- The document provides an introduction to the stock market, including definitions of key terms like shares, bullish/bearish sentiment, and advantages/disadvantages of the stock market. It also discusses different types of stock market analysis, how to get started investing, and includes sources for further information. - Lloyds Banking Group is selected as the stock pick of the week. Recent financial results showed a substantial increase in profits. Technical indicators suggest the stock may be oversold and undervalued at its current price. Fundamental ratios also appear attractive relative to competitors like RBS. - The overall document covers an introductory overview of the stock market and then analyzes Lloyds Banking Group as

1. Introduction to the Stock Market
GUTIC Board
10th October 2013

2. Content
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Introduction to the Stock Market
Financial News Update
Macroeconomic Analysis
Currency Analysis
Stock Picking of the week.

3. Introduction to the Stock Market
Yassine Essadiq

4. Introduction to the Stock Market
What are Shares?
• Stocks(American)=Shares(British).
• Firms can raise capital in two ways:
- Apply for a loan through a retail bank.
- Issue shares through a Stock Market.
• Equities (shares) represent an ownership part of a company.

5. Introduction to the Stock Market
What are Shares?
• Needs buyers and sellers, like every market.
• People can purchase shares through brokers ( investment
bank) or online brokers.
• Bullish = Buying Sentiment
• Bearish = Selling Sentiment
• Long = Buy
• Short = Sell

6. Introduction to the Stock Market
Advantages
• Companies earnings are either:
- Reinvested
- Paid out to shareholders in form of dividend
• Voting rights
• Yield ( If share increase in value)
• Other specific benefits:
• - Airlines – Own 1000 shares get discount etc.

7. Introduction to the Stock Market
Disadvantages
• Lack of information => Risky
• No dividend:
- Microsoft has not paid out dividend in 20 years
• Bankruptcy
• Recession

8. Introduction to the Stock Market
What are Shares?
• Law of supply and demand:
- High demand: High price.
- Low demand: Low price.
• Supply side:
- How many shares exist?
- Are there many sellers?
- Is there easy access?
• Demand side:
- How popular is the company
- An idea spreads as it gains popularity.

9. Introduction to the Stock Market
Definitions
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Common stock = ownership share in publicly held company
Dividend = Periodic cash distribution from the company to its shareholders
Book value = Net worth of the firm according to its balance sheet
Market Capitalization = Number of outstanding shares X current share
price.
• Volatility = amount of uncertainty or risk about the size of changes in a
security’s value
• Volume= The number of shares or contracts traded in a security or an
entire market during a given period of time.

10. Introduction to the Stock Market
Different forms of analysis
• Fundamental Analysis:
- Long-term
- Quantitative: based
- Financial statements
- Reports: quarterly/annually
• Technical Analysis:
- Short term
- Graphs
- Charts
- Patterns

11. Introduction to the Stock Market
How to get Started
• http://uk.finance.yahoo.com/
• www.lse.co.uk
• www.cmcmarket.co.uk

12. Introduction to the Stock Market
Conclusion
• Investing in stocks should give good returns.
- Has risks
• Supply and Demand drive price
- The demand side can be very complicated
• Price does not reflect true value
- Sentiment affects price but value
- Stocks can become over valued

13. Sources
• www.investopedia.com
• www.stockopedia.com

14. Financial News Update
Freddie Sandberg

15. Major World Indices
• USA
– S&P500
– DJIA
– NASDAQ
• Europe, Middle East, Africa
– FTSE 100
– STOXX 50 (50 largest european firms based on market
capitalizaiton)
• Asia-Pacific
– Nikkei 225

16. America
• S&P500,
• NASDAQ,
• DJIA

17. • Government shutdown – Debt ceiling
– Poor Economic confidence (as low as 2008)
– Slight strength in market (S&P500 + DJIA) from
early signs of debt ceiling negotiations.
– New FED chair Janet Yellen brings calm to markets
• ”[...] an advocate for aggressive action to stimulate
economic growth through low interest rates and largescale bond purchases.” -Reuters

18. Europe
• FTSE100
• STOXX50

19. • Hit one month low on Wednesday
– US political deadlock
– High risk aversion
– ”We recommend sticking with defensive
positioning, looking to become more aggressive
again in three to four weeks when some of the
uncertainty has been removed.”-Gerhard
Schwartz, Baader Bank
– Overall weak western markets, strongly influenced
by US government crisis.

20. Asia-Pacific
• Nikkei 225

21. • Hit 5 week low on Tuesday
• Recovery helped by Janet Yellen selection
• China’s economic slowdown
– Forecast for GDP growth downgraded from 8.3% 7.5% by World Bank
• Chinese economy bigger concern than U.S
economic and budget failures
• Survey showed 44% ranked Chinese economy
a top risk, 23% put USA.

22. Summary
• General world trend is weak, especially
western
• Market gains confidence with new FED chair +
possible debt ceiling negotiations and
deadlock end.

23. Sources
• Reuters (uk.reuters.com)
• Bloomberg (www.bloomberg.com)
• CNN Money (money.cnn.com)

24. US Government Shutdown
Week 2 and Beyond

25. Key players
• Democrats
– Support President Obama and the
Affordable Care Act
– Control the Senate
• Republicans
– Split by the Tea Party (young, very
conservative group)
– Against Obamacare, forced
shutdown
– Control the House
• The Fed
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–
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The Federal Reserve
US Central banking system
Undergoing change of leadership
Threatening to end bond buying
recovery program

26. Economic Risks: Domestic
• Costs about $140 million per day
• Millions furloughed or left without benefits/government services
• Major US stock market falls
– Investor confidence remains at highest levels (79%) since 2009
according to latest Center for Audit Quality surveys but set to drop
– “If the shutdown were to last one more week, the study indicates,
confidence would drop to 60%, a level it hasn’t breached in the seven
years in which the survey has been conducted.” (Fontevecchio, 2013)
• Disrupting talks to raise the debt ceiling
• On Oct. 17, the US Treasury will have insufficient cash-on-hand
• Without a solution, the US will default on its debts
* FONTEVECCHIO, AGSTINO. (n.d.). Retrieved from http://www.forbes.com/sites/afontevecchia/2013/10/09/obama-and-boehners-shutdown-is-destroyinginvestors-confidence-in-the-market/

27. Economic Risks:International
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USD is the global reserve currency
A US default could cripple global recovery
USD has fallen to lowest levels in 3 months
If default, investors would likely drop the
dollar
Pressure now on Yen and Yuan, but China
and Japan hold $2.4 trillion in US debts
Global recession triggered could be far
deeper than 2008
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Currency volatility already in progress
USD has hit 3 month lows but lacks steam for
bullish rebound
Initial resistance is at 10536, the 23.6%
Fibonacci retracement, with a break above
that targeting the 38.2% level at 10591

28. Positives: Yellen announced
• Current Vice Chair of the Fed
• Transition expected to be smooth
• Will likely continue Bernake’s
policies
• Considered monetary dove
– Keynesian, focus on full
employment
– Will revive NAIRU (NonAccelerating Inflations Rate of
Employment)
• Tapering unlikely to occur in 2013
– Government will continue bond
buying
• Gold shares have begun drop in
light of news

29. Moving Forward
• VIX coming down from highest spike since Dec 2012 but
remains at 19.30, 39.90% above its 50-day average
– Fear and Greed Index has moved from 20 to 22, which still
indicates a mood of Extreme Fear
– Until significant VIX declines, expect sharp/bearish market
reactions
• US Stocks, USD will rally as early negotiations to end
shutdown and raise debt ceiling begin
– However, expect lower confidence and temporary solutions
– Volatility will remain, though overall resistance will largely
remain untested
– CHF, JPY momentum shifting as USD slowly rebounds
• Gold and other precious metals may remain in bear market

30. Overview of the British Economy
Glasgow university trading and
investment club

31. Gross Domestic Product
• Total expenditure for all goods and services
produced and consumed within a domestic
economy
• Total income of everyone in the domestic
economy

32. GDP Growth Rate
• % change in “seasonally adjusted” GDP
quarter, compared to the previous quarter
• Recession – two consecutive quarters with -ve
GDP growth

33. • “IMF raises UK growth forecasts as economy
‘turns corner’” – Larry Elliott, Guardian Economics editor, 8 October 2013
• “Service sector third-quarter growth strongest
in 16 years” – Reuters
1.
2.
Makes up for more than 75% of UK GDP
Based on Markit PMI measured 60.3 (50 no change in activity)

34. Debt/GDP ratio
• % debt Country X has in proportion to its GDP
• indicator of an economy’s health

35. • Why relevant to markets?
1. Confidence – risk of Default
• “Britain should not take its credit status for
granted” – Kenneth Rogoff, October 2 2013

36. Interest rate decision
• Cost of borrowing and return on savings
• 0.5% Bank of England Base Rate…
“until unemployment < 7%” – Mark Carney
• Markets remain unconvinced!
1. Rosy projection (exc. U.S)
2. Belief of possible housing bubble
3. Improvement in productivity

37. • “Bank of England’s Mark Carney seeks to win
over guidance sceptics” – Claire Jones, Financial Times, 28
August 2013
• “Mark Carney reinforces warning on rising
interest rates for home owners” – Philip Inman,
Guardian, 2 October 2013

38. Industrial production
• “UK industrial output for August lowest in a
year” –Financial Times, 9 October 2013
• Important for forecasting future GDP and
economic performance
• Used also by Central Banks to measure
inflation

39. • Manufacturing, mining and utilities

40. Summary
• UK growth has been (surprisingly) strong last
quarter and looks to continue in Q4, mainly from
service sectors
• Although UK GDP still 3% lower than pre-crisis
level and therefore interest rates will remain low
(economy has yet to hit capacity)
• IP is low, though not a huge determination of
GDP
• Committed austerity measures speculatively
reduce the deficit (GDP-ratio)

41. • “Six months ago, the economic debate was
about the risk of a triple-dip recession. Today
it is about ‘escape velocity’. In six months
time, it will be about the risks of overheating.”
– Guardian Economics editorial

42. Materials
http://www.theguardian.com/business/2013/oct/08/imf-raises-uk-growth-forecastseconomy
http://uk.reuters.com/article/2013/10/03/uk-poll-service-idUKBRE9920DL20131003
http://www.ft.com/cms/s/0/b933e5e8-29ef-11e3-9bc600144feab7de.html#axzz2hFIoOStp
http://www.ft.com/cms/s/0/bec5124e-0fd6-11e3-a25800144feabdc0.html#axzz2hFIoOStp
http://www.theguardian.com/business/2013/oct/02/mark-carney-warning-interestrates
http://www.ft.com/cms/s/0/88c95f00-30c0-11e3-b47800144feab7de.html?ftcamp=published_links%2Frss%2Fhome_uk%2Ffeed%2F%2Fprod
uct#axzz2hFIoOStp
http://www.theguardian.com/business/economics-blog/2013/oct/03/uk-economicboom-could-be-boomlet

43. Stock Picking of the week
• Lloyds Banking Group is a major British
financial institution, formed through the
acquisition of HBOS by Lloyds TSB in 2009

44. Stock Picking of the week
Financial News
• Mon, 7th Oct 2013 14:49
• "Investors have been clear that they like Lloyds as a
credit and would be keen to get exposure through a
public market transaction” Peter Green, manager of
senior issuance at Lloyds.
• "Investors are very keen to buy into Lloyds given the
long period of absence in primary and I think the
results of this deal are likely to catch the attention of
other UK banks.” Peter Green, manager of senior
issuance at Lloyds.

45. Stock Picking of the week
Financial News
Tue, 8th Oct 2013 14:00
• Scheme designed to help homebuyers with small
deposits
• Critics worry scheme could fuel new property bubble
• Survey shows house prices rising at fastest in 11 years
• Lenders to pay commercial fee but will get capital
relief

46. Stock Picking of the week
Financial News
Company Half Year results:
• Substantial increase in underlying profit of
£1,858 million to £2,902 million with income
growth of 2%
• Return on risk-weighted assets increased from
2.44% to 3.16%

47. Stock Picking of the week
Fundamental analysis
• Price to earnings ratio: 37.8
- A high P/E ratio means that investors are paying more for
each unit of net income, so the stock is more expensive
compared to one with a lower P/E ratio.
• Price to earnings ratio 1 year rolling forecast: 11.4
3 x Cheaper than RBS
- It is a measure of the price paid for a share relative to the
annual net income or profit earned by the firm per share.

48. Stock Picking of the week
Fundamental analysis
• Price to book value ratio: 1.19 Higher than RBS.
- Book value denotes the portion of the company held by
the shareholders; in other words, the company's assets less its
total liabilities.

49. Stock Picking of the week
Technical analysis

50. Stock Picking of the week
Technical analysis
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Chart Type: Candle Stick.
Time Frame : 1 month
Overlays: Bollinger Band.
Indicators:
- Relative Strength Index.
- Bollinger Band Width.
- MACD.
- Volume.

51. Stock Picking of the week
Technical analysis
• Relative Strength Index: A technical momentum indicator
that compares the magnitude of recent gains to recent losses
in an attempt to determine overbought and oversold
conditions of an asset.
- Yesterday the RSI is 41.35, which shows an incentive of
overselling the share and hence undervaluing the share price.

52. Stock Picking of the week
Technical analysis
• Bollinger Band Width: Shows the volatility of the share.
- On the 9th of October we can see that the share has a Bollinger
Band width of 4.644, which shows a low volatility of the stock.
• MACD: A trend-following momentum indicator that shows the
relationship between two moving averages of prices. When the two
lines cross, it means that there is a change in the trend of the share
price.
- In the graph, we can see that the lower line is going down
and tend to make the space between the lines larger. Hence, the trend
does not look to change.

53. Stock Picking of the week
Technical analysis
• Volume is an important indicator in technical analysis as it is
used to measure the worth of a market move. The higher the
volume during that price move the more significant the
move.

54. Stock Picking of the week
Conclusion
• New scheme transforms more liquidities into
assets.
• Possible property bubble ( recession?)
• Investors more likely to go long when their
entry price will reach its entry level and invest
in long term.
• Good half year financial results

55. Stock Picking of the week
References
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http://www.stockopedia.co.uk/valuation/?ticker=LON%3ARBS
http://www.stockopedia.co.uk/share-prices/chart/
http://www.investopedia.com/terms/r/rsi.asp
http://www.lse.co.uk/SharePrice.asp?SharePrice=LLOY&goBut
ton=Go