Posted by: Armel | July 23, 2008

The HIDDEN DANGER of STOCK EXCHANGES

                   

IS EVERYONE FIT TO INVEST IN THE STOCK MARKET ? SHOULD PEOPLE IN DEVELOPING COUNTRIES PUT THEIR LIFETIME SAVINGS INTO STOCK MARKETS SHARES ?

What happened in Pakistan at the Karachi Stock Exchange (KSE) 4 days ago, shows what kind of emotions people in developing and emerging countries feel when stock markets take a plunge! Whether it happens when a regional “bubble” is facing a burst as some feared in India earlier this year, or when rumors bring down the street value of a company, not everyone can sustain huge losses as mature economies in the West.

The underlying issue is that when the focus shifts away from a particular market, the locals who have been experiencing great gains for a period of time, are left with nothing but rage because in some cases, the money they put in the market shouldn’t be there to begin with. Before selling stocks, are brokers in CHINA, INDIA, PAKISTAN,NIGERIA, KENYA advising their customers about the real risks they are facing or are they just expecting people to be aware of the danger and consequences? We shouldn’t forget that Developing countries do not have the same “social blanket” as developed countries. Once, the masses flock to the stock markets it can be dangerous unless some basic requirements are met (Life Insurance, Savings, Retirement plan, Health Insurance etc..). Otherwise they might not have anything else to fall back on.

Without some of these pre-conditions, the risk is too big and social unrest will follow should major indexes start dropping like dead leaves. Local governments in emerging countries sometimes lack the tools to advert such crises specially when a high percentage of the population savings basket is in jeopardy !

So, before a major bubble builds up in Nigeria (Nigeria Stock Exchange) for example, the locals should be advised to consider both ends if they want to take part into the action by buying into stocks like Transcorp, Dangote (D.Sugar)etc.. The last thing anyone expects to see is some major social crisis due to the dilution of people’s hard earned money.

Armel Njeunou

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Responses

  1. send karachi stock e mail daily to my e mail address

  2. iwant inforamtion regarding karachi stock exchange dividend ,ect

  3. Unfortunately not many stockbrokers educate their client on the risks involved. They are mostly interested in just the commission coming to them…

  4. @ Emeka,
    Well they need to understand that, too much focus on commissions often leads to NO COMMISSION in the long run ! If those relatively NEW investors “stay in the dark” long enough and get disappointed at the end, they would lose trust in brokers. There won’t be any commissions to be made then…

  5. @ Ismail
    Don’t know how else to say it but this way: Don’t hold your breath! lol
    You’ll be better off going directly to http://www.kse.com.pk

  6. @ Armel,
    They don’t really think about their “long term” commission. A lot of them are greedy and are just looking for a quick way to make money. They will always find new victims to “rob” anyway since everybody wanna get rich!
    I do agree with Emeka. A lot of those stockbrokers don’t get into details about the risks, so it’s still up to the client to do all the necessary researchs so they can have a full scope of what they are getting into.

  7. D
    THAT WAS WELL SAID !

    But “rob” ? I won’t go that far..lol

  8. I don’t really think brokers are supposed to do that much teaching anywhere else though..
    The issue as you said Armel is the fact that there is no “safety net” to fall back on in developing countries, and the income gap is huge. So, we’ll still have riots anytime people have their entire savings wiped out by the stock market whether it’s in Kenya, Pakistan, China or Nigeria.


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