Why should I invest? About SEM The Stock Exchange of Mauritius Ltd (SEM) is a regulated and organised market where shares and other financial instruments are traded (bought and sold.) It is a centralised market place which possesses a modern trading and settlement infrastructure which enables investors to follow the market in real time. The SEM continues to innovate in order to satisfy its stakeholders and provide them with world-class systems and services.
SEM was incorporated in Mauritius on March 30, 1989 under the Stock Exchange Act 1988, as a private limited company responsible for the operation and promotion of an efficient and regulated securities market in Mauritius. Since October 6, 2008, SEM became a public company. The Mauritius Bourse is a full-fledged member of the World Federation of Exchanges, an important standards setter in the Stock Exchange industry. Over the years, SEM has been at the forefront of innovation in the exchange space in Africa, developing into a reference exchange on the African continent.
What is a share? Basically a ‘share’ is exactly what it says it is – a share of a business. When you buy a share, you become a part-owner – a shareholder – of a business. You will be involved in certain decisions regarding its future and your share in its profits. Shares are traded on SEM during every working day of the year and you can buy or sell whenever you wish. Equities, or ordinary shares, are issued by companies and represent the money which shareholders (as owners of the business) originally put into building up the business. Between them, holders of ordinary shares own the company. They are entitled to vote on company policy, appoint and dismiss directors, and if the company makes a profit they are entitled to a share of it. But shareholders’ dividends (the slice of profits which is paid out to shareholders) are not fixed. Each year the directors recommend how much money the company should keep in reserve for future expansion, and how much should be distributed to shareowners, taking into account the overall size of that year’s company profits.
Why it’s a good idea to invest in shares ?
Earn Dividends You receive dividends from companies of which you, as shareholder, are part owners. Dividends are a distribution of a part of the company’s net profits to shareholders. Successful companies can make sizeable dividend payments, paying out to shareholders sometimes more than once a year that portion of the profits that are not needed for reinvestment in the business.
Make Capital Gains Capital appreciation is the increase in the market value of shares over the total cost of purchasing these shares. Share prices are determined by supply and demand. When companies perform well, their shares are in high demand and the share price goes up. You can thus make substantial capital gains over time on the resale of these shares.
Get new issue of shares As an existing shareholder, you can benefit from bonus issues and rights issues. A bonus issue is a free issue of new shares to a company's shareholders usually on a pre-determined ratio to the number of shares already held. It reflects improved value of company's assets. A Rights issue is a privilege granted to existing shareholders to buy new shares in the same company, usually below the prevailing market price. In the event that you, as the existing shareholder does not wish to subscribe to a rights issue, you may sell your rights on the stock Exchange.
Better returns over the long-term than any other major investment History demonstrates that shares, as a long-term investment, have the potential to provide better returns than any other major financial instrument such as bank deposits.
It is a well-documented fact that, in the long-term, equities tend to outperform other financial instruments on a risk-adjusted basis. In Mauritius, the annualised returns on the stock market over a 20-year period, inclusive of dividends, is about 20% (1989-2010) compared to an annualized return of about 10 % on bank deposits during the same time frame. However, past performance is not a guarantee of future returns. Share values have historically risen over the long-term, but this has been punctuated with periods of short-term volatility, where prices can go up or down very quickly. For this reason, it is usually important to adopt a medium to long-term share investment view of five years or more. This can assist in realising capital growth and minimising the impact of short-term volatility.
Tax Benefits The capital gains you realise on listed shares are totally exempt from tax whilst dividends received exceeding Rs 2 million is subject to taxes, albeit at a low level.
Investing for retirement Investing is a good way of providing for retirement or unexpected expenses.
Diversification Share investment is one of the ways to invest. Diversifying your savings into different savings vehicles, such as shares, spreads your risk (avoids keeping all your savings in one area or all your eggs in one basket).
Invest in shares – A strong wealth-creation potential A time-series analysis of the performances of many of the companies listed on both markets indicates the powerful wealth-creation that an investment in shares on the SEM has generated to shareholders of these companies over the years in terms of total return. On the Official Market, the annualised total return of the top 30 listed and traded stocks from their dates of listing up to 30 June 2011 ranges from 12.6% to 26.1%. During the same time frame, the total return to shareholders of the top 30 companies varies between 217.7% and a whopping 16,301.74%. The above figures indicate that the earnings growth experienced by many of the listed companies since their date of listing on the SEM has translated into meaningful value gains on the Stock Exchange, generating attractive risk adjusted returns for shareholders of these companies.
How do the returns obtained on the top 30 companies on the Official List compare with relatively less risky investments? The 30th company, classified in terms of annualised total return has generated a total return of 791% to its shareholders since its date of listing up to 30 June 2011, compared with a compounded return of about 488% on a time deposit during the same time frame, assuming an annual compound rate of 10%. The 10th company has generated a total return of 5414% to its shareholders since its listing on the Official Market compared with a total compounded return of 640% for a time deposit offering a 10% annual compounded rate during the same time frame. The best performing company, as measured by its annualised total return, has achieved a total return of 16302% since its listing on the SEM on 5 July 1989, compared with a compounded return of 640% for a time deposit offering a 10% annual compound rate during the same time period.
The above comparative figures and the table below emphasise the powerful wealth-creating platform that the SEM has offered to some companies that have chosen to list their securities on the Official Market of the Stock Exchange. It is, however, important to highlight that a few listed companies on the Official Market have underperformed time deposits and/or have generated negative returns to their shareholders during the time frame under study. It is also important to emphasise that our performance analysis is based on historical data and that the future performances of the companies earmarked in our analysis may not reflect or may even differ materially from their past performances. OFFICIAL MARKET - TOP 30 LISTED & TRADED STOCKS IN TERMS OF ANNUALISED TOTAL RETURN AS AT 30 JUNE 2011 RANK
COMPANY
1 The Mauritius Commercial Bank Ltd
DATE OF
ANNUALISED
TOTAL RETURN
Value of an Initial
LISTING
TOTAL RETURN ( % )
%
Investment of Rs 10,000
5-Jul-89
26.09
16,301.74
1,640,174
2 Shell Mauritius Ltd
13-Nov-91
24.97
7,863.32
796,332
3 ENL Land Ltd
24-Jan-90
23.49
9,130.50
923,050
4 Gamma Civic Ltd
30-Nov-94
23.26
3,114.19
321,419
5 Mauritius Union Assurance Co. Ltd
14-Dec-93
23.04
3,706.11
380,611
6 United Basalt Products Ltd
5-Jul-89
22.71
8,927.56
902,756
7 Mauritius Oil Refineries Ltd
21-Feb-90
22.57
7,630.43
773,043
5-Jul-89
22.03
7,891.55
799,155
30-Jun-95
21.81
2,255.63
235,563
8 The Mauritius Development Investment Trust Co. Ltd 9 State Bank of Mauritius Ltd 10 Rogers & Co. Ltd
27-Jun-90
21.02
5,414.48
551,448
11 Harel Freres Ltd
20-Feb-91
20.26
4,187.08
428,708
12 P. O. L. I. C. Y Ltd
8-Dec-92
20.09
2,896.10
299,610
13 Fincorp Investment Ltd
31-Aug-94
19.85
2,009.52
210,952
5-Jul-89
19.69
5,117.72
521,772
15 Harel Mallac Ltd
20-Feb-91
19.59
3,725.79
382,579
16 Swan Insurance Co. Ltd
14 Omnicane Ltd
19-Dec-90
19.13
3,547.65
364,765
17 ENL Commercial Ltd
4-Jul-90
17.89
3,069.73
316,973
18 Belle Mare Holding Ltd
7-Mar-94
17.69
1,580.36
168,036
19 Mauritius Leasing Co. Ltd
27-Feb-04
17.05
217.67
31,767
20 National Investment Trust Ltd
29-Jul-93
16.41
1,426.20
152,620
21 Mauritius Chemical & Fertilizer Industry Ltd
13-Dec-89
16.11
2,402.17
250,217
22 Mauritian Eagle Insurance Co. Ltd
16-Dec-93
15.94
1,239.52
133,952
23 Phoenix Beverages Ltd
10-Jun-93
15.77
1,308.18
140,818
24 Ireland Blyth Ltd
17-Aug-94
15.18
986.66
108,666
25 Caudan Development Ltd
29-Jul-02
14.76
241.83
34,183
26 New Mauritius Hotels Ltd
12-Jun-96
14.34
651.76
75,176
27 United Docks Ltd
27-Nov-91
13.54
1,104.86
120,486
28 Plastic Industry (Mtius) Ltd
15-Jul-93
13.36
852.21
95,221
29 Promotion and Development Ltd
17-Jan-96
12.68
533.01
63,301
30 Sun Resorts Ltd
26-Jan-93
12.60
790.98
89,098
Similarly, the following table captures the top 30 performers of the DEM in terms of annualised total return since their dates of listing up to 30 June 2011. DEM - TOP 30 LISTED & TRADED STOCKS IN TERMS OF ANNUALISED TOTAL RETURN AS AT 30 JUNE 2011 DATE OF
ANNUALISED
TOTAL RETURN
Value of an Initial
LISTING
TOTAL RETURN ( % )
%
Investment of Rs 10,000
1 Associated Commercial Ltd
4-Aug-06
52.08
682.28
78,228.05
2 United Bus Service Ltd
4-Aug-06
51.30
662.91
76,291.08
RANK
COMPANY
3 Morning Light Ltd
29-Jan-07
48.06
466.41
56,641.03
4 The Union Sugar Estates Co Ltd
4-Aug-06
43.70
492.36
59,235.98
5 United Investments Ltd
10-Jan-07
42.61
388.94
48,894.23
6 Chemco Ltd
29-Jan-07
37.83
312.91
41,290.78
7 Les Moulins de La ConcordeLtée (Ordinary)
4-Aug-06
34.62
330.12
43,012.07
8 Livestock Feed Ltd (Ordinary)
4-Aug-06
32.16
292.82
39,281.61
9 Phoenix Investment Company Ltd
4-Aug-06
31.82
287.96
38,796.33
10 ABC Motors Co Ltd
4-Aug-06
30.65
271.28
37,128.21
11 Forward Investment and Development Enterprises Ltd
4-Aug-06
30.03
262.78
36,278.17
12 Soap & Allied Industries Ltd
4-Aug-06
29.68
257.97
35,797.30
13 Medine Share Holding Co Ltd (Ordinary)
4-Aug-06
29.48
255.29
35,528.89
14 Compagnie Immobilière Ltée
4-Aug-06
29.41
254.33
35,432.66
15 The Anglo- Mauritius Assurance Society Ltd
4-Aug-06
28.04
236.29
33,628.57
16 Robert Le Maire Ltd
4-Aug-06
28.02
236.10
33,609.78
17 Excelsior United Development Co Ltd
4-Aug-06
26.83
221.03
32,103.10
18 Union Flacq Ltd
4-Aug-06
25.85
209.02
30,902.08
19 Margarine Industries Ltd
4-Aug-06
23.50
181.70
28,169.60
20 Vital Water Bottling Co Ltd
4-Aug-06
22.69
172.81
27,280.77
21 Les Gaz Industriels Ltée
16-Apr-07
20.06
115.83
21,583.18
22 Deep River Investment Ltd (Ordinary)
4-Aug-06
20.05
145.16
24,516.28
23 Southern Cross Tourist Company Ltd
4-Aug-06
19.88
143.45
24,344.97
24 ENL Investment Ltd
4-Aug-06
19.75
142.11
24,210.57
25 The Black River Investment Co Ltd
4-Aug-06
19.74
142.03
24,202.93
26 Mauritius Secondary Industries Ltd
4-Aug-06
18.77
132.56
23,256.11
27 Ascencia Ltd
23-Dec-08
18.42
53.08
15,307.76
28 Alma Investments Co Ltd
4-Aug-06
18.42
129.21
22,920.84
29 Forges Tardieu Ltd
4-Aug-06
18.13
126.49
22,649.39
30 Flacq United Estates Ltd
4-Aug-06
15.77
105.12
20,512.28
The performances of the top 30 companies listed on the DEM have been commendable even if these solid performances have been realized during a shorter time frame. The annualised total return of the top 30 DEM companies from their dates of listing up to 30 June 2011 ranges from 15.8% to 52.1%. During the same time frame, the total return to shareholders of the top 30 companies varies between 53.1% and an astounding 682.3%.
A comparative return analysis of the performances of the top 30 DEM companies against the performance of a less risky time-deposit emphasises the following conclusions: The 30th company, classified in terms of annualized total return, has generated a total return of 105.1% to its shareholders since its date of listing up to 30 June 2011. A time-deposit, assuming an annual compound rate of 10%, would have generated a total return of 45% during the same time frame. The 10th DEM company has generated a total return of 271% since its listing compared with time-deposit return of 45%. The best performing DEM company has achieved a total return of 682% since its listing compared with a time-deposit return of 38.5% during the same time frame. On the DEM market also, there are a few companies that have underperformed returns on time-deposits study and/or generated negative returns during the period under study. The above time series analysis clearly demonstrates that returns on stock market investment are greater than bank deposit returns. Of course, there could be intra time scale volatilities, however historical analysis backs this empirical evidence.
What determines the price of a share ? Demand for and supply of shares: If you have more buyers than sellers, prices usually rise and when you have more sellers than buyers, prices usually fall. If a company makes good profits, a share in that company will become more valuable because more people will want to buy a share in such a company. Outside factors like the economic and political environment also influence share prices.
Basic Investment characteristics Every investment has three key risk characteristics -
Expected Return, Risk
and
Marketability. Expected Return refers to the amount of interest, dividends or capital gains that you expect to receive from your investment. (Actual returns may, of course, be quite different.) There is a direct correlation between expected return and risk. The higher the expected return, the greater the risk.
Risk
is the possibility that you could lose some of, all of, or more than your principal investment, or that you could earn less return from the investment than you expected. Lower risk investments include government treasury bills. At the higher end are investments like shares of companies. Mutual funds have a wide range of risk profiles.
Marketability
(or 'liquidity') refers to whether you can sell or redeem your investment quickly at or near the current market price. Investments on the Stock Exchange of Mauritius, such as mutual funds or listed securities, are very marketable because they can be quickly sold or redeemed on short notice and at low cost. Marketability is an important factor to be considered when selecting your investments.
What makes SEM a good place to trade ? • • • • •
SEM possesses a state-of-the-art trading technology that allows investors to follow the market in real-time and seize investment opportunity in real-time. SEM protects its investors through rules and regulations and guarantees that all trades transacted on the SEM are properly settled through the services of the CDS. SEM has a variety of companies which gives you a wide choice when it comes to investing. SEM has got a relatively active and liquid market by frontier markets standards. SEM is a convenient and efficient place to trade: information is readily available from stockbrokers that have experienced brokers to help you decide on what to buy or sell.
Becoming A Shareholder Not everyone takes the same route when they become a first-time shareowner. The two most common methods are:
Buying new issues: a company that wants its shares to be traded on the Exchange
for the first time must outline the details of the sale in a prospectus and must advertise it in at least one daily newspaper. Anyone who wants to buy a new issue should simply fill in the application form included in the prospectus, and send it (with a cheque) to the given address. Alternatively, you can fill in the newspaper coupon included in the prospectus advertisements and send that off.
Buying existing shares: private investors are not limited to participating in new issues – in fact the Exchange’s main function is to allow existing shares to be bought and sold on the stock market at any time. As members of the Exchange, stockbrokers buy and sell on behalf of their clients, whether they are private individuals or large institutions.