Posted by: Armel | August 10, 2008

Foreign Investors Vs. Local Investors

 

Stockbrokers at Nairobi Stock Exchange

Stockbrokers at Nairobi Stock Exchange

 

What should be the Priority ? Encourage an influx of Foreign Investors or Foster a local investment culture?

 Here is the Scenario:

1) Much noise is heard about the potential gains to be made from the stock markets in a previously obscure market (Frontier inv.), exotic traders get in first, quickly followed by institutional investors and soon, the market is flooded with  big-players trying to get into the action. But the influx of new foreign players (who always move in pack) will soon or later overcrowd the market. The maturation of demand is reflected as an overweight in the valuation of shares.

2) Local investors in turn eventually catch on to the craze and jump in with hands and legs tied (literally). Because earnings multiplier tends to be overstretched, locals would bite and believe in the bubble growing in front of their eyes as a long term trend. But sooner or later, the records gains are harder to come by, and foreign investors will retreat. At that particular time, the volume of trades will rescind and it then becomes complicated to make a “quick buck”.

What happens then? Would the locals keep faith and believe in the long term prospect of their own market or will they exit and go back to plain and simple savings?

I bet the answer has more to do with Culture, Custom and beliefs than with anything else.

Armel Njeunou

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Responses

  1. It is best to get in early on a new invesment. Such as with frontier markets. This site is decent in that it shows some funds, and also what can occur if you get in early enough.
    http://www.frontiermarketsetf.com

  2. @John,
    The link is straight to the point for an introduction to Frontier Investing. Also, the Markets Indexes available show a good sample of selected countries.


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