Investment in stocks an investment in the future: Brokers

Investment in stocks an investment in the future: Brokers

Most of the local and foreign investors who have bought shares in BCEL and EDL Gen don't expect to get dividends but they are confident in the bright future of these companies.

According to brokers, the return on equity of EDL Gen shares is just 8 percent, which is much lower than the deposit interest rate at some commercial banks in Laos, while the return on equity of BCEL shares is about 15 percent – only 1 percent higher than the bank interest rate.

Shares in the two public companies were oversubscribed when they went on sale at the end of last year. On Friday, shares in BCEL stood at 11,600 kip, up from the initial offering price of 5,500 kip, while shares in EDL Gen stood at 6,100 kip, up from 4,300 kip, reflecting the high demand for these shares.

“Investors buy shares not because of the dividends but because they have confidence in a company and its future,” said an official from BCEL-KT Securities, an underwriter for EDL Gen in the sale of some 217 million shares.

She said investing in stocks is the same as investing in the future of a company, adding that if a firm makes a large profit, its shares will increase in value, which will give investors higher returns than depositing money in a bank.

Investors who bought initial shares in EDL Gen made about 1,800 kip in profit per share after selling them. They made a profit of about 40 percent, which is higher than can be obtained from depositing money in a bank at 14 percent interest.

A Japanese economist and journalist from Nikkei Inc, a leading financial media group in Japan, Mr Masataka Maeda, said shares had no real fixed price because they fluctuated depending on investor confidence and the investment climate.

If investors have a high level of confidence and see a bright future for a company, the share price will rise, while if investors lose confidence in a company, its share price will fall, he said.

Share prices are not only strongly influenced by a company's performance but the overall economy of the country and the world, so investors have to keep a close eye on a company's performance and the wider economic and investment climate.

The question is whether investors are ready to take a bigger risk for a bigger profit or take a smaller risk for a smaller profit, Mr Maeda said.

While it could take 100 days for share prices to rise, it could take only a few days for prices to drop.

Mr Maeda said that in many countries investors did not expect dividends from shares, adding that if a company uses its profit for dividends, the share price would not increase. On the other hand, if a company ploughed back its profits into expansion, share prices would probably rise.

Vientiane Times