Custom term paper on Portfolio Investments

Direct investments were the dominant form of international investments only until 1970’s. Since the end of the 20th century, portfolio investments are rapidly developing. During 1970-2000, the volume of direct investments of leading industrialized nations increased by 43 times, while the volume of portfolio investments – by 149 (Vita & Kyaw 2009: 277-83).
Securities market appeared in China only in late 1860’s. In 1929, all existing trading platforms merged into the Shanghai Stock Exchange. In China, trading on the stock market reached its peak in 2001, when market shares of the Shanghai stock exchange were estimated at $ 400 billion (Green 2004: 211-212). However, in the next four years, the overheated market was constantly falling, and by 2005, the value of shares of different companies decreased by about 50% (Su 2003: 101-113).
Therefore, in April 2005 it was decided to ban new prime placement on the Shanghai Stock Exchange in order to get existing shares back liquid and attractive for investors. In 2006, the market finally continued its activities. Immediately after the lifting of the ban on the IPO, Industrial and Commercial Bank of China placed its shares worth 21.9 billion dollars, which was the largest placement in the world at that time (Ma 2007: 91-97). Last year, the Shanghai Stock Exchange started the Exchange madness or the attack of traders and profiteers, who predicted a possible growth of issuers’ shares and started to actively buy and sell securities. As a result, the Shanghai Stock Exchange became the world’s second stock exchange in trading volume. custom term paper
Market shares on the Shanghai Stock Exchange are divided into two divisions – “Shares A” (trading operations in yuans) and “Shares B” (in U.S. dollars). For a long time, the access of foreign investors to the market “A” and shares of Chinese companies was closed and was opened for them only in 2001 (Plafker 2008: 113-17). The top-management of the stock exchange also plans to merge the two markets in the near future (Ding 2002: 431-449).
In 2007, the Shanghai Stock Exchange traded the shares of 904 companies: 850 companies of the market “A” and 54 of the market “B” (Ma 2007: 121-25). The ten largest issuers include companies from the spheres of insurance, banking and energy industries, among them: oil company “PetroChina”, Bank “ICBC”, insurance companies “China Life” and “Ping An Insurance China”, energetics company “Shenhua Energy Company”, etc (Fung H 2007: 53-68). The main indicator of financial viability of public companies is the index of SSE, for the calculation of which the weighted average price for the shares of all the companies traded on the exchange is used. In 1991, when the index just appeared, its value was at around 100, but at the moment it makes 3599.62. With China’s accession to the WTO, the Chinese portfolio investment abroad increased by 320.2% (Chen C 2008: 154-56).
2.4.2.1 Definition

Portfolio investments are the investments in securities, generated in the form of a portfolio of securities. Portfolio investment is a passive ownership of securities such as shares in companies, bonds, etc., and does not include investor participation in the operational management of the enterprise that issued the securities. Portfolio investment is investment of capital in the purchase of securities aimed at their further resale in conditions of stock market fluctuations (Vita & Kyaw 2009: 277-83). The aim of portfolio investments is getting the expected yield at the lowest acceptable risk (Buraschi 2010: 393-420).
In general, investment portfolio is understood as the combination of several investment projects, managed as a whole (Srivatsa 2010: 24-33). The portfolio may include tangible assets, financial assets, intangible assets and non-financial assets. The criterion for classification of investment portfolios can be the source of income and the degree of risk: 1) Growth portfolios are formed from the securities, the market value of which is increasing; its purpose is the growth of portfolio’s value; 2) High yield investment portfolio includes high-income securities and is oriented at high current income, i.e. interests on bonds and dividends on shares; 3) Fixed income portfolio is a portfolio that consists of top-quality securities and brings an average income at minimum risk; 4) Combined portfolio is formed in order to avoid possible losses in the stock market, such as market value decrease, low dividend and interest payments (Charness 2010: 133-146).
For investors, the major significance lies in the classification of securities depending on their investment opportunities. From this perspective, all the securities can be divided into three types: securities with fixed income, shares, and derivatives securities. Investment attractiveness of the securities depends on their type. Thus, investment qualities of shares are mainly related to the possible growth of their market value, obtainment of dividends and provision of property and non-property right. Investment attractiveness of bonds is determined by their reliability. Typically, the income on these securities is lower than on shares, but it is more stable. Investment attractiveness of options and futures is determined by the possibility of very high incomes, as well as the use of these instruments in hedging risks (Buraschi 2010: 393-420).