Capital markets are an essential part of the financial sectors of modern economies. Providing alternative savings tools to savers and non-bank sources of financing for enterprises. The markets promote economic growth through improved efficiency in savings mobilization.
Nevertheless, in an economy of many private enterprises, many firms list in the market while many that qualify to do so do not due to fear of losing management control amongst others.
Banks, in their dual role of being investment advisors as well as lenders may tend to indirectly discourage the stock exchange as a means of raising capital. For the Nairobi stock exchange, there is both inadequate marketing of itself trough efficient investor education programs as well as lack of a sufficient number of products listed at the bourse to attract more investors both local
and foreign although the current focus on upcoming Safaricom IPO is creating excitement across the globe even in Wall Stree cycles.
Factors in the Emerging Kenyan Capital Markets
There are factors that have to be addressed in terms of the stage of development of the Kenyan market. Countries with big equity markets have less volatile, more price efficient
markets with substantial degrees of liquidity. Most emerging markets, as in Kenya, are highly concentrated. As a result they tend to be undeveloped, and are small and illiquid, exhibiting pricing volatility and error. The more integrated the market to international markets, the less volatile the returns.
Institutional Investors and stability
A factor that drives markets strongly is the level of institutional arrangement and the regulatory framework. In Kenya, this may have neccessitated the need to allocate more shares to institutional investors referred to as 'Qualified Institutional Investors' to encourage market stability as opposed to more retail speculators who would sell at ther slightest of scare.
Emerging markets and development
The rise of emerging markets is changing the traditional view of development as follows.
-First, foreign "investment" is replacing foreign "assistance." Investing in the emerging markets is no longer associated with the traditional notion of providing development assistance to poorer nations.
-Second, emerging markets are rationalizing their trade relations and capital investment with industrialized countries. Trade and capital flows are directed more toward new market opportunities, and less by political consideration.
-Third, the increasing two-way trade and capital flows between emerging markets and industrialized countries reflect the transition from dependency to global interdependency.
Emerging markets like Kenya are the "key swing factor" in the future growth of world trade and global financial stability, and they will become critical players in global politics. They have a huge untapped potential and they are determined to undertake domestic reforms to support sustainable economic growth. If they can maintain political stability and succeed with their structural reforms, their future is promising.
The accelerated information exchange, especially with the aid of the Internet, is integrating emerging markets into the global market at a faster pace.
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Thursday, August 30, 2007