Getting ready to invest The two types of markets on SEM The securities traded on SEM are Ordinary shares, preference shares, debt securities, collective investment schemes and treasury bills. SEM operates two markets: the Official Market, the Development & Enterprise Market (DEM). Back in 1989, the SEM started its operations with the Official Market only with five listed companies atthat time and a market capitalisation of nearly USD 92 million. The size of the market has grown from a market capitalisation to GDP ratio of less than 4% in 1989 to a current market Cap/GDP ratio exceeding 75%, in an economy that has witnessed a 5% average growth rate during the last 25 years. The Stock Exchange of Mauritius operates two markets today: the Official Market, the Development & Enterprise Market (DEM). Currently, there are 42 companies listed on the Official Market representing a market capitalisation of nearly US$ 6.2 billion as at 30 June 2015. The DEM has been launched on 4 August 2006 and there are presently 47 companies listed on this market with a market capitalisation of nearly US$ 1.4 billion as at 30 June 2015. SEM can list, trade and settle equity and debt products in USD, EUR, GBP, ZAR besides the local currency MUR. Local investors account for about 60 % of the daily trading activities, and foreign investors account for the 40 % remaining. 75 % of that local volume is generated by institutions like mutual funds, pension funds and insurance companies.
Measuring the market: SEM Indices Movements in company share prices reflect investors’ views of that particular company’s future, but by looking at the overall movement of a number of companies’ share prices, it is possible to get a broad picture of the overall market or of specific market sectors. These movements are measured by an index. There are 5 main indices on the SEM namely: SEMDEX, SEM-7, SEMTRI, DEMEX and DEMTRI. The SEMDEX is a capital-weighted price index which tracks the price movements of all the shares listed on the Official Market. The SEM-7 index was introduced in March 1998. Designed to meet international standards and provide an investible benchmark for domestic and foreign market participants. The SEM-7 comprised the seven largest eligible shares of the Official Market, measured in terms of market capitalisation, liquidity and investibility criteria. In October 2014, the SEM replaced the SEM-7 Index by the SEM-10 Index. The rationale for the creation of the SEM-10 Index is that the underlying changes in the market environment since 1998 have underscored the need to re-actualize the previous SEM-7 Index, in order to better
reflect current market conditions, and to introduce an Index that tracks the performance of the ten largest eligible stocks of the Official Market, measured in terms of market capitalization, liquidity and investibility criteria. The reserve-list now includes 5 stocks instead of three, meaning that investors are now able to constitute a benchmark portfolio of 15 actively traded stocks. The Total Return Index, the SEMTRI, was launched in October 2002. Besides capturing the price movements of listed stocks, common to the already published all-share index SEMDEX, the Total Return Index, SEMTRI, incorporates the added feature of providing investors, in general, and long-term investors like pensions funds, in particular, a good measurement of total return which combines both capital gains/losses on listed stocks and gross dividends obtained on these stocks since the inception of the local stock market on 5 July 1989. Gross dividends are assumed to be re-invested in the stocks underlying the capital index, SEMDEX. The DEMEX is a capital-weighted index which tracks the price weights of the shares listed on the DEM. The DEMTRI is a total-return index for the DEM market. SEMSI has been launched in 2015 to track the price-performance of those companies listed on the Official Market or the Development & Enterprise Market which demonstrate strong sustainability practices. SEMSI provides a robust measure of listed companies against a set of internationally aligned and locally relevant environmental, social and governance (ESG) criteria. It offers a useful tool for domestic and international investors with an appetite for responsible investment in frontier markets.
Your personal investment strategy Before you start investing, take the time to develop a personal investment strategy. Many people will want to do this with the help of one or more licensed investment dealers, i.e. stockbroking companies. Choosing your investment dealer (stockbroker) is the first step as an investor. To establish your investment objectives, you and your investment dealer must think carefully about your knowledge of financial markets, your financial assets, your tolerance for risk, the amount of money you plan to invest, and the things you hope to accomplish through investing (your investment objectives). With those things in mind, you will be able to begin the process of selecting the right investment products and the right mix of assets to meet your financial goals.
What does an investment dealer (stockbroker) do for you? Investment dealers, more commonly known as stockbrokers, have been providing services to the individual investor for many years. Only a licensed investment dealer/stockbroker has the right to buy and sell shares on behalf of investors. A stockbroker can also give advice to clients. All stockbroking firms have research departments that publish regular daily and weekly reports that give advice on buying or selling shares. A stockbroking company has direct access to the market for trading shares. All buy and sell transactions in securities on the Stock Exchange must go through a stockbroking company. A stockbroking company acts as an intermediary and is responsible for executing a client’s orders in the latter’s best interests in complying with a strict code of ethical and professional conduct.
Therefore they can act as your agent to buy or sell shares, for which a fee is charged. A list of stockbrokers is available on the SEM website.
Stockbroking Service Stockbroking is a personal service, so before you begin, talk to a few brokers or a few fund managers to find out what services they offer and what their fees are. Your choice between a licensed broker and a fund manager will depend on what type of service you require. Brokers specialise in dealings and offer advisory services, whereas, fund managers offer advisory as well as portfolio management services:Dealing only: if you opt for this service you simply call a broker and ask him either to buy or sell the shares of your choice. He will not give advice on shares but simply carry out your instructions and arrange settlement of the deal. Advisory: for this service you can talk to a broker or a fund manager and discuss the various merits of this or that company, should you buy, hold or sell the shares in XYZ plc. He may even call you if he feels there should be changes to the shares you hold – your portfolio. Discretionary management services: for this service your fund manager will manage the portfolio on your behalf. You will hear from him regularly when he will tell you what shares he has bought or sold, what your portfolio is worth and the value of dividends credited to your account in the previous period. Once you have chosen your broker or fund manager and the type of service you require, your next move will be to decide if you wish to invest for income, capital growth or for an element of each in your portfolio. Your broker’s/fund manager’s advice can be invaluable as there is a wide range of securities available. They vary from the relatively safe government stocks (gilt-edged) and blue chip companies to the smaller, newer (and therefore riskier) stocks. Once these decisions have been made you can start to build the portfolio most suitable to your requirements. When you give your broker the order to ‘buy’ he will purchase your shares at the best price in the market and purchase your shares at the best price in the market at the time of the deal. You become the beneficial owner of the shares from the time the deal is done. Your broker will draw up a contract note which you will receive within a few days. Your contract note will arrive later. The contract note is an important document because it shows the details of the transaction carried out on your behalf by your broker. Later you will be sent a share certificate which shows how many shares you bought.
Establish your investment objectives What do you need from your investment portfolio, and when do you need it? Someone once said, "If you don't know where you're going, how are you going to get there?" Your first step as a potential investor should be to decide what you want to accomplish with your money, and when you want to accomplish it.
You may have many financial goals - to make a down payment on a car in two years, to help pay for your education in five years, to prepare for your retirement, and the like. You might already be retired and simply want your money to earn a reasonable return and provide a reliable source of income for many years to come. Whatever your situation, take a few minutes to sit down and think about where you are now financially, and where you want to be in the future. Here are some questions you can ask yourself: • • • • • • • • • • • • •
How much money do you have to invest now? Will your employment income allow you to invest additional money in the future? How much? Are you confident that will continue? What are your monthly financial obligations, and how much do those obligations change from month-to-month or year-to-year? Do you have other valuable assets that will play a role in your financial future? Do you have outstanding debts that you would like to pay off? Do you plan to make any major purchases in the future? Do you need money from your investments each month to supplement your regular income? If so, how much? Do you have dependents to care for, and will their needs be changing over time? Have you considered your life and property insurance requirements? Are there income tax considerations that are particularly important to you? Are you a participant in a retirement savings plan or registered pension plan? Do you expect to inherit money at any point in the future? How much money would you like to have readily accessible in case of emergency?
Good intermediate dealers will want to discuss these issues with you, and more. They will want to ensure that they have a clear understanding of your financial situation and your investment goals. If you are a younger investor with a stable income, you may decide that your primary investment objective is to grow your assets over a long period of time. Investors approaching retirement may be more interested in ensuring that their assets are safe, and retired investors may look to their investments mainly to provide a regular, reliable income. No two investors are exactly alike and no single investment product or strategy is right for everyone. To invest successfully you must first think through exactly what it is you want to accomplish and what resources you have available to make it happen.