Policy Fine Tuning The Direction

Published Date: 02 Nov 2017

In 2012, the policy fine-tuning the direction and strength become A-share market the biggest concerns, relax effort too much, it's easy to cause inflation and asset bubbles rise up. Don't relax, the entity economic vitality is insufficient, some small and medium-sized enterprises will face bankruptcy, investors in dealing with policy changes must be careful.

In the international, the global economic slowdown in the market consensus, most countries to maintain the low interest rates and the loose monetary policy; In domestic, benefit from 2011 years of deflation policy, 2012 years of inflation pressure will be eased, economic growth and inflation down at the same time also for macro policy relaxation created conditions, expect the government will according to the economic situation of fine-tuning policy tools, such as may reduce legal deposit reserve rate, etc(MND,2011).

Economic

In the macro economic fundamentals, in the second half of year about real estate, the government macroeconomic regulation and control of the overheated industry will continue to advance, cyclical industry profits will decrease. In the full circulation background, the investment subject will not only income growth, but also in the production stage excess cases consolidation and merger acquisition(MOF,2012).

For the cyclical industry, although the next two years is hard to see the scenery of the trend of growth, but we believe can through the market in the short term to the consistency of the mining investment opportunity. At the same time, due to the small and medium-sized enterprises have more topic to reveal the company originally endogenous growth ability, and raw material prices decline to help the company relieve the cost pressure.

Social

At present, the social responsibility has become reflect listed companies competitive new post, with the Singapore economy is gradually transition, social responsibility investment is becoming a new round of investment trends, and face unprecedented historical opportunity. Actively to perform the social responsibility of the enterprise sustainable development power, long-term income is good, the more beneficial to develop business and to attract talents, therefore it has a long-term growth potential(MCYS,2012).

So in the later operation process, firmly believe that social responsibility stock funds will pay attention to investment earnings and valuation levels, and pay attention to enterprise staff, to the environment, the social responsibility and corporate governance structure, and strive to investors obtain long-term sustained steady returns.

Environment

In Singapore Capital market has bid farewell to profits and speculative era, is about to enter the health investment era, with the continuous improvement of the rule of law, supervision power of the strengthening, for the operation of securities companies to create a good external environment, and promote the rapid development of funds.

Along with the fund scale is expanding and what influence it has on the market are becoming increasingly important, gradually become stock market cannot be ignored in the important institutional investors. Institutional investors is the stock market stabilizer, the development of institutional investors is the current policy choice. Data show that by the year 1996, Singapore stock exchange listed company number up to 226, the total market value $255.9 billion Singapore dollars, to become Asia's second only to Tokyo, Hong Kong's third largest exchange(MEWR,2012).

Securities investment fund is the ideal of the personal financial management tool, high yield, and individual investors in collecting information, grasp market and capital strength likely to have congenital disadvantage, the self-protection ability is insufficient, the decision of their investment results must be deficient much less win, this is to years of practice have proved that the. So, more and more people choose in the securities company to open fund account.

Fund products increasingly diversified, investment style has gradually, for securities company has brought more and more space on a commission basis. From 1998 the first to balance type primarily fund development up to now, already appeared growth, value, the hybrid the different style such as type of fund, especially with open fund gradually introduced, fund style type more distinct, provide investors with all-round investment choices.

In the face of accession to the world trade organization in the pattern of competition, the fund management company to carry out a wide range of foreign cooperation, learn the advanced management and technology experience, and promote the innovation of the product of fund and operation for Singapore to join the international financial market competition laid the foundation. As a fund agencies securities company, the choice of securities investment fund is the trend of The Times.

Legal

Fund managers shall take effect from the fund contract 6 months after the date of that portfolio investment of the fund with the proportion of the fund contract agreement. Fund trustee to fund investment of supervision and inspection from 《Fund Contract》the day of the enforcement of start.

According to the laws and regulations to the fund is prohibited from engaging in any of the provisions of related transactions, the fund manager and fund trustee shall provide each other in advance with the agency has shareholding relationship with this mechanism the shareholders or other major concern company list and update, build official seal and written submissions, and ensure that the connected transaction list provides the authenticity, integrity, comprehensive. Fund managers have the responsibility to keep true, complete and comprehensive list of related transactions, and is responsible for the timely update the list. After the change of list fund manager shall promptly send fund trustee, fund custodian in two working days for the confirmation reply known list of change. If the fund custodian in the operation strictly follow the process of supervision, the fund manager is still illegal to connected transaction, and cause fund assets losses, the fund manager responsibility(MINLAW,2011).

4.3 Market Mix

4.3.1 Product

The company trade stock and funds with capital markets. The nature of our business is different from those retail business, our product is to provide service to customers, our service is mainly to help customers to invest in the financial and real estate plate. Trading stocks online with Capital Markets is simple and convenient with 11,500 stocks from over 22 of the world’s major stock exchanges accessible through our comprehensive trading platforms. Investors can trade stocks online from the Singapore markets to exchanges in Europe, Asia and Australia all from a single account. Also available are Contracts for Difference (CFD trading). These are much like trading stocks on leverage, with the added ability of short selling.. The financial plate has risen by 5.41% this year, the most popular is (SGX,2012):

STOCK

Buying Rate

Selling Rate

Proportion

Zynga

2.65

2.61

+8.49%

Groupon

5.29

5.23

+2.14%

Meyer Burger

9.06

9.02

+22.16%

Qihoo

31.78

31.67

+1.93%

AMD

2.60

2.56

+4.02%

RIM

11.98

11.92

+4.10%

ETE

1.43

1.41

+2.90%

Apple

527.26

526.16

-2.98%

Benefits

>Flexible order types, customised charting, and real-time account summaries when you subscribe to live market data.

>Round-the-clock access to trading accounts and global markets.

>Full range of trade orders - over 150 FX crosses (incl. Spot Gold/Silver), 6,000 CFDs, 16 Index-tracking CFDs, 11,500 Stocks from 22 exchanges, as well as FX Options, Futures, DMA for Stocks and CFDs’, ETFs, and other derivatives(SGX,2012).

>Fully personalised trading environment, complete with prices, market analysis, data and news modules, technical analysis and charting functions.

>Extensive market analysis and streaming news service enables clients to access unrivalled information on the markets in which you wish to trade.

>Excellent liquidity, one-click trading for fast execution and full range of trade orders

4.3.2 Place

The company through the agent on a commission basis, Bank outlets sales agent, Fund company marketing center establish contact with consumers.

Due to the capital market development phase and regulatory restrictions, Singapore securities company whole differentiation is obviously insufficient. But some of the securities companies because of the background, business model, development path and enterprise cultural differences, but also display different management characteristic, and trying to create a differentiated competitive advantage.

4.3.3 Pricing Strategy

According to different investors demand establishment of reasonable agile charging standard. In the product small difference real cases, financial products sales war has evolved into the price war, for institutional investment for customers, implement agile pricing strategy is particularly important. Our company according to the investors subscribe time, quantities, holding period different, design reasonable rate standard, in order to improve the competitiveness of the rate standard。

4.3.4 Promotion Strategy

Advertising

A securities company itself has a very big promotion and introduction, then as a securities company, we in the advertisers primary task are to package myself, for the use of publicizing own. Began our slogan: "because you and change, focus on what you focus". Fully let investors realize that we can bring them stable income, we can bring considerable income, we are who they want. We have professional financial management ability, we are the best. Launched our brand: in your heart.

Business promotion and public relations

To seminar, symposium, newspaper or Internet performance means organize investors' interview, help investors to improve understanding the securities company finance and business ideas , decision financial product future growth potential, prompting investors identity financial products investment value. Carry out the investors education activities:

>Help investors understand securities financial products

>Help investors understand themselves

>Help investors understand the market

>Help investors know the development history of financial products

>Help investors know the securities company

Build mutual trust model, let investors trust of the money to us to finance. The specific form can through the light box, television, newspapers, and complex, publicity materials, outdoor advertising, etc., can also to some investors to buy on the site, lucky draw, have the opportunity to participate in the seven-day tourism learning activities. Called on everybody's enthusiasm. This kind of promotion way for small and medium-sized investors most applicable. Comprehensive business promotion and public relations, etc, and with investors for all-round, widely, continuous communication.

Personal selling

According to institutional investors, such as the high income levels customers, our company can establish the marketing team with professional quality, one-on-one personnel promotion, in order to achieve the best marketing effect. Of the top ten big customer to reduce the rate of preferential policies.

Network

Internet marketing financial products have many advantages, scale of charges is favorable, the safety of fund, investment agile, quick to account. We can through the network to publicize our enterprise image, and began our brand. In the 21st century, college students as widely amateur leisure crowd, we can through them on the Internet to do propaganda work, and the cost need to pay absolute than in TV media up less, at the same time, our web site to build, the convenience of our customers contact us.

5. Operation Plan

5.1Challenges facing securities investment agencies

It was a good year for the global securities industry. Origination volumes were up and, although trading had a tough second quarter, overall year-end results were excellent for many players. Yet the longer-term health of the industry is less clear. A lot of key businesses are evolving in fundamental ways, and enterprise executives will have to rethink their traditional assumptions about how to operate successfully on a global scale.

Shaping strategy

Successful enterprises will adopt fresh strategies for changing times. Big companies will continue to seek strategic advice, but enterprises will also need to serve the middle market. In addition, private and public capital market boundaries are blurring, which makes financial sponsors an increasingly important market segment.

5.1.1 Things do not always go as planned

Don't expect too much of your share price

Call it ticker shock. For more than a generation, senior executives everywhere have been obsessed with corporate share prices. During the US leveraged-buyout craze of the 1980s, the mere scent of an undervalued stock would bring corporate predators circling around(Mckinsey Quarterly, 2013). Over the past decade, as the ranks of investors have grown and increasing numbers of companies have used shares as the currency for M&A, share prices have assumed an ever larger role in strategic planning. And what senior executive has never claimed that the stock market undervalues or "doesn't appreciate" his or her company? If only it had different investors or if analysts understood it better, the complaint goes, its share price would be higher.

5.2 Operation and Management

Management

What is the measure of effective investor communications? It shouldn't be getting the highest possible share price. For managers who focus on shareholder value, the strategic goal should be a stock market value that is in line with the company's intrinsic value. Too high a share price may encourage managers to support it by adopting tactics (such as deferring investments or maintenance) that will limit the creation of value in the long term. In any case, if the stock price of a company exceeds its intrinsic value, the price will eventually decline as the market deciphers its underlying performance. Employee morale will then suffer. As for too low a share price, the drawbacks include takeover threats, difficulties using shares for acquisitions, and demoralized managers and employees.

Although investor communications is a relatively new field, some basic principles can guide companies:

>An investor communications strategy should be based on a thorough analysis of a company's market value and its relationship with management's estimate of the company's intrinsic value.

>A company's message, or "investment story," should be consistent with its underlying strategy and performance. Obvious as this principle may sound, companies don't always line up their message with their strategy.

>With some exceptions, a company is better off being transparent about its performance and about what drives the creation of value. Transparency means providing not only financial results but also the operating measures the company uses to run its business.

>A company can improve the effectiveness of its message to investors by ensuring that it understands them—in particular, how its investor base compares with those of its competitors.

Lining up intrinsic and market value

When the executives of a company complain that financial markets don't understand it, that belief may well reflect a high-level analysis of its price-to-earnings ratios or a random comment by some analyst that its shares are undervalued—not a rigorous analysis of what the share price should really be. Any good strategy for investor communications must begin with an objective estimate of the gap between management's view of the intrinsic value of the company and its stock market value.

Operation

Smarter investing in Real estate, energy and financial markets, such as:

With oil climbing above $70 a barrel(SGX,2012), energy commodities have become a hot space for investors. Once mainly the preserve of oil companies and the producers and marketers of natural gas and power, these commodities have joined other "exotic" asset classes in attracting investors who seek new ways to boost earnings. Investment banks, hedge funds, and private equity firms have taken advantage of the high volatility of commodity prices, caused by recent geopolitical events, natural disasters, and rising global demand.

Now these recent participants face a fresh set of challenges as they contemplate a maturing market and reexamine their original entry strategies. Will those entry points continue to provide a sustainable growth platform? Has the core business of risk intermediation for corporate customers become overly competitive? And will players be capable of building the necessary skills and fully exploiting synergies with existing business units (for instance, traditional structured products divisions and emerging markets)?

There are areas where investors can continue to profit. However, the most interesting opportunities will require them to bring broader skills and deeper knowledge to the table.

Financial institutions have mostly positioned themselves around well-understood liquid-asset classes such as crude oil and natural gas. They have typically started in nonphysical over-the-counter (OTC) trades because they lack the infrastructure and knowledge needed for physical delivery. Most restrict themselves to the United States and, to a limited extent, Europe; few operate in Asia. The particular strategies vary according to the type of institution.

Hedge funds

While only a handful of hedge funds were trading energy commodities in 2000, more than 300 have now adopted strategies, focusing on the liquid portion of the forward curves (notably in the power and gas markets). Much of the funds' expertise has come from teams and individuals who exited the merchant energy companies after 2002. Thanks to the participation of this new breed of player, the trading activity on the New York Mercantile Exchange (Nymex) in contracts such as crude oil, gasoline, natural gas, and cleared OTC products has increased by almost 40 percent. This group of participants has quickly become an important component of liquidity but, with the exception of a few players, has yet to develop the ability to participate in physical transactions(Plus500, 2012).

Private equity firms

Finally, players with longer-term time horizons, such as private equity firms, are investing heavily in energy commodities by purchasing the underlying physical assets. These investments inject additional liquidity into the longer-term trading market, as the firms hedge their future cash flows in order to lock in an acceptable rate of return for their limited partners. The value of private equity transactions in this space has increased sixfold since 2002, reaching $7.8 billion in 2005((Plus500, 2012).

Developing a competitive position

Financial institutions first need to understand their entry alternatives and growth opportunities across three dimensions to position themselves effectively in this rapidly evolving marketplace (Exhibit 1):

1.Business model. Essentially, investors can make money (a) by offering customers risk intermediation services, (b) through commodity or cross-commodity arbitrage, and (c) through asset class arbitrage. The latter entails arbitraging the equity (physical or financial), debt, or both of commodity- driven companies with the underlying commodities.

2. Energy commodity type. This dimension ranges from the larger and more liquid commodities such as crude oil and US natural gas to less liquid commodities such as power and carbon dioxide to downstream products of power, such as aluminum.

Geography. The geographic spectrum covers the mature markets of the United States, the evolving markets in other parts of North America and in Europe, and emerging markets primarily in Asia.

Up to now, most new participants have entered at the lower-left corner of the strategic game box, with more-seasoned players venturing along the different dimensions. In this way, new participants have been able to gain familiarity with the energy markets by participating in the most liquid and least complex areas. However, as these entry areas become crowded, their margins will continue to tighten, making them less attractive for all but the very-high-volume, scale-driven players.

Power trading

Power trading reflects the consumption of other commodities—such as coal, gas, oil products, and emissions—thereby providing opportunities for cross-commodity as well as cross-asset arbitrage. It will therefore be a key growth area. According to the International Energy Agency, capital investment in the power sector during the next 15 years will probably reach some $4.7 trillion, equally split between countries that do and do not belong to the Organisation for Economic Co-operation and Development. The majority of the non-OECD capital expenditure will take place in China, India, and the Middle East. This is twice the level of investment expected for oil and gas combined(MOF,2012).

Investment in new power generation capacity will differ according to geography (Exhibit 2). New and existing players should build their energy businesses accordingly—for example, focusing on coal trading and transportation in the United States and Asia and on gas and carbon dioxide trading in Europe. These different capital-investment profiles pose a clear management challenge for traders in the underlying investments. Customer responses, the maturity of markets, transport costs, and time horizons will all vary, so institutions will have to acquire and develop a variety of capabilities, people, and systems.

Asset arbitrage

At the moment, cross-asset arbitrage in the power sector is one of the least explored of all opportunities. A credible example of this sort of transaction comes from Texas Genco, which created $4.6 billion of value for investors in 16 months through a consortium of private equity firms (Exhibit 3). The consortium found value in the company by looking at the forward curve for gas and its implications for power prices in the Texas market—something many others missed. As a result, the private equity buyers acquired the assets ahead of the competition. Risk-management techniques enabled the buyers to increase their leverage by hedging the commodity exposure of the assets(Census, 2012).

.

Developing and acquiring the skills

Successful players will focus on broadening their skills, improving their lending capabilities, and increasing their knowledge of the energy companies' physical operations.

Broader skills

Firms often miss many opportunities because no single group or desk has a broad enough vision or the complete set of execution capabilities needed to capture them. In contrast, successful players hire and develop talent with skills that span commodities transaction structuring, structured finance, corporate finance, the trading of physical commodities, and mid- and back-office operations. They also remove organizational barriers, such as individual profit-and-loss statements and compensation disincentives, which currently separate their debt, equity, and commodity businesses.

Better lending capabilities

In the late 1990s lenders rushed to take advantage of the lucrative opportunities to finance new power plant infrastructure. But many failed to develop the sort of processes, risk-assessment techniques, and management disciplines they were applying to their trading rooms. Losses ensued.

Given the volatility of commodities, banks must now think of their lending portfolios as commodity-trading positions, applying the same risk-management discipline and valuation techniques they would use in their trading businesses. Strengthening the links between project finance and commodities-trading teams can help banks avoid the distressed portfolios so visible during the last power business cycle.

Greater appreciation of the physical operations

Because many of the more sophisticated opportunities will involve the physical movement of commodities, access to expertise about assets and the ability to execute the delivery and receipt of physical commodities will be critical. Managing and accessing physical assets may involve nontrivial processes and systems, which could be developed in a proprietary way or through joint ventures with physical players.

Energy markets will continue to give financial players opportunities to take and intermediate risk. If executed properly, a variety of arbitrage opportunities could yield significant returns with limited risk taking. A company's ability to include more complex areas that offer a higher potential for profit will separate the winners from the rest.

5.2.1 Getting the right direction

Competitive forces are slowly pushing a reluctant Wall Street to accept the equity markets of the future. In December, the New York Stock Exchange agreed to eliminate Rule 390, which prevented NYSE member firms from trading anywhere but on the Big Board. Meanwhile, the US Securities and Exchange Commission has proposed to widen the access of non-NYSE dealers to NYSE stocks and to allow non-NYSE exchanges to get in on NYSE initial public offerings. So far, so good, but these pro-competitive changes don’t go nearly far enough(Census, 2012).

Many practices still work against the interests of small institutions and retail investors, and few of them understand this. If the playing field is to be truly level, everything associated with the closed, broker-oriented environment of the past should be swept away; the exchanges should go public; and all investors should have access to the data they need to get the best possible deal whenever they trade. Those who claim that full competition will fragment the market into many inefficient little exchanges fail to recognize that any number of them can now be tied together with technology to assure maximum liquidity.

The industry can take four fundamental measures that would not only establish the competitiveness the SEC wants—and more—but also solve the problem of fragmented markets.

1. Sweep away all barriers to competition

Allowing NYSE members to trade on electronic networks by abolishing Rule 390 is a significant step, but other industry practices must go as well. Few retail investors know that buy or sell orders placed with an on-line broker, for example, may go to a broker-dealer who is paying the on-line broker to send them in its direction, not to the place where they will be executed most effectively.

A parallel phenomenon in institutional investing is the practice of "soft-dollar" commissions, in which the big broker-dealers charge flat-rate commissions on institutional trades. Broker-dealers make this practice palatable to larger clients by giving them free research and other services—benefits that the many smaller institutions don’t receive despite paying the same flat rate. Finally, the new electronic communications networks that have grown up in response to demand for cheaper execution should stop charging access fees, which effectively prevent the best price from being transparent to all investors.

2. Take the exchanges public

Today, the securities exchanges remain largely closed organizations that often try to protect the interests of their members by resisting changes that would benefit the investing public. If the exchanges were for-profit institutions instead of mutual structures, they would move aggressively to serve their clients—that is, institutional investors.

What would this mean? The exchanges might adopt new electronic-trading technologies more rapidly. They would be more willing to optimize the trading environment for investors rather than broker-dealers. (Today, for instance, NASDAQ, responding to the interests of the latter rather than the former, doesn’t give its stocks a single opening price based on beginning-of-day demand.) And the exchanges might try, on a commercial basis, to maximize the flow of information to everybody instead of simply to their members.

The interests of market makers and other intermediaries should be considered. But the interests of investors must come first.

3. Use technology to tie all the markets together

Those who would keep things as they are contend that full competition will mean fragmented markets and bad deals for investors. It is certainly true that little pools of liquidity in lots of mini-exchanges lead to bad pricing. But technology can tie them all together, much as you can now search the Internet for the best price on a car anywhere in the country instead of having to check each dealership one by one.

Right now, the only technology for this purpose is the Intermarket Trading System, which communicates the best prices on each exchange to all of the others. What we really need is a deep, virtual, central limit-order book—a much richer information pipeline that, for any given security, would display not merely the best price but the whole range of prices, everywhere in the market, for blocks of different sizes. Such a limit-order book would also ensure that trades were executed in strict order of priority based both on price and on the times when the orders were put into the system, not on relationships between brokers.

4. Make the entire market transparent to all investors

Retail investors who are willing to have their trades placed at any time over the course of a day can get better prices than they would get for trades executed immediately. Under the current system, investors have no way of knowing this, no way of knowing how good different on-line brokers are at executing trades, and, probably, no way of defining what "best execution" actually means. Brokers should be obliged to report to their investors on how well each trade was executed. With this form of pressure in place, the market will naturally develop "smart" order-routing systems that optimize each trade.

Right now, many of these ideas are resisted by people who perceive a benefit from the current arrangement or fear that such changes would doom the market makers. In reality, though there will certainly be winners and losers as the market evolves, market makers will always play an important role in less liquid and more complex transactions, such as block trades of more than 50,000 shares—that is, the most profitable transactions. More generally, any player willing to embrace the possibilities of the new technology is likely to benefit from it. In any case, this way forward will create a market responsive to the needs of all investors, and that is the kind of market we deserve.

5.2.2 External risk factors

The financial crisis has reminded us of the valuable lesson that risks gone bad in one part of the economy can set off chain reactions in areas that may seem completely unrelated. In fact, risk managers and other executives fail to anticipate the effects, both negative and positive, of events that occur routinely throughout the business cycle. Their impact can be substantial—often, much more substantial than it seems initially.

Risk along the value chain

Most companies have some sort of process to identify and rank risks, often as part of an enterprise risk-management program. While such processes can be helpful, our experience suggests that they often examine only the most direct risks facing a company and typically neglect indirect ones that can have an equal or even greater impact.

Consider, for example, the effect on manufacturers in Canada of a 30 percent appreciation in the value of that country’s dollar versus the US dollar in 2007–08. These companies did understand the impact of the currency change on their products’ cost competitiveness in the US market. Yet few if any had thought through how it would influence the buying behavior of Canadians, 75 percent of whom live within 100 miles of the US border. As they started purchasing big-ticket items (such as cars, motorcycles, and snowmobiles) in the United States, Canadian OEMs had to lower prices in the domestic market. The combined effect of the profit compression in both the United States and Canada did much greater damage to these manufacturers than they had initially anticipated. Hedging programs designed to cover their exposure to the loss of cost competitiveness in the United States utterly failed to protect them from the consumer-driven price squeeze at home(Census, 2012).

Clearly, companies must look beyond immediate, obvious risks and learn to evaluate aftereffects that could destabilize whole value chains, including all direct and indirect business relationships with stakeholders. A thorough analysis of direct threats is always necessary—but never sufficient (Exhibit 1).

Supply chains

Classic cascading effects linked to supply chains include disruptions in the availability of parts or raw materials, changes in the cost structures of suppliers, and shifts in logistics costs. When the price of oil reached $150 a barrel in 2008, for example, many offshore suppliers became substantially less cost competitive in the US market. Consider the case of steel. Since Chinese imports were the marginal price setters in the United States, prices for steel rose 20 percent there as the cost of shipping it from China rose by nearly $100 a ton(MOF, 2012). The fact that logistics costs depend significantly on oil prices is hardly surprising, but few companies that buy substantial amounts of steel considered their second-order oil price exposure through the supply chain. Risk analysis far too frequently focused only on direct threats—in this case, the price of steel itself—and oil prices didn’t seem significant, even to companies for which fluctuating costs may well have been one of the biggest risk factors.

Distribution channels

Indirect risks can also lurk in distribution channels: typical cascading effects may include an inability to reach end customers, changed distribution costs, or even radically redefined business models, such as those recently engendered in the music-recording industry by the rise of broadband Internet access. Likewise, the bankruptcy and liquidation of the major US big-box consumer electronics retailer Circuit City, in 2008, had a cascading impact on the industry. Most directly, electronics manufacturers held some $600 million in unpaid receivables that were suddenly at risk. The bankruptcy also created important indirect risks for these companies, in the form of price pressures and bargain-hunting behavior as liquidators sold off discounted merchandise right in the middle of the peak Christmas buying season(Census, 2012).

Customer response

Often, the most complex knock-on effects are the responses from customers, because those responses may be so diverse and so many factors are involved. One typical cascading effect is a shift in buying patterns, as in the case of the Canadians who went shopping in the United States with their stronger currency. Another is changed demand levels, such as the impact of higher fuel prices on the auto market: as the price of gasoline increased in recent years, there was a clear shift from large sport utility vehicles to compact cars, with hybrids rapidly becoming serious contenders. Consider too how the current recession has shrunk the available customer pool in many product categories: demand for durable goods plummeted among consumers holding subprime mortgages as their access to credit shrank, and demand for certain luxury goods fell as even financially stable consumers turned away from conspicuous consumption.

Effects on a company’s risk profile

Risk cascades are particularly useful to help assess the full impact of a major risk on a company’s economics. Exploring how that risk propagates through the value chain can help management think through—imperfectly, of course—what might change fundamentally when some element in the business environment does.

To illustrate, let’s examine how the risk posed by new carbon regulations might affect the aluminum industry. Aluminum producers would be directly exposed to such regulations because the electrolysis used to extract aluminum from ore generates carbon. They're also indirectly exposed to risk from carbon because the suppliers of the electrical power needed for electrolysis generate it too. The carbon footprint can be calculated easily and its economic cost penalty determined by extrapolation from different regulatory scenarios and the underlying carbon price assumptions. This cost penalty would of course depend on the carbon efficiency of the production process and the fuel used to generate power (hydropower, for instance, is more carbon efficient than power from coal).

In general, large industrial companies believe they are "carbon short" in the financial sense—their profits get squeezed when carbon prices increase. Is that always true? A different story emerges from a closer look at the supply chain, which stiffer carbon regulations would change in many different ways. The cost of key raw materials, such as calcined petroleum coke and caustic soda, would increase, along with logistics costs and therefore geographic premiums. The US Midwest market premium, for example, reflects the cost of delivering a ton of aluminum to the region, where demand vastly exceeds local supply. Not all competitors in the industry would be affected alike: this effect favors smelters located close to the US Midwest, because they could then pocket the higher premium. Some suppliers might even benefit from their geographic position(Census, 2012).

Moreover, in a carbon-constrained, tightly regulated world, aluminum becomes a material of choice to build lighter, more fuel-efficient cars. Since automobile manufacturing is one of the largest end markets for aluminum, carbon regulation could substantially accelerate demand, thus helping to support healthy margins and attractive new development projects. Clearly, a high carbon price would enhance aluminum’s value proposition—positive news for the industry.

Finally, carbon regulations would affect not only a particular company but also its competitors, changing the economics of the business. For commodity industries, the cash cost of marginal producers sets a floor price. In a world where carbon output has a price, the cost structure of different smelters would depend on their carbon intensity (such as the amount of carbon emitted per ton of aluminum produced) and local carbon regulations. It’s possible to show how any regulatory scenario could influence the aluminum cost curve (Exhibit 2). In nearly all the plausible scenarios, the curve steepens and the floor price of aluminum therefore increases. For most industry participants, especially very carbon-efficient ones (such as those producing aluminum with hydropower), a meaningful margin expansion could be expected.

5.3Risk Assessment

Market risk

Securities market price is affected by various factors caused by the fluctuation, the fund's assets cause potential risk:

>Policy risk

Monetary policy, fiscal policy, industrial policy and national policy changes in the stock market have a certain effect, causes the market price fluctuations, influence fund income and cause risk.

>Economic cycle risk

Stock market is a barometer of national economy, and has the characteristics of periodic economic operation. The macro economic operation of the securities market situation will affect income level, which causes the risk.

>Interest rate risk

Financial market interest rate volatility will lead to the stock market and bond market price and the changes of return rate, and at the same time, directly affect the enterprise financing cost and profit level. Fund investment in stocks and bonds, income level will be affected by changes in the interest rate.

>The listed company business risk

Listing of the company's performance is affected by many factors, such as market, technology, competition, management, finance, etc will lead to change corporate earnings, leading to change fund investment income.

>Purchasing power risk

The purpose of the funds investment is the value of the fund's assets, in the event of inflation, the fund investment in securities of the profits may be offset by inflation, which affect the value of the fund's assets.

Credit risk

Fund in the transaction process possible breach of contract, or funds invest in bond issuer defaults, refused to pay the due principal and interest, can lead to fund assets loss.

Liquidity risk

Fund assets cannot quickly into cash, or can't cope with possible investors large risk of redemption. In the open mode fund transaction process, may happen huge redemption situation. Huge redemption may produce fund position adjustment difficulties, lead to liquidity risk, and even influence fund unit net asset value.

Operation or technical risk

The risk from the relevant parties each link in the business operation process due to the internal control defects or human factors caused by operating error or violation of operating procedures, such as: unauthorized illegal trading, accounting department of fraud, trading errors, IT system fault and risk.

In all kinds of open mode fund transactions or background operation, perhaps because technology system fault or error influence the normal trading or lead to affect the interests of investors. The technology risk may come from the fund management company, registration agency, sales agency, stock exchange, securities registration and settlement institutions, etc.

Compliance risk

Fund in the management or operation process, in violation of state laws, regulations, or the fund investment in violation of regulations and the relevant provisions of the contract the risk of the fund.

5.4 Corporate social responsibility

There are several reasons why CSR strategies might affect sell-side analysts’

recommendations. First, if CSR affects a firm’s long-term financial performance by creating (or destroying) value for a broad range of stakeholders, including customers, employees and competitors, then the resulting changes in financial performance will have a direct impact on analysts’ recommendations. Second, many mutual funds invest in socially responsible firms, thus creating a growing demand for analysts that understand CSR strategies. In 2007 for example, mutual funds that invested in socially conscious firms had assets under management of more than $2.5 and $2 trillion dollars in the US and Europe respectively(Slideshare, 2013). Socially conscious funds in Canada, Japan and Australia held $500, $100 and $64 billion respectively. Moreover, assets under management of socially responsible investors grew considerably in the last ten years. For example, funds in the US, UK and Canada grew by $400, $600, and $400 billion respectively, between 2001 and 2007.4 Third, the substantial amount of funds intended for investment in socially responsible corporations might increase the stock price of these corporations, thus also affecting analysts’ recommendations. If the number of corporations that qualify as socially responsible is moderate and the amount of funds is large enough, investors will put pressure on the stock price of these companies, because under such conditions the demand curve for these stocks will be downward sloping instead of perfectly elastic (Shleifer 1986; Coval and Stafford 2007; Khan, Kogan and Serafeim 2010). Finally, the emergence of a substantial number of firms that rate and rank companies on multiple CSR dimensions (such as KLD and ASSET4 (Thompson Reuters) among others), also highlights the growing demand for information about CSR strategies by the investment community.

From an economic theory perspective, the relative timing of the costs and benefits of CSR strategies may cause negative upfront analysts’ reactions: often enough, the net benefits to social performance accumulate only over the long-run with a priori higher levels of uncertainty, when the costs associated with CSR strategies get amortized and stakeholders become sufficiently aware, whereas the investment costs of such strategies are incurred in the short-run (Brammer and Millington, 2008). Therefore, even if analysts perceive CSR strategies to be value-creating in the long-run, the presence of up-front investment costs in the short-run combined with their aforementioned lag in adjusting their valuation models to reflect the impact of such strategies, will lead them to lower evaluations of future earnings’ potential and consequently negative recommendations, up until their models adjust to reflect the value creating (or destructing) potential of CSR strategies. If CSR strategies are value-creating, then the initially negative evaluations will become more positive, and vice-versa.

In addition, there is no such thing as a single monolithic CSR strategy. Rather, CSR is a complex multidimensional array of strategies that includes policies aimed at improving the firm’s environmental footprint, its community involvement, its labor relations record, its diversity measures and a range of other issues, addressing the needs and concerns of a wide range of stakeholders. Tackling all or even some of these issues concurrently, is what makes the overall implementation and evaluation of a CSR strategy complex, and as such, requires higher than usual levels of information processing by analysts (Moreton and Zenger, 2005). Added complexity coupled with lag in the adjustment of valuation models, therefore, leads in the shortrun to less favorable recommendations and subsequently more positive recommendations if CSR strategies as perceived as value-creation or more negative ones if they are perceived as valuedestructing.

Although unfavorable analysts’ reactions are probable at the initial stages of implementing CSR strategies, legitimization of such strategies in the external environment, diffusion of managerial innovation and practices over time as well as the eventual adjustment of the valuation models to the new realities and perhaps an industrial re-categorization will affect analysts perceptions, this time, in the opposite direction, i.e. towards being more favorable, if CSR strategies are perceived as value-creating. Moreover, accrual of potential benefits associated with CSR strategies will accumulate over time (as opposed to costs that have already been incurred in the short run), whilst the broader group of stakeholders gradually becomes aware of both the strategies as well as the accrued benefits.