Hi there. This is my second day since I start to touch up with stock exchange. I have several questions, which I couldn't find the answer from google.

1. Why a corporation with subsidaries, the subsidary company has higher stock price than the parent company itself? For example Berjaya.

2. How come DiGi price is so much higher than Maxis while the company size is smaller?

3. What does volumn means?


Thanks for your help.

Share price is not the ultimate figure that determine which company is large or smaller.
It is the market capitalisation that determine which one is bigger. Also company share price is influenced by the number of shares issued. The more number of shares issued, the lower the price might be.

Market cap of a company = number of shares issued x share price.

Volume means transaction done in the stock market.

I see. Another question just discovered. What is DiGi-CA and DiGi-CB?

Edited: Minimum how many shares we must purchase to entertain the agent? 1 lot = 1000 shares?

This post has been edited by leekweehui: Dec 28 2007, 03:02 PM

Call-warrant issued by third party.

Which means it is not a share from the company itself? I googled "Call-warrant", but I don't really understand what it is.

Define: Call warrant - "A contract entitling the buyer to buy a fixed quantity of the underlying asset at a stated exercise price."

Dude, you need to learn one by one if you are newbie in this area. Can google around the KLSE FAQ as well as other site faq to have more understanding.
We are glad to help out.

Yes, basically warrant or call-warrant are not shares, it is just a 'rights' to buy its mothershare at a specific price at a specific time frame.

I thought it is not difficult. But I think I had the basic background on how this game works. Thanks for your patience cherroy. I would suggest you to create a pinned thread that explain how this market is running, to educate people like me before they confident enough.

Actually all are quite simple, just sometimes people need some experience in it so that it makes more easier to understand.
It is a daunting task for me to create a FAQ, it needs plenty of time to do it. Also there are aleady lots of FAQ at respective website, don't need to do a redundant work. I still have a job to do everyday mah. Please bare with me.

Welcome to the board

ppl rarely read on FAQ, they like to ASK, instead of READ (i am one of them, either)

any questions or doubts about stock market, here is actually quite a nice & comfortable place to ask

p/s: ohyah, stock market requires hands on experience, ppl hard to describe or tell. you can always start by playing virtually (without involving any pennies), get a piece of paper, role yourself as a remisier & investor, that's how you virtually practise)

Exactly, panasonic88. FAQ sometimes does not answer my question. I prefer ask people rather than search for the answer. XD

but warrants can be traded like shares... jz like we can buy n sell shares in klse.. right???

after the time frame, then how to change it to the mothershare ???
i m new to stock investment...

This post has been edited by 12bDreamChaser: Jan 2 2008, 12:29 AM

depends on wat type of warranty u buying(American or Europe type)
if those tat can convert
u need to c the exercise price

Why don't ask more question Mr Lee?

every member is welcome to raise any questions regarding stock market

simple story
u wanna buy karipap (stock) next year
but next year u think karipap price increase from 30sen to 40sen or more
so u make contract (warrant) with that seller to buy karipap at
30sen (exercise price) in year 2009 (expiry date)
the contract price is 5 sen each (warrant price)
1 contract for 1 karipap (conversion ratio)

so next year...
karipap price increase to 50sen.
but with the contract...you pay 35 sen only (contract+karipap)
if u sell that karipap to others..u profit 15 sen (30 percent)

but..

instead of selling the karipap..u sell the contract
normally contract price will increase to 20 sen coz the karipap price increase to 50 sen (20 sen..coz 20+30=50sen karipap current price)
u buy the contract at 5 sen..and u sell at 20 sen (300 percent profit)

see..the return is very big..but the risk is bigger too..
if the karipap price fell to 20sen
ur contract is worthless
coz if u use the contract u will be paying 35sen (around 80 percent more)

okeh tak cerita hehe

This post has been edited by greddym3: Jan 16 2008, 01:42 AM

That was such a brilliant way to explain it! good one...

erm... so what is the difference between warrant and option ah??

i quite blurr now......

Option - A financial derivative which represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (excercise date).

Warrant - A derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue as a "sweetener" to entice investors.

The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months.

From www.investopedia.com

Good luck, and have fun trading!

and my another question is for those who can read chinese word...

what is 自報價股?? i cannot find the definition to this as chinese word hard to search in google and i don't know its english word...

any difference with the shares listed in KLSE....

Actually the Chinese word or translation is not exactly mean by English term. Locally it is just mean Mesdaq.
The origin of this 自報價股 is come from Nasdaq which stand for National Association of Securities Dealers Automated Quotations.

You need to know how market trade or exhange in the old day system (through human manual matching etc) to know why Nasdaq is born.

Hi, invest pros... I have a few queries that needs clarification

But wat's market capitalisation really means? According to Wikipedia, ur formula seems wrong?

Why does Singapore composite index much more higher than Malaysia? and Hang Seng Index is about 15 times higher than Malaysia too.
Does that mean those listed companies in SG and HK are more financially stronger compare to those in Malaysia?

What influence share price? Why does it goes up and down? What is its determinant factors?

Hope u can help.

Why investors need to dump shares if Bush has announced a good economic plan that would benefit the economy? Thanks.

Interesting questions, I want to know the answers from pros also. Anticipating Cherroy's answers to these. *clap*

Let me help Cheeroy answer the easy ones.


'But wat's market capitalisation really means? According to Wikipedia, ur formula seems wrong?'

Market Capitalisation basically means how much the company is worth by public opinion. To get the value is to multiply the number of shares the company has in the market to the price per share.

For example : Take for example SHELL (stock code: 4234) in KLSE is currently priced at RM11 per share and SHELL has 300,000,000 shares outstanding.

The market capitalization of SHELL will therefore be;

RM11.00 * 300,000,000 shares = RM 3,300,000,000 or RM3.3 billion


This means the public thinks that SHELL as a company including it's assets and the ability to generate income is worth about RM3.3 billion.

A lot of things can affect the market capitalization, such as the public sentiment or feeling about the ability of the company to generate income. Let's say for example, there was an unfortunate accident in the SHELL refinery which is in Port Dickson. The refinery is not able to produce petrol anymore for 3 months. This would affect it's income as it cannot make its product to sell and generate profits. Because of this, the public sentiment will feel the SHELL share is not worth RM11 anymore and might not queue to buy the share at RM11 anymore. They calculate it is worth on RM7 now so they queue RM7 as buying price. This would be reflected in the market and show buy order at RM7.

RM7 * 300,000,000 = 2,100,000,000 or RM2.1 billion.

As you can see, the market capitalization has been reduced due to public sentiment about the ability of the company to generate revenue.

Share prices tend to be corrected lower when a dividend is issued. Remember the a share price reflects the ability to generate revenue as well as the current worth of the company assets like it's factory and cash in the bank. So if the company decides to give out dividend, the cash in their bank will lessen, and so the share price will reflect what the public will think the fair price per share will be after deducting the cash from it's bank.


'What influence share price? Why does it goes up and down? What is its determinant factors?'


The law of demand and supply or buyers and sellers are what determines how much a share price will be. The market is divided into buyers and sellers. If you ever been to a wet market during festive season, you can see the real market in action when the market vendor stocks start to dwindle due to frantic buying. Imagine everyone want to buy chicken for dinner, the vendor only got 100 chicken, and there is 200 people waiting in queue to buy. The price will increase because the vendor knows people wants to buy chicken from him. But if during the off peak season he has 100 chickens and only 50 people queue to buy, he needs to lower his prices to entice more buyers to buy his chicken which is cheaper.

The stock market is one big market with a lot of vendors and also a lot of buyers and everyone is competing with one another giving their best offers. There is no control like the government price control of chicken. If the stock is cheap, people will surely buy, if the stock is expensive, less people will buy. Try to read up on the law of supply and demand, that will make you understand all this chicken talk.

Thank you for ur clarification. How's bout the answer to the above question?

You cannot take like to like comparison with the index. Index is just a virtual number, just like KLCI start at 1986 (if not mistaken) with 100 points, while if you see FBM30, it started around 6,600 last year. To compute current index or share price of the component, 100 points is the based to use to calculate.

Index carries not much meaning. Todayi HSI is 23,000. Tomorrow, the HKex authorities can decide not to use HSI anymore and reform another new index, it can start at 1,000 or 50,000. Index is just a base comparison. Just like KLCI now is 1390 so it is benchmark against that it had risen 13.9x since its inception.

But if (not the real situation) KLCI started at 100 points while STI also started at the same level and same time. If STI index is double than KLCI like currently, then it means their shares price performance is doubled than KLCI.

But index performance can mean their better performance in economy as only good economy growth will generate more earning (profit) to listed company which eventually translate into higher share price.

This post has been edited by cherroy: Jan 31 2008, 03:57 PM

If this is the case, why does composite index around the world do not want to start at 100 points at their inception, so that comparison with other indexes are more easily?

Errr...., this question hard to answer, just like you ask why FBM30 was started at 6,600 level or newly second board index started at 6,+++ level.
A bourse like to use this number while the other like to use another figure.

There is no way to have a direct comparison, just like apple and orange case. Index is only being used as benchmark comparison like I mentioned before.

Composite index is just a name of it like KLCI has 100 components. In US DJ is consist of 30 stocks only, while S&P 500 consists of 500 stocks. While Nikkei consist of 225 stocks. Just index is a way for guidance and benchmark. If no index then it is hard to tell the overall market is up or down or up how many as market generally mix bag with up and down counters. With index, then people can qoute today is up 1.xx%. Although it sometimes will not reflect fully the whole market pciture, it is roughtly good to represent most of the time.

erm... my question is if i wanna invest in a specific industry, how can i know what company are doing in the industry..??

for example, i wanna to know which company are doing in oil&gas industry... how i know got what company are in this industry...

any tools can aid on us??

what i see in newspaper classification are too rough...they just have consumer ,industrial ,construction,financial and others...quite difficult if need to read all annual report or research report to know thier nature of business...

there should be under "Trading & Services"
a few counters that i could recalled: eg. KNM, KENCANA, SCOMI, DIALOG, SAPCRES...

any of you know where we can get intraday or week candlestick report for klci?

Sorry there I beg to differ, this is not always the case, it's all depends on the mathematic methodologies underlying the indices on how it is calculated. Different exchanges could use different method, Bursa uses market cap-weighted and some could just use simple price change

Yup, forget about the mathematical side.
It can be different.

But mostly bourses generally uses the market capitalisation as a way to compute the index. DJ is the most special one, it uses price weight to compute the DJ instead of market cap.

I've just turned 18 and I've learned I'm able to invest in the KLSE. I would like to learn more especially if what I think I know is wrong. I have a few questions:

1. How much minimum do you need to invest in the KLSE? For instance if I choose to invest in very cheap stocks, is it 500 units of shares is the minimum purchase if I'm not mistaken?

2. Where do you suggest I open a CDS account and a trading account? I live in the Damansara area.

3. How exactly do shares get traded? You call your remiseier? Or online trading?

Any other advice and opinions would be greatly appreciated.

This post has been edited by Soulsareworthless: Feb 8 2008, 10:45 PM

1. No minimum but for trading more than 10k, deposit is required(not sure), just don't get yourself burned. Minimum purchase is 100 units.

2. Check the websites for your nearest office that do SE

3. Trade yourself... you call them to either sell or buy stock, with charges of course. Online trading, never heard of it.

Read more finance news, bla bla, etc etc... all about company that you interest to invest, do more study, bla bla, and if you don't want get yourself burnt so much, put upfront at least 1k then let it burnt itself or get dividens from it.

Correct me if I'm wrong.

1. The minimum is 100 odd lots as said. There's no need for deposit for RM10k, I just call my remisier to buy and only pay up 3 days later.

2. Anywhere is the same actually, if you are doing conventional trading. The charges are all standardized.

3. There are 2 ways you can trade, either through remisier (conventional) or online trading on a online platform. A lot of brokers have such facility already, so it is still the same (charges). You just need to look for one which has a stable platform and doesn't go offline too often. But you will still have a remisier, so even if it goes offline, you can still call up your remisier.

For more information on the basics of trading, visit www.bursamalaysia.com or do some googling to learn more before trading. It is advisable that you do paper trading (simulation) before trading with real money.

This post has been edited by Jordy: Feb 9 2008, 12:03 AM

Which means you don't have to have money in a specific account which will be credited whenever you buy shares? How do you pay your remisier?

How and where can I do paper trading?

1. No min on the amount but min share is 1 lots aka 1 x 100 shares.

2. Any investment bank or securities firm. Don't know the Damansara area, check the KLSE website which got full list of it.

3. Calling remiser or online trade to put an order, both will do but online trade get lower commission rate.

A trading account and a CDS is sufficient for one to trade already, once reach t+3, you pay by check or bank in into the investment bank account.

Paper trade, you can try Bursa Pursuit 'game' annually. Now no more. Several investment bank got paper trade function for newbie to tryout, I don't know which website got offer, may be some other forumers can help on this.

Learn the market first before committing. It involves hard-earned money in stake, should treat it cautiously. Don't start invest or trade before fully understand and know the risk of it.

Cheers.

PS: Merged with the FAQ thread to avoid multiple thread

Absolute values are unimportant. What's important are the percentage changes to the index, and how those changes in the index relate to changes in other indices.

I will offer you a quick way I use when I am writing up my industry reports. This assumes you don't have access to a range of premium subscripion-only tools e.g. Bloomberg, S&P Netadvantage, Mergermarket, etc.

If you are interested in a particular industry, say Oil & Gas, if you go to klse.com.my, you can look at the IPO document of a recently listed company in that industry.

In each IPO document is an industry description. This industry description usually describes the dynamics of the industry e.g. competitors, customers, etc.

Viola, instant industry understanding

1. No minimum, but please make sure that you purchase enough to cover the minimum brokerage cost. Otherwise, you are paying high transaction costs (in percentage terms).

2. Ask any broker. Here's a systematic approach for you. Go to www.sc.com.my (one of my favourite clients! ) and look for a listing of brokers - they list all capital market intermediaries. Systematically, go and visit each and every broker via their website and check out their commission rates. Then go and approach the brokers and sign up.

3. Either approach works. However, online trading is the best - smaller / lower commission rates. This really works for people who are looking to do their own research and don't need remisiers to feed them any "market talk". For example, I use a combination - My primary approach is online trading for US, UK, Hong Kong, Singapore and Malaysia markets, but I have a backup remisier in Hong Kong, Singapore and Malaysia in case you need to execute trades. This is important especially if you need some trades keyed in before the market starts, and if your net connection is down. So, in short, keep both an online and offline trading channel.

You have just turned 18. DO NOT GET INVOLVED IN DAY TRADING. You are going to get burned. Make sure you have the funds to support all your trades.

Once you have gained more experience, then you can get involved in day trading...

Try not to refer to it is a game.

It really requires skill, and for some, it's a full-time profession.

Referring to it as a game often results in people taking unnecessary risks - thinking of it as sporting risks, for example.

I may have missed the answers to the original questions, but here's my opinion.

1. Well, you should do your own research Some people make a lot of money this way, looking for undervalued entities.

But very importantly, though you might think such aberrations / anomalies might correct themselves over time, sometimes these persist!

Classic example was the Hovid / Carotech example. Can't remember if it still persists.

2. Share price per se does not mean anything. You are always measuring the market price (i.e. the traded share price) of a company relative to the fair value estimate of the equity of the company.

The fair value estimate of the equity of the company can be derived via a variety of methods but fundamentally you are looking for the value of the operating assets, including growth value, and value of the surplus assets, less the company's debt component.

3. Volume - I assume you probably mean the traded volume information you see in the business pages. This indicator is important as it tells you, from a technical analysis perspective, where the floor / ceiling for a trading range is going to be. Furthermore, it also tells you how liquid the stock is, or how susceptible it is to be controlled by a small trading group / syndicate.

Could u mind to elaborate a little bit more for the benefit of other stock market noobs here?

Does this mean that for instance AirAsia could/may be stronger than Genting in terms of financial performance, future expectations etc despite its share price is much more lower than Genting? I remembered that the higher the share price, the stronger the company is. For example: Google share price is about 7-8 times higher than Yahoo.

Another question is why does Microsoft is traded under Dow Jones instead of NASDAQ as Microsoft is an IT company? Is there any difference if an IT company is traded under DJ or NASDAQ?

Thanks....

The answer to your first question is 'YES'. A counter's share price does not determine how BIG a company is, rather the market capitalisation does. Meaning the total shares a company has multiply by the share price will show how much the market value the company.

For example; Genting share at the moment is priced at RM7.40 and the company has 3.7 billion shares

So for Genting (3182) : 3,700,000,000 * RM 7.40 = RM 27,380,000,000 or RM27.38 billion Market Cap


Where as SHELL (4324) share is currently priced at RM11.30 and has 300 million shares

300,000,000 * RM11.30 = 3,390,000,000 or RM 3.39 billion Market Cap

From this calculation, you can clearly see that GENTING is a much bigger company compared to SHELL although SHELL share price is higher.


In terms of financial performance, you have to look at their past annual reports and see how much profit are they generating and the growth of their profits year by year.


For your example of Google being bigger than Yahoo, it is true, but do not look at that share price for that conclusion, rather look at their market capitalisation. Google has a market cap of USD 161.64 Bil where as Yahoo has a market cap of USD 39.02 bil.

This post has been edited by skiddtrader: Feb 11 2008, 06:09 PM

*NO*

I am trying to think of the right analogy here.

The strength of a company is usually measured in terms of performance measures:
(a) Return on Equity
(b) Return on Assets (Asset productivity)
(C) Assets / Equity (Equity Multiplier)
(d) Spread between Return on Capital and Weighted Average Cost of Capital
(e) Gross Margin
(f) EBITDA Margin
(g) Working Capital ratios e.g. Inventory Days, Payables Days, Receivables Days
etc.

Share price x no. of shares = market capitalisation. All this tells you is the market value of the entire equity base. If you wanted to buy all the shares in the market, this is what you have to pay (excluding any premium for a takeover).

Is a bigger company necessarily stronger? Any girl will tell you that size does not matter

Now, imagine you have a company, COMPANY A, that costs RM10 per share and 1 billion shares in the market. Market capitalisation is RM10 billion. For simplicity's sake, assume it's a zero debt company. The company earns a net profit of RM100,000 per year.

Imagine you have a company, COMPANY B, that costs RM1 per share and there's only 1 million shares in the market. Market capitalisation is RM10 million. Also, zero debt company. The company earns a net profit of RM100,000 per year also.

I ask you - which company is stronger?
(a) COMPANY A - the one with the higher share price?
(b) COMPANY B - the one with the better operating and financial performance?

What do you think?

p.s. and Skiddtrader is absolutely correct to point out that share price and market capitalisation can be totally uncorrelated due to the variable "no. of shares".

This post has been edited by Playbook: Feb 11 2008, 10:27 PM

The NASDAQ serves the same function as the AIM in London, SESDAQ in Singapore, GEMS in Hong Kong, MESDAQ in Malaysia, etc.

When companies want to get listed, they have to meet listing requirements. However, a lot of startup companies do not have the track record to list on the main exchanges. Nonetheless, they want to have access to growth capital. Thus regulators and exchange operators offer growth exchanges like NASDAQ, AIM, SESDAQ, etc. as one avenue for startup (which in this dotcom era, are often IT) companies to list and get access to growth capital.

You could argue that the risks are higher in growth exchanges.

Could u mind to elaborate more on volume?

Let's say current Genting volume is 340. What does 340 means?

Does it mean 340 lots of shares are sold, number of transactions?

If the volume is high, is it good or bad?

hi guys... can someone advise whether is there any free software or website letting us to trade the stock virtually...

I heard there is but i cant find any...

I've heard people playing the stock game at CIMB website before, but I've not personally tried it as it requires a registration.

Maybe you can try to register and see if it works.

CIMB iTrade

CIMB itrade is a quite good virtual stock market for newbies. Try to trade there first before you go into the real stock market.

I have lost lot of money in the virtual stock market...luckily I still earn in the real stock market

thanks ... got it... other than CIMB is there any other site providing this simulation....?

(1) Look at the top row (the definition row) - usually stated in thousands, hence, 340 means 340,000 shares. Not number of transactions.

(2) Volume must be *high* or *low* relative to something. So, a 300, 400, 500 by itself doesn't mean much.

Assume that you have 300k volume. If the historical average daily volume over a 2-year period is consistently 1,000k, this means that this volume is abnormally low. You can think of any prices set as not truly representative of market demand & supply.

However, if you have very high volumes, e.g. 1,000k, when the historical daily volume is only 230k, this can signify a few things:
(a) This usually becomes the price ceiling / floor in a trading band for a stock. These are the points when most people have entered the stock. Hence, traders always look out for price signals where it breaches the floor (signifies a downward trend), or breaks past a ceiling (signifies an upward trend).
(b) Some recent business news or announcements (or even news or announcements are to come) - A stock benefiting from some news! Significant volume just prior to an announcement is often an indicator of insider trading though...
© Hopefully not - This is a stock that might be targeted by a syndicate

How do we tell about ©? Well, check the volume relative to the no. of shares outstanding (or rather, a better measure is the no. of shares not held by institutions). One of the systems the regulators use to track suspicious market activity is meaure trading price & volume volatility in stock, but also the relative trading volume to the no. of shares outstanding. For example, we have had instances in the past of 5,000k worth shares are being traded, but the market availability is only 2,000k worth of shares in non-institutional hands. So what was happening is that the stock is being flipped multiple times during the day across individuals to "spur interest".

The method you mentioned is indeed a good way to track syndicate action. Mind to share how to measure the no. of shares not held by institutions? In other words, how do you know there are 2,000k worth shares in non-institutional hands? Is there any source which gives this information? I do know how to find and understand the volume of any particular stock, but not the number of non-institutional shares being traded.

Terima Kasih

i remember thare is a policy which will be implemented in the near future but i forgot the details of the policy....
tell me if someone know about it....


Is it there is a policy which is bank sector in Malaysia will be opened to other countries bank to join into Malaysia bank sector??


Hope someone can provide me a better pictures of this policy.... when will this policy implemented??

I believe you are talking about the liberalisation of the banking sector. It has already begun in 2007, with new banks like Al-Rahji entering the system and other foreign banks allowed to open a few more branches. It will be in steps though but I do not know the details.

skiddtrader, thx for ur info....

beside that, i would like to know the brief requirement of being listed in 2nd board of bursa.....
example: revenue per year, profit per year and others....

a company with 2million annual net profit with 9m revenue for the last few years elligible to be listed in 2nd board??

Listing requirements in the Bursa website, I didn't bother to open it though.

Listing Requirements

Any1 can explain roughly about the subprime lending?? the definition i found in Wikipedia so difficult and i dunno its meaning......=.=

and why Subprime mortgage crisis will make losses to bank....


Subprime lending (also known as B-paper, near-prime, or second chance lending) is lending at a higher rate than the prime rate. The term "subprime" refers to the credit status of the borrower (being less than ideal), not the interest rate on the loan itself. While often defined or defended as lending to borrowers with compromised credit histories, the Wall Street Journal reported that in 2006, 61% of all borrowers receiving subprime loans had credit scores high enough to qualify for prime conventional loans.[1] The phrase also refers to banknotes taken on property that cannot be sold on the primary market, including loans on certain types of investment properties and certain types of self-employed persons.

Subprime lending is risky for both lenders and borrowers due to the combination of high interest rates, poor credit history, and adverse financial situations usually associated with subprime applicants. A subprime loan is offered at a rate higher than A-paper loans due to the increased risk. Subprime lending encompasses a variety of credit instruments, including subprime mortgages, subprime car loans, and subprime credit cards, among others.

Subprime lending is highly controversial. Opponents have alleged that subprime lenders have engaged in predatory lending practices such as deliberately lending to borrowers who could never meet the terms of their loans, thus leading to default, seizure of collateral, and foreclosure. There have also been charges of mortgage discrimination on the basis of race.[2] Proponents of subprime lending maintain that the practice extends credit to people who would otherwise not have access to the credit market.[3]

The controversy surrounding subprime lending has expanded as the result of an ongoing lending and credit crisis both in the subprime industry, and in the greater financial markets which began in the United States. This phenomenon has been described as a financial contagion which has led to a restriction on the availability of credit in world financial markets. Hundreds of thousands of borrowers have been forced to default and several major American subprime lenders have filed for bankruptcy.

The word of subprime already explains it. Sub-prime.

It is those loan given out to people not qualify as prime borrowers aka credit history or qualification that's not good.

Those subprime loan is highly sort because of real estate bubble in US. So when real estate price keep on surging, even those not able to pay the loan one also take up housing loan (subprime loan) to try to gain in real estate. It is even more being fueled by low interest rate previously (1%) aka low month paid. But since after that, interest rate surge to 5.25%.

When real estate price keep on going up, those subprime loan won't have a problem as subprime borrowers if not able to pay up can easily dispose the property and still gain through the property price appreciation. But when the real estate bubble burst, then all gone, property price goes down, no one wants to buy, and subprime borrowers not able to pay up their loan, defaulting it.

Worst still banks take property as collateral in mortgages at high point of property price. Eg. when property market price bubble time, it was 100,000, subprime borrowers borrow 100,000 from the bank. But he/she cannot paid up afterwards and default it so banks took over the collateral property, but now the property price is 80,000 only. So banks need to bare the 20,000 losses, that's why you see massive writedown in banks all over the place.

Just a simple explanation, real situation is much more complex than that.

wao , brilliant explaination....

really really thx... appreciate so much really
question regarding to subprime has been confusing me for a long period everytime when i see newspaper , but now i understand

thanks....

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Added on March 24, 2008, 12:47 pm

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Added on March 24, 2008, 12:45 pmis it short-selling available to Malaysia stock market already??

Below article from stocktube mention that there are 70 stock available in Malaysia for short sell.. is it true??
http://stocktube.blogspot.com/2006/12/stoc...-for-short.html

This post has been edited by chin20350: Mar 24 2008, 12:47 PM