Equity securities, generally referred to as shares, comprise ordinary shares and preference shares. Most of the equity securities listed on the Exchange are 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 or common shareholders (i.e. holders of ordinary shares), 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 (i.e. the dividend does not increase even if the company's profit increases). 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. Participating preference shareholders may receive additional dividends if the profits are sufficient. Meanwhile, cumulative preference shares carry forward the right to profits to following years, if there are insufficient profits to pay the holders in any one year.
ETF & Leveraged and Inverse Product
Exchange Traded Products (ETPs), which include Exchange Traded Funds (ETFs) and Leveraged and Inverse Products (L&I Products), are one of the fastest growing investment products in the world transforming the way investors access financial markets and build investment portfolios. As of June 2018, ETPs have globally amassed US$5 trillion in assets under management and traded over US$10 trillion in value year-to-date.
In 1999 HKEX launched the first ETF, since then Hong Kong has continued to be a leading ETP market attracting issuers, liquidity providers and investors resulting in the formation of Asia’s ETP hub.
As Asia’s ETP hub, Hong Kong offers a diverse set of products and a deep pool of liquidity.
Derivative warrants are an instrument that gives an investor the right to "buy" or "sell" an underlying asset at a pre-set price prior to a specified expiry date. They may be bought and sold prior to their expiry in the market provided by HKEX. At expiry settlement is made in cash rather than a purchase or sale of the underlying asset. Derivative warrants can be issued over a range of assets, including stocks, stock indices, currencies, commodities, or a basket of securities. They are issued by a third party, usually an investment bank, independent of the issuer of the underlying assets. Derivative warrants traded in Hong Kong normally have an initial life of six months to two years and when trading in the market each derivative warrant is likely to have a unique expiry date.
Callable Bull/ Bear Contracts
CBBC are a type of structured product that tracks the performance of an underlying asset without requiring investors to pay the full price required to own the actual asset. They are issued either as Bull or Bear contracts with a fixed expiry date, allowing investors to take bullish or bearish positions on the underlying asset. CBBC are issued by a third party, usually an investment bank, independent of HKEX and of the underlying asset.
CBBC are issued with the condition that during their lifespan they will be called by the issuers when the price of the underlying asset reaches a level (known as the " Call Price ") specified in the listing document. If the Call Price is reached before expiry, the CBBC will expire early and the trading of that CBBC will be terminated immediately. The specified expiry date from the listing document will no longer be valid.
CBBC may be issued with a lifespan of three months to five years and are settled in cash only. They are traded on the cash market of HKEX.
Real Estate Investment Trusts
A Real Estate Investment Trust (REIT) is a collective investment scheme that aims to deliver a source of recurrent income to investors through focused investment in a portfolio of income-generating properties such as shopping malls, offices, hotels and service apartments in Hong Kong and/or overseas.
REITs provide regular income distribution to investors. All or the majority of a REIT’s net income after tax is paid to investors in the form of dividends at regular intervals. According to existing SFC regulations, the dividend payout ratio of a REIT has to be at least 90 per cent. Investors should note that the amount available for distribution will also be adjusted for losses/gains from real estate revaluation or disposal.
REITs are mainly regulated by the Securities and Futures Commission (SFC) and must be authorised by the SFC before they can be listed on the Stock Exchange. An SFC-authorised REIT is governed by the SFC’s Code on Real Estate Investment Trusts and the relevant listing rules issued by the Stock Exchange of Hong Kong.
Since a REIT that is authorised for sale in Hong Kong must be listed on the Stock Exchange of Hong Kong, investors can buy and sell units of REITs similar to stocks at the Stock Exchange.However investors should be aware that REITs may trade at a premium or discount to their respective net asset values (NAV).
Investors should refer to individual REITs' listing documents and announcements for details. The documents can be found at the "Listed Company Information" section of the HKExnews website. Investors may also consult their brokers or investment advisers for details.