Equities Securities

Equity securities generally referred to as shares, comprise ordinary shares and preference shares. Most of the equity securities listed on the Exchange is ordinary shares that account for most of the turnover of the Exchange. Ordinary shares and preferred shares are equity shares issued by the company to shareholders.

Ordinary shareholders, being owners of the company, have voting rights and receive dividends at the discretion of the company. However, the payment of dividends is not mandatory even if a company records a profit in the year.

Preferred shareholders are entitled to a preferential distribution out of profits prior to any distribution to the ordinary shareholders. Preferred shareholders have no voting rights and receive fixed dividends. Preferred shareholders also have a claim on corporate assets, in the event of liquidation, which ranks ahead of ordinary shareholders, but behind that of the company's creditors.

In Hong Kong, shares are listed either on the Main Board or on the Growth Enterprise Market (GEM) of The Stock Exchange of Hong Kong Limited (Stock Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx). The Main Board is a market for capital formation by established companies with a track record of profits or companies meeting alternative financial requirements, and GEM is a market which provides capital formation opportunities for growth companies from all industries and of all sizes. The trading of listed shares on Stock Exchange is regulated by the “Rules of the Exchange”.

Since listed companies are required to disclose all major risks in their prospectuses when they offer their shares to the public in an initial public offering, please be reminded to look up more information about possible shareholder obligations in the document's "Risk Factors" section, and appendices (such as the "Taxation" section or the "Statutory and General Information" section). If necessary, you may consult your professional advisers first. Otherwise, your investment decision could be less than informed.

Classifications of Shares

Shares may be classified into industry sectors according to the nature of the company's business, such as finance, utilities, properties, consolidated enterprises, industrials and hotels etc... Shares may also be classified according to other features. Some familiar terms include:

Stock Market Indices

A stock index measures or tracks the price movements of a particular group of stocks, expressed in relation to the base value of the index. The Hang Seng Index (HSI) is one of the most widely quoted indices which aggregate market capitalization of these stocks accounts for about 70 per cent of the total market capitalization of the Hong Kong stock market.

There are also indices which gauge sector performance. For example, the Hang Seng China Enterprises Index (HSCEI) measures the performance of H shares and the MSCI China Index tracks the performance of a basket of China-related stocks including red chips and H shares.

In addition to measuring stock market or sector performance, indices may, among other things, serve as performance benchmarks for active fund managers, assist in asset allocation and provide a basis for various investment vehicles including Exchange Traded Funds.

Risks of Trading Securities

The price of any security may go up or down so there is an inherent risk that losses may be incurred as a result of buying and selling securities.  Security prices may also fluctuate due to various market factors, and investors’ exposure to risk may vary. Liquidity of securities may also fluctuate, resulting in situations where an investor may not be able to buy or sell the security in a timely manner at their preferred price range if the turnover volume were to drop significantly. Investors should carefully consider whether securities trading are appropriate for them in light of their understanding of the product nature and characteristics, their own investment objectives, skills and experience, financial resources, risk tolerance and other relevant circumstances.

The GEM is a second board and stepping stone towards the Main Board.  It is positioned as a market designed to accommodate companies to which a higher investment risk may be attached than other companies listed on the Exchange.  It is a market designed for professional and sophisticated investors. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. Given the nature of companies listed on the GEM, there is a risk that securities traded on the GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on the GEM.