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Tutorial2
1. Fundamentals of
Business & Financial Journalism
Week 2.5: Covering stock markets
Jeffrey Timmermans
Wednesday, 26 September, 12
2. What’s a stock?
✤ Entitles owner to a partial ownership stake in a company
✤ Entitles owner to a (small) share in everything the company owns,
including its profits
✤ Net profit = profit attributable to shareholders
✤ Dividends are paid to shareholders from net profit
✤ Does not entitle owner to a management role in the company
Wednesday, 26 September, 12
3. Initial Public Offering
✤ The birth of a public company
✤ Company owners sell shares to the general public
✤ Shares are listed on a stock exchange and are traded freely
✤ Listed (public) companies must release information about their
performance (i.e. profit) on a regular basis
✤ Listed companies manage their business to boost their share price,
and often distribute part of profit to shareholders as dividends
Wednesday, 26 September, 12
4. What moves share prices? (Macro)
✤ Supply & Demand
✤ The broader economy (local & global)
✤ Economic growth
✤ Inflation/interest rates
✤ Prices of other assets
✤ Company profit, especially expectations of future earnings
Wednesday, 26 September, 12
5. What moves share prices? (Micro)
✤ Earnings announcements ✤ Restructuring/Layoffs
✤ New products ✤ Scandals
✤ Executive changes ✤ Rumors
✤ Mergers & Acquisitions
✤ Issue of new shares
✤ Credit/Analyst Rating changes
Wednesday, 26 September, 12
6. Share prices are news because...
✤ They reflect market participants’ expectations of the future
performance of that company
✤ And those expectations are focused on how much those companies
will earn in the future (net profit)
✤ Changes in those expectations lead to changes in share prices
Wednesday, 26 September, 12
7. Advance prep for market coverage
✤ Read the news!
✤ What’s going on in other markets will affect your local market
✤ Have specific questions ready to ask sources
✤ Get a list of potential market sources – and their contact details –
ready beforehand
✤ Try to start writing your comment before market close
✤ Background (on global/local events) can be prepared in advance
Wednesday, 26 September, 12
8. Breaking down the stock market
✤ Benchmark index
✤ Sectoral sub-indexes
✤ Individual share prices
✤ Compare individual prices with other prices and sub-indexes
✤ The index doesn’t tell the whole story: it’s a market of stocks
Wednesday, 26 September, 12
9. Writing about indexes & averages
✤ Focus (usually) on the benchmark index in your lede, but don’t
neglect sector indexes or broader indexes
✤ Comparisons between indexes can be illuminating
✤ Use percentage change for daily moves
✤ Has a trend been broken?
✤ Has a new high or low been reached?
Wednesday, 26 September, 12
10. Hong Kong stock indexes
Source: Hang Seng Indexes (21 Sept. 2011 9:31am)
Wednesday, 26 September, 12
11. Top 10 Hang Seng Index levels
Source: Hong Kong Exchanges, data as of Sept. 31, 2010
Wednesday, 26 September, 12
12. Sector Research
✤ Sectors broken into industries
✤ Compare individual companies with their industries to find stories
✤ Individual sectors often have their own market sub-indexes, for easy
comparison
Wednesday, 26 September, 12
14. Writing about shares
✤ A good stock market comment delves below the index to look at the
individual shares driving the market activity
✤ Always check moves of big market-cap shares
✤ Look at market breadth: number of “gainers” vs. “decliners”
✤ An indication of the conviction of sentiment
✤ Don’t forget about volume
Wednesday, 26 September, 12
15. Market
capitalization
✤ Total shares outstanding
multiplied by current share
price
✤ A measure of the size of a
company
✤ Denominated in a particular
currency
✤ Used to weight shares in a
market index Source: Google Finance
Wednesday, 26 September, 12
16. Reading stock charts
High
Close
Open
Low
Daily volume
Wednesday, 26 September, 12
18. U.S. Stocks Advance, Erasing Earlier Loss,
Following European Bank Rally
By Rita Nazareth - Sep 13, 2011
U.S. stocks rose, sending the Standard & Poor’s 500 Index higher for a second day, as French banks
eased concerns over their access to funding and investors watched for signs of progress in taming
Change
Europe’s debt crisis.
All 10 main industries in the S&P 500 advanced as gains were led by industrial, raw material and Cause
technology companies. The Dow Jones Transportation Average, a proxy for the U.S. economy, jumped
3.4 percent as airlines rose. Wells Fargo & Co. (WFC) and Fifth Third Bancorp (FITB) added more than 1
percent, following a rally in European lenders. Aetna Inc. (AET) jumped 5.4 percent as the health insurer
said profit will probably beat its forecast.
Expectations?
The S&P 500 increased 0.9 percent to 1,172.87 at 4 p.m. in New York, after falling as much as 0.4
percent. The gauge has risen 1.6 percent in two days. The Dow Jones Industrial Average advanced 44.73
points, or 0.4 percent, to 11,105.85 today.
“Stocks are trading on the news of the day and the news was moderately favorable,” Michael Cuggino,
who oversees $15 billion at Permanent Portfolio Funds in San Francisco, said in a telephone interview. Comment
“While the issues of liquidity and health of the European banking system and the long-term viability of
the euro are still out there, today is a day where people are looking beyond that. We’ve had a big
correction. Levels really haven’t gotten back to where they were.”
The S&P 500 fell as much as 18 percent from a three-year high on April 29 through Aug. 8 on growing
concern over Europe’s debt crisis and an economic slowdown. Since then, the index has risen 4.8
percent.
Context
The S&P 500 may drop below a one-year low reached last month because too few stocks have declined
rapidly enough, according to MF Global Inc.
Future
Wednesday, 26 September, 12
19. Where to find...
✤ Change: market data
✤ Cause: world/local events, market sources
✤ Expectations: news database, market sources
✤ Comment: market sources
✤ Context: market data, news database, professional experience
✤ Future: market sources, professional experience
Wednesday, 26 September, 12
20. Finding “cause”
✤ Any big economic news?
✤ Any major local news?
✤ What’s happening in other markets?
✤ Look for sector-wide moves, then individual share moves
✤ Don’t always believe traders’ explanations
Wednesday, 26 September, 12
21. Finding “context”
✤ Biggest advance/decline since ✤ Who’s making money and
when? who’s losing money?
✤ How many days in a row up/ ✤ Is the event cited as a cause
down? typical or atypical?
✤ How much have prices/yields ✤ Is today’s event the beginning
changed in that time? or end of a trend?
✤ Highest/lowest level since ✤ What’s at stake?
when?
✤ What happens next?
Source: The Bloomberg Way: A Guide for Reporters & Editors, 10th Edition
Wednesday, 26 September, 12
22. Finding “context”
02 Oct 2006 07:40 GMT DJ Tokyo Shares End Up For 4th Session On Exporter Gains
TOKYO (Dow Jones)--Strength in export-oriented shares helped guide Japan's stock market higher for the fourth straight session
Monday, but market watchers said the market's sluggish volume indicates the rally will have a tough time overcoming strong resistance
in coming sessions.
The Nikkei 225 Stock Average rose 126.71 points, or 0.8%, to 16254.29. Monday's gain followed a combined 570.13-point rise in the
previous three sessions, including a 102.73 rise last Friday. It was the first time in almost three months that Japan's market had a
four-session winning streak.
Blue-chip exporters such as Canon and Honda led the way, boosted by a drop in the yen to its lowest level against the dollar since Apr.
17 and the stronger-than-expected corporate sentiment reflected in the Bank of Japan's "tankan" survey released earlier Monday.
Canon closed 1.6% higher at Y6,260 while Honda gained 2.5% to Y4,070.
Still, volume for the day was 1.606 billion shares on the TSE's first section, or Y2.3 trillion by value - below the 100-day moving
average of 1.686 billion shares.
"The biggest weakness is the sluggish volume," said Hiroshi Arano, an adviser at Dai-ichi Kangyo Asset Management.
For the rally to overcome near-term resistance between 16300 and 16400 this week, volume needs to increase to around Y2.5 trillion
in value terms, he added.
A month ago, traders said, local institutional investors sold off shares when the Nikkei 225 broke above its monthly average level for
March of 16311. Selling above that level allows institutions to book capital gains for the current fiscal year ending in March 2007. While
the market touched an intraday high of 16329.24 Monday, it soon afterwards dropped below the 16311 level.
The odd man out Monday among the exporters was Sony, which dropped 1.0% to Y4,730 on lingering concerns about the company's
brand image from quality problems. Last Friday, Toshiba and Fujitsu said they would also recall Sony-made lithium-ion batteries
following earlier recall plans by Lenovo and other computer makers.
Wednesday, 26 September, 12
23. Support & Resistance
Resistance
Support
20-day
moving
average
Wednesday, 26 September, 12
