Last updated on August 26th, 2022 at 03:07 pm
The role of the stock market in an economy is so enormous such that the performance of a country’s stock market show the seriousness of otherwise of a country.
In our earlier article, we defined stock market as a place where trading (purchase and sales) of stocks take place. In this post, we’re going to list the importance of the capital market to a country’s economy.
Gone are the days when an intending investor had to visit a country to buy stocks, today, technological advancement is redefining how investors buy shares through apps and other online means. Below are the essence of the stock market
Motivates Foreign Investment
The major importance of the Stock Exchange Market to an economy is that it encourages foreign investment through publicly accessible guidelines and rules
Avenue For People To Invest
The stock exchange provides an avenue for people to invest in any sector of the economy. From financial services to consumer goods, health care, natural resources and oil and gas.
In Nigeria, the NGX has four market classifications: 1) premium, 2) mainboard, 3) growth board, and 4) ASeM. This is done to enable investors to choose which company they want to invest in
Avenue to Raise Fund
A lot of companies in the past have been able to expand because they are able to tap into the economic potential of the stock market.
It isn’t just for private companies, it is also an investment hub for government to raise capital through bonds.
Job Creation
Apart from being a trading floor for buyers and sellers, the Stock Exchange Market also creates jobs for personnel like brokers, clerks among others.
Hub for Investment Info
For an investor who is making an entry into any country, the Stock Exchange Market is their bus stop to obtain the necessary information before making a buying decision.
Enables Smooth Stocks Trading
It makes the transfer of investment easy and safe for the buyer and the seller. The stockbrokers who facilitate such transfer operate under the law and set rules.
Transparent Trading
On the company profile page, investors can make decisions whether the company is profitable or not. A company that accumulates deficit over time raises a reg flag and alerts investors to think twice before putting their money.
This way, the Stock Exchange Market makes it impossible for companies to doctor their profit profile because of fear of sanctions.
Encourages Investment among Citizens
It is a way of encouraging citizens of a country to invest part of their money, especially during this digital age.
For instance, most of the accredited stocks brokers in Nigeria have guidelines on how to buy shares from secondary market and primary market.
Note:
Foreign investment in another country is dependent on many factors which include stable monetary policies, stability of the currency. For instance, investors with a consistently devalued currency may discourage investors.
For instance, it’s difficult for a foreign investor to invest in Venezuela following the collapse of its economy, no thanks to inflation following wrong monetary policies by the country.
In Africa, foreign investors are withdrawing their investments from Nigeria’s stock market (NGX) due to insecurity according to TheGuardian Nigeria.
Another reason for their action is Naira devaluation and some of the fire brigade monetary policies of the country’s apex bank since 2015.
Recap:
There are lots of advantages of investing in shares, if your mind is made up, you don’t need to be a millionaire before investing.
The most important thing is that you must research a company before investing in them. If a company is silent about its dividends for years or all it does every year is to declare a loss, then you need to evaluate such investment if it is worth it.
Don’t just buy stocks of another company because people are buying, be convinced that you’ll get value from your investment.
Caution: You may lose money by investing in stocks. It’s better to take a calculated risks.
