Starting a new investment in the PNG stock market is now made easier as PNGX has taken steps to reduce the minimum shareholding value.
This week, PNGX adopted a trial reduction in the minimum shareholding value from 2,000 kina to 1,000 kina. This change carries significant implications for investors and the overall stock market.
What does this mean for potential investors?
Previously, potential investors entering the stock market for the first time were required to purchase shares worth at least 2,000 kina. However, feedback from these investors indicated that this minimum threshold acted as a barrier to entry.
In response to these concerns, PNGX has decided to implement a trial reduction of the minimum shareholding value to 1,000 kina until December 31, 2025.
This change has implications for both investors and the market as a whole.
In PNG, the minimum brokerage fee for a transaction is typically 200 kina, excluding any goods and services tax (GST). With the previous minimum trade value of 2,000 kina, the brokerage fee amounted to 200 kina, representing an additional 10% cost. Essentially, investors needed to earn a 10% return through capital growth or dividends before they could generate a profit.
With the reduced minimum shareholding value of 1,000 kina, the brokerage fee may remain the same at 200 kina. However, this fee now constitutes a higher percentage, representing an additional 20% cost. Consequently, purchasing a smaller parcel of shares is relatively more expensive. But when viewed from the perspective of long-term wealth creation over several years, the initial costs do not become a significant barrier.
Once an individual holds shares in a company, they have the freedom to purchase additional shares in any desired parcel size. Shareholders can further increase their holdings through dividend reinvestment plans, without brokerage costs, if offered by the company.
Although reducing the minimum size is not an ideal solution, the aim is to facilitate market accessibility and encourage more investors to enter the market.
The primary anticipated benefit of this change is an increase in trading activity within the market, leading to enhanced liquidity. Improved liquidity makes it easier for all shareholders to buy and sell shares. When there is greater liquidity, it means there are more active buyers and sellers in the market, creating a more efficient trading environment. This increased liquidity can attract more investors and improve market efficiency, as it allows for better price discovery and reduces the bid-ask spread.
Greater liquidity has the potential to attract more companies to list on the market. When a stock market is more liquid, it becomes more attractive to companies seeking capital. The ability to easily buy and sell shares encourages companies to access the market for fundraising purposes. This, in turn, benefits all investors by providing a wider range of investment opportunities.
The reduction in the minimum shareholding value from 2,000 kina to 1,000 kina by PNGX aims to address the barrier to entry for potential investors. While the decreased minimum size makes buying smaller parcels of shares relatively more expensive, it is hoped that this change will encourage more individuals to begin investing and thereby facilitate market access.
However, there are associated costs for listed companies. Each shareholder is recorded on the share register, and having a large number of shareholders with small holdings incurs additional expenses for these companies. By reducing the minimum size for initial shareholdings, the number of such small holdings is expected to increase, thereby slightly escalating costs for the companies. Companies can act to reduce these costs by offering shareholder top-up plans which allow small holders to buy shares directly from the company without brokerage costs.
By promoting accessibility and liquidity, the stock market can become a more dynamic and vibrant environment for investors and companies alike.
PNGX recommends discussing your investment objectives and needs with a stockbroker or qualified financial adviser. In PNG, you can either contact JMP Securities Limited (enquiries@jmpmarkets.com) or Kina Securities Limited (wealth@kinabank.com.pg).
The information in this article is general in nature and you should take care to inform yourself about the specific characteristics of a particular investment before making a decision to invest in it.
By following these articles and reading the information available on the PNGX website (www.pngx.com.pg) or following PNGX on LinkedIn or Facebook you can learn more and build your wealth by investing in PNG.
