, who will handle much of the paperwork and correspondence with the company that issued the warrant to you. 74
l All you need to do is give the warrants to your broker and instruct him or her as to what you would like to do. Alternatively, you can contact the issuing company directly, and they will then instruct you on how to exercise your warrants. Dealing directly with the company, however, will be a little more time consuming. 75
3. 8. 5 Swaps 互换 l l Swaps are arrangements between institutions to exchange interest rates or currencies. Swaps can be used … • to alter a series of floating rate payments. • to reduce interest rate risk of financial institutions • by some firms who can borrow relatively cheaply in either the fixed or floating rate market. 76
two types of interest rate swaps l l Single currency interest rate swap, called ‘Plain vanilla’(普通香草) or fixed for floating rate swap. • A “plain vanilla” interest rate swap involves one party agreeing to pay fixed interest rate and another party agreeing to pay floating interest rate , at specific time periods over the life of the swap (e. g. 5 years). Cross-Currency interest rate swap, called a currency swap, or fixed for fixed rate swap 77
l l The market for interest rate swaps frequently (but not always) uses LIBOR as the base for the floating rate. LIBOR, or London Interbank Offer Rate, is the interest rate offered by London banks on deposits made by other banks in the eurodollar markets. 78
swap markets l l Unlike most standardized options and futures contracts, swaps are not exchange-traded instruments. Instead, swaps are customized contracts that are traded in the over-thecounter market between private parties. Firms and financial institutions dominate the swaps market, with few (if any) individuals ever participating. Because swaps occur on the OTC market, there is always the risk of a counterparty defaulting on the swap. 79
l l l The first interest rate swap occurred between IBM and the World Bank in 1981. However, despite their relative youth, swaps have exploded in popularity. In 1987, the International Swaps and Derivatives Association(国际互换和衍 生产品协会 ) reported that the swaps market had a total notional value of $865. 6 billion. By mid-2006, this figure exceeded $250 trillion, according to the Bank for International Settlements. That's more than 15 times the size of the U. S. public equities market. 80
3. 9 Other Types of Derivatives l l l Treasury Bond Contracts Stock Index Contracts Currency Contracts 81
3. 9. 1 Treasury Bond Contracts l A contract based on the delivery of a U. S. Treasury bond with any coupon and at least 15 years to maturity. • To give some type of standardization, the markets use a conversion factor(转换因子) to achieve a hypothetical(假设) bond with a 6% coupon. • A contract covers $100, 000 par value of U. S. Treasuries. • Contract expires March, June, September and December 82
l Because bond prices do not move in a linear fashion, there is a chance to use arbitrage to capitalize on(利用) the deviance(偏差) of a bond when compared to the 6% standardized bond. To do this, traders look for the cheapest to deliver (CTD) bond. This is the least expensive underlying product that can be delivered upon expiry to satisfy the requirements of a derivative contract. This helps minimize the slippage(滑动) between the conversation factor and the actual price. 83
3. 9. 2 Stock Index Contracts l Investors trading index options are essentially betting on the overall movement of the stock market as represented by a basket of stocks. Options on the S&P 500 are some of the most actively traded options in the world. 84
l l l Quoted in terms equal to the index itself. For example if the S&P 500 is trading at 1050, the one-month contract may be at 1060. Each contract has a multiplier(乘数). For the S&P 500, it is 250. The actual price in the above point would equal 1060*250 = $265, 000. Settlement is in cash. 85
l l S&P 500 contracts expire in March, June, September and December and can have maturity dates as far away as two years. The FTSE 100(英国富时 100指数 ) and Japan's Nikkei 225 are other types of indexes upon which stock index contracts are based. 86
3. 9. 3 Currency Contracts l Currency contracts function in the same way as forward contracts for currency. • They are typically much smaller than forward contracts. • Each contract has a stated size and quotation unit. • Future price for euros = 0. 92, which leads to a contract price of 125, 000(this is the contract size)(. 92) = 115, 000 • Calls for actual delivery through book entry( 账面记录) of the underlying currency. 87
US stocks rise on anticipation of rate cuts l l US stocks rose more than 10 percent on Tuesday, with the Dow Jones Industrial Average achieving its secondbiggest point gain ever in history. The Dow jumped nearly 900 points, or 10. 88 percent, to just over 9, 065 points, whereas the S&P 500 shot up 10. 79 percent to close at over 940. 88
l l The surge(涨幅) came as investors scooped up(铲起) beaten-down shares, buoyed(支撑,鼓励) by their belief that the Federal Reserve and other central banks will cut interest rates further. The Fed is expected to cut lending rates(贷款利率) at a two-day policy meeting which ends on Wednesday. 89
l l It's also expected to signal a willingness to lower borrowing costs again if needed, especially with inflation pressures fading fast. Many investors also believe the Bank of Japan will make a similar move to cut interest rates. 90
3. 10 Asset management l l Asset management(资产管理) is managing financial assets for institutions or individuals. Asset managers have to decide how to allocate funds(分配资金): how much to invest in shares, mutual funds, bonds, cash, foreign currencies, precious metals, or other types of investment. 91
3. 10. 1 Types of common investor l According to different objectives, investor can be divided into: • People who want regular income from the investment; • People who want to preserve their capital and avoid risks; • People who want to accumulate or build up capital---portfolio include more shares than bonds. 92
3. 10. 2 Institutional investor l l l Pension funds(抚恤基金) and insurance companies collect a lot of money from ordinary people and manage it for them. Private banks(私人银行) specialize in managing portfolios of wealthy individuals. Unit trust(信托公司) invest money for small investors in a range of securities. 93
3. 10. 3 Allocating and diversifying assets l l l Asset allocation decisions depend on objectives and size of the portfolio. The portfolio’s objectives determine the returns expected or needed, and the acceptable level of risk. The best way to reduce exposure to risk is to diversify the portfolio---easier and cheaper for a large portfolio than a small one. 94
3. 10. 4 Active and passive investment l l l Active strategy: buying and selling frequently, adapting the portfolio to changing market circumstances. Passive strategy: buying and holding securities, leaving the position unchanged for a long time. Index-linked funds believe you can’t regularly outperform the market, so they try to track or follow the movement of a stock market index. 95
3. 11 Hedge funds and structured products l 3. 11. 1 Hedge funds l Hedge funds (对冲基金) are private investment funds for wealthy investors, run by partners who have made big personal investments in the fund. They pool the investor’s money and trade in securities and derivatives, and try to get high returns whether markets move up or down. Their objective is not to hedge(避险) like the name, but interested in high-risk, short-term speculation. l l 96
l The name is mostly historical, as the first hedge funds tried to hedge against the downside risk of a bear market(空 头寸市场) by shorting the market (mutual funds generally can't enter into short positions as one of their primary goals). 97
l Nowadays, hedge funds use dozens of different strategies, so it isn't accurate to say that hedge funds just "hedge risk". In fact, because hedge fund managers make speculative investments, these funds can carry more risk than the overall market. 98
l For the most part, hedge funds (unlike mutual funds) are unregulated because they cater to sophisticated investors. In the U. S. , laws require that the majority of investors in the fund be accredited(公认的,合格的). That is, they must earn a minimum amount of money annually and have a net worth of more than $1 million, along with a significant amount of investment knowledge. 99
3. 11. 2 Leverage and arbitrage l l Most hedge funds use leverage(杠杆) to increase the amount of capital available for investment with the help of derivatives contracts such as options and swaps. Hedge funds also use arbitrage(套利) to get profits from price differences between two markets. Because the price difference is usually very small, a huge volume is required for the arbitrageur to make a significant profit. 100
George Soros Founder and Chairman l A global financier and philanthropist(慈善 家), George Soros is the founder and chairman of a network of foundations(基 金会) that promote, among other things, the creation of open, democratic societies based upon the rule of law, market economies, transparent(透明) and accountable(可靠) governance, freedom of the press, and respect for human rights. 101
l Soros was born in Budapest(布达佩斯, 匈牙利首都) in 1930. In 1956 He started life in America with very little money but a well-developed knowledge of investing, thanks to his education at the London School of Economics and his experience working as a trader and analyst. 102
l During this period, Soros adapted Popper‘s ideas to develop his own “theory of reflexivity”(反馈理论 ), a set of ideas that seeks to explain the relationship between thought and reality, which he used to predict, among other things, the emergence of financial bubbles. Soros began to apply his theory to investing and concluded that he had more talent for trading than for philosophy(理论). 103
l In 1967 he helped establish an offshore (离岸) investment fund; and in 1973 he set up a private investment firm that eventually evolved into(发展成为) the Quantum Fund(量子基金), one of the first hedge funds, through which he accumulated a vast fortune. 104
3. 11. 3 Structured products l l Structured products are customized over -the-counter financial instruments. They use derivative products---futures, forwards, options, warrants, etc. in a way similar to hedge funds(对冲基金), depending on the customer’s requirements and changes in the markets. 105
3. 12 Mergers and takeovers l l Merger(合并): two companies join together to form a new one Takeover or acquisition(收购): one company buys another one. • Takeover bid(收购投标)---A company can offer • to buy all the shareholders’ shares at a certain price during a limited period of time. Raid(偷袭)---A company can buy as many shares as possible on the stock market to gain a majority. 106
3. 12. 1 Hostile or friendly? l Two types of takeover bid: • If a company’s board of directors agrees to a • l takeover, it is a friendly bid; If the company does not want to be taken over, it is a hostile bid. Ways to defend against a hostile bid; • Find a white knight(白色骑士)---another • company which they prefer to be bought by; Use the poison pill(毒药) defence ---issuing new shares at a big discount. 107
l l In real life, The entire merger arbitrage business is a risky one in which takeover deals can fizzle(失败) and prices can move in unexpected directions, resulting in sizable losses for the arbitrageur. The biggest factor that increases the risk of participating in merger arbitrage is the possibility of a deal falling through(成为泡影). 108
l Takeovers can get scrapped(废弃) for all kinds of reasons including financing problems, due diligence outcomes(尽职调 查结果), personality clashes(性格冲突), regulatory objections (法规禁止) or other factors that might cause the buyers or seller to pull out(放弃). Hostile bids are also more likely to fail than friendly ones. The longer a deal takes to close, the more things can go wrong to scuttle(放弃) it. 109
3. 12. 2 Integration l l Horizontal integration(横向合并): acquire competitors in the same field; Vertical integration(纵向合并): acquire companies involved in other parts of the supply chain, usually to make cost savings; • Backward integration(后向合并): acquire • l suppliers of raw materials or components; Forward integration(前项合并): acquire distributors or retail outlets. Diversification: buy business in completely different fields. 110
3. 13 Conglomerate l l l A series of takeovers can result in a parent company controlling a number of subsidiaries. When the subsidiaries operate in many different business areas, the company is known as a conglomerate(大企业). Takeovers do not always result in synergy( 协和作用). Too much diversification means the company is no longer concentrating on its core business(核心业务). 111
l l An inefficient conglomerate with low profits may be undervalued(低估) by the stock market, that is the market capitalization may fall below the value of its assets, including land, buildings and pension funds. In this case, asset-stripping(资产剥夺,低价收购) may happen, which is to buy the conglomerate and either split it up(分裂) and sell it as individual companies, or close the companies and sell the assets. 112
3. 14 Raiders l l If corporate raiders(收购者) borrow money to do the acquisition, usually by issuing bonds, it is called a leveraged buyout(融资 购买) or LBO. Leveraged (杠杆) means largely financed by borrowed capital. Bonds issued to pay for takeovers are usually called junk bond, because it’s risky: it may be difficult to sell the subsidiaries at a profit. 113
l l Sometimes a company’s own managers want to buy the company, and reorganize it. It’s called management buyout or MBO(管理层购买). If the buyout is financed by issuing preference shares and convertibles, this is called mezzanine financing. In a sense, half way between debt and equity. 114
3. 15 Financial planning l l l 3. 15. 1 Financing new investment If we’ re going to finance a project, it involves calculating whether new projects would be profitable. Rate of return(收益率): the amount of income we’d receive each year from the investment, expressed as a percentage of the total amount invested. 115
3. 15. 2 Discounted cash flows l l Discounted cash flows(折旧现金流) is to discount or reduce future cash flows to get their present values, that is to calculate the present value of money to be received in the future. This is because the value of money decreases over time. • The inflation makes cash have lower • purchasing power in the future; The time value of money(资金的时间价值). 116
3. 15. 3 Comparing investment returns l When comparing alternative investments, we need to work out the NPV and IRR. • Net present value (NPV,净现值): add up all the • • expected cash flows, discounted to their present value, minus the initial investment. To calculate the NPV, it needs to choose a discount rate(折现率), which is usually the interest rate to borrow money. Internal rate of return (IRR,内部收益率): a rate that gives a net present value of zero in today’s money values. 117
- Slides: 118