Investment in Developing Capital Markets

      In the era of globalization, where economic barriers fade, shift the flow of funds from the surplus to a deficit will be more quickly and without hassle. Capital Markets as an investing doors to the flow of funds from the excess wealth (surplus) to the parties that lack of funds (deficit) to act as financial intermediaries. Investors here are the parties in connection with a financial surplus.

        Who are the parties of this surplus? In relation to the investment and use of sources of funds, investors can be divided. First, the domestic investor is the investor who comes from a portfolio of domestic assets in domestic capital markets. The second is the foreign investor, the investor who has a number of funds from abroad that make up the portfolio of assets on a number of different countries.

 

      Foreign investment coming to other countries actually have classical motifs which include, motif search for raw materials or natural resources, find new markets and minimize costs. Of classical motifs such investors sometimes have another motive, namely the motive to develop the technology. Investors to channel funds to other countries usually do not only carry a single motif alone but could be due to several motives at once.

     There are at least four ways investors can enter a country: distressed asset investment, strategic investment, direct investment and portfolio investment. Distressed asset investment is the investment made to obtain possession or purchase the debt of a company in financial difficulties. Second, the strategic investment of foreign investors in general have acquired a large enough market share and be in the business segment as well as location factors that support the company's expansion strategy of the investor. The third direct investment (direct investment) usually takes place in the underdeveloped sector, for example, the technology-laden construction or development in the automotive sector, usually the company. The fourth is an investment portfolio that is invested in bonds and shares in the capital market.

      Portfolio investment is what has been a concern of many practitioners in the field of capital markets. Why is that? Because this type of investor is the fastest moving the exposure in a country if there is turmoil (political, economic, exchange rate) which is interpreted as uncertainty. They also are investors who have the most extensive selection compared to the above three types of investors. So that if certain events occur both at the macro level, sekoral or government regulation, then the investor is more vulnerable and sensitive to the reflection on that information. The amount of foreign investment in or out, practically will also affect the overall market due to the large volume of transactions.

   The role of foreign capital in the country's development has long been discussed by development economists. Broadly speaking, according to the first Chereney and Carter, external funding sources (foreign capital) can be exploited by emerging country as a base to accelerate investment and economic growth. Second, increased economic growth needs to be followed by changes in the structure of production and trade. Third, foreign capital can play an important role in the mobilization of funds and structural transformation. Fourth, the need for foreign capital to be dropped soon after the structural change actually occurred (even if foreign capital is more productive later in life).

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