[ I N - D E P T H
Stock Exchanges. More mature SMIs also leverage
their expertise and create joint ventures or partner-
ships to further develop newer securities markets
(e.g. Korea Exchange and Cambodia exchange).”
In some cases, the distinction between emerging,
frontier and nascent markets does not provide a clear
guide to where market opportunities lie. Indeed,
Mobius confirms that investment opportunities and
a market’s operational framework often do not align.
“You can have a market which operationally is not in
good shape, but where there are a few “hidden gems”
that are worth buying,” he notes.
Standard Bank covers over 14 markets in Africa
and continues to expand even where foreign access
is yet to be confirmed. Not all of these markets will
individually generate sufficient activity to justify
stand-alone investment in capability but should be
seen as part of a bigger picture.
In some markets, given their size, the economics
may not at first glance appear to stack up, but if you
really want to be a reliable regional bank for your
client base, you have to recognise that they want a
regional capability. Secondly if a bank that is estab-
lished were to pull out of a market, it would send the
wrong message and open up opportunities to com-
petitors. “We need to look at these markets in the
longer term and help enable them to grow. Exiting
would make that more difficult,” says Bruyns.
There are some markets that may currently be
subscale, but where efforts are evident to support the
growth of a savings industry, a necessary underpin-
ning for longer term success. The domestic savings
industry should dominate at least 60% of the market,
with perhaps 40% foreign investors coming in. But if
that 60% local participation is missing in the market,
the huge dominance of foreign investors brings the
possibilities of sustainable growth into question,
not to mention the risk of added volatility driven by
foreign investor sentiment.
There are four key questions in this regard, says
Bruyns. What is the local savings industry doing?
What savings products are coming onstream? What
are the pension fund regulations? And what moves
are there to stimulate more liquidity into the market?
“Those are the things that keep us interested in en-
gaging,” he says. “Of course, custody will be the basic
product and then we’ll start moving up the value
chain with more product capability, but we’d need
to see a sustained potential for the capital markets
growth to invest in a significant capability.”
From an operational efficiency perspective, there
are grounds for optimism in some of the emerging
and frontier markets, whether long-established or
with little or nothing in the way of legacy. Har-
wood-Jones suggests that new technologies, with
lower entry costs, can help these markets to leapfrog
some of their more developed peers. She points to
West African markets such as Ghana and Nigeria
that are very actively looking at distributed ledger
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technology proof-of- concepts in the securities space.
“In ASEAN, too, markets like Thailand, Singapore,
Indonesia and Malaysia have or are in the midst of
shortening their settlement cycle to T+2 as they up-
grade their platforms, often with SWIFT Standards,”
she says.
She adds that the emergence of regional and global
players can bring further consistency of service
across developed, emerging, frontier, and next fron-
tier markets thanks to the implementation of single
common custody and asset servicing platforms.
First emergence
The term ‘emerging markets’ was coined in 1981 by Antoine van Agtma-
el, now a senior advisor at FP Analytics, but at the time working for the
International Finance Corporation (IFC), a division of the World Bank. His
focus was a set of promising stockmarkets that required further invest-
ment to come into their own.
According to the IFC, during a meeting at Salomon Brothers investment
bank in New York, van Agtmael proposed a new global investment fund
for stock markets in developing countries: “Many of those present were
interested. But a banker from JP Morgan identified a hurdle: IFC would
never get buy-in using the original proposed name, “Third World Equity
Fund.”
Van Agtmael spent the next weekend considering a name and came up
with a new term for both the idea and investment he wanted to promote:
“emerging markets.”
“As these markets are moving through the stages
of maturity, we also expect an increase in efficiency
and product availability such as securities lending
and short selling, e-voting solutions for proxy voting,
along with reduction in settlement cycle and overall
more real-time data flow,” says Harwood-Jones.
“Other considerations such as openness to foreign
ownership, ease of capital inflows and outflows, for-
“A large contribution [to GDP] from financial
markets suggests a mature market.”
CHARL BRUYNS, HEAD OF INVESTOR SERVICES, STANDARD BANK GROUP
eign exchange (FX) liquidity, efficiency of operation-
al framework, competitive landscape and stability
of the institutional framework, along with solid
corporate governance and investors transparency
principles, can be more challenging.”
To be or not to be
Do such challenges mean that on occasion, a
securities services provider will reluctantly have
to forego the opportunity to open a new market?
Harwood-Jones makes the point that, while major
indices providers already have broad coverage of
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