Pros and cons of the securities market
In the most General form of investment capital is the savings that have been converted to riches: how real (for example, factory), and a representative (for example, money or securities).
Capital has three important characteristics.
The first is a rarity. Capital cannot be synthesized or increase according to the decree of the government. Because he is one of the most valuable commodities in the world.
The second - mobility. In its monetary form of capital quickly appears and disappears quickly.
The third is exaggerated sensitivity to changes in the environment and hence the extreme clarity.
Shuttling around the world, the capital of sprouting development where for it there is the nutrient medium. This environment does not arise by itself, but is a result of struggle between different political forces. Some political forces are afraid of dependence on foreign capital and create a hostile environment for its. Other welcome such dependence and conduct the policy of open doors. Nowhere is the one or the other party does not win until the end. Everywhere policy in relation to foreign capital is based on compromises. Even those States, which he brought to the obvious economic and social fruit, sometimes treated him harshly.
Specialists in the field of Finance and experts on emerging markets believe that the pros securities market outweigh its disadvantages. This net benefit you can imagine in full, if we consider the market of securities as part of the financial market and a means of achieving economic and social goals of the country. In addition, it is useful to analyze it at the micro level, where the securities market performs two functions: open price and supplying liquidity.
At first glance it may seem that the securities market is the place where the trade capital. This is normal, but short-sighted approach. Trade in capital, if it takes a national scale, contributes to resolving many of the problems of social development. Among them:
savings mobilization;
the efficiency of the financial system;
harmonization of interests of issuers and investors;
the efficient allocation of investments between the subjects of the agriculture;
control over the money supply;
the development of the national entrepreneurship;
privatization on mutually acceptable terms.
A well-regulated securities market can improve the efficiency of the financial system, as it creates competition between the different financial assets and financial institutions for a purse of the investor. Giving investors a wide range of means to achieve the investment objectives, such a market in a position to increase the nominal rate of saving and lower interest rates. But if capital is costing companies and the state is cheaper, the faster the economy is expanding, and all the congregation.
Where the ownership is strongly concentrated, there are monopolistic tendencies, especially if the interest rates are limited or otherwise administered. In those countries where banks are closely linked to the capital by non-financial companies, «their», receive preferential loans, and the outsiders, «hack» more profitable projects, do not get anything. Stock market allows you to expand the social base of property, weaken the Union of banks and industry, and with it the problem of the inequitable distribution of credit resources.
Securities market promote the improvement of the sustainability of individual companies and entire financial system. The companies that are deprived of the opportunity to obtain capital through the issue of shares, the ratio of debt to Charter capital can quickly reach a dangerous point. This threatens not only their long-term viability, and viability of the creditors of the banking system. And on the contrary, the companies, deprived of the opportunity to obtain capital through the issue of bonds, the payment for the capital may be overestimated because of the need to deal with individual financial institutions. Providing companies with both of these possibilities, securities market allows them to have an optimal capital structure.
Governments and companies want to borrow a lot and for a long time, and investors insist on liquidity. This conflict is to be resolved on the secondary market, where securities change their owners. The liquid secondary market, the more likely investors enter into a long-term relationship with the borrowers. Without long-term borrowings of social development cannot be full-fledged. If at the time of the government and railway companies are unable to place in London its long-term bonds, such countries as the USA, Canada or Russia, would have remained without Railways.
Securities market contributes to the growth of savings rate. Investors quickly respond to changes in real (net of tax of inflation and interest rates. When government intervention makes real rates are negative, deposits in credit institutions reduced, investors find other, less socially significant spheres of investment - from the purchase of surplus real estate, precious metals to «capital flight» abroad. It is estimated that in less developed countries, the level of development of the financial system, in particular, the level of «transparency» of interest rates, positively correlated with the level of General economic development.
To the extent that the securities are reliable and attractive of their income, they stimulate savings and financial investments due to consumption, acquisition of property or export of capital abroad. To the benefit of the entire financial system they compete with Bank deposits, which may be subject to state control.
Securities market puts the government and the company in equal conditions in their rivalry for a purse of the investor. More money receives the one who works more efficiently, although one of the securities market may not «get» the whole capital of the work for the benefit of society. He is an important component of the financial system. When introduced by the state distortions become excessive, securities market serves as a valve through which these dangerous vapours are released from the financial system.
One of the diseases of growth of States, especially those that depend on foreign capital and aid, is economic nationalism. This trend is trying to reduce foreign influence, sometimes the price of economic growth, at the expense of the welfare of the citizens. In some countries, it is becoming an important factor of public life. The securities market is useful here, in the sense that the population has the opportunity to acquire the securities of domestic companies and branches of foreign companies, and thereby strengthen national control over the economy.
Another serious problem for many countries is the slow development of the private sector. If there is a well-developed stock market, then it is possible the orderly transfer of ownership from the hands of the state in private hands (non-negative side effects). In countries with a large public sector privatization not only increases state revenues, but also improves efficiency of production, as the stock market directs the property there, where it is used better and longer.
The bond market allows the state to spend more than it earns» on the taxes and the sale of its property. The budget deficit, financed by the issue of government securities, can be kept within reasonable limits, which are determined primarily by the ability of the state to collect taxes. If the bond market allows to increase its public debt, the stock market allows it to reduce. When the state sells a package of shares of the company, the revenues can be spent on repayment of the state debt. Possible and direct exchange of GS on the shares of private, mixed or public companies.
The development of the securities market is not without problems for the local economy. The market reacts to the domestic and international events, and often we cannot understand why he reacts so or otherwise. In the early stages of this development is stronger market cycle: if the price falls, it falls from a great height. As a result of the loss (or gain) of market participants look particularly impressive. Investor psyche injured, and trust to the young market of this is not increased. The problem of trust is aggravated by the transition from the traditional financial system to the unfamiliar and therefore dangerous. Because of its small size the emerging market vulnerable to the monopolistic trends, instability of prices, interest rates and foreign exchange rates. Without realizing it at first, participants are inclined to blame for their loss of the very idea of securities trading.
From the point of view of national interests, the securities market - is not a means of inefficient distribution of investments. He is indifferent to the social sphere and other spheres of social life, where not a valid motive of monetary gain. It might even seem that he diverts money from these areas. Securities market adds to the human rights of another: the right freely to dispose of their savings. At the same time he adds to the responsibilities of the state one: the duty to regulate the market.
Securities market may create or aggravate the difficulties in relations with the outside world. Unhindered access of foreign investors on the stock market poses a threat to national sovereignty, national identity and the national capital. For example, foreign control over credit institutions may cause the outflow of savings abroad and challenges for monetary policy.
Here it is important to note that some countries, including the USA, UK, Canada, Australia, restrictions on foreign investment in many years, once in full measure experienced their creative force. The United Kingdom has become the industrial center of the world, absorbing the excess of the Dutch capital. The United States and the former British dominions increased by foreign investment by leaps and bounds. Pre-revolutionary Russia was close to that to realize the effect of massive foreign presence in its mining and manufacturing industries. But here reaction to the private, including foreign, the property was inadequate. Loss of profit from integration in the world economy ãèãàíòñêè exceeded the «pluses» of socialist industrialization and the development of socialism. In General, the opening of the securities market for foreigners only improves the welfare of the local population.
