London, Friday 15 March 2019 – The World Federation of Exchanges (“WFE”), the global industry group for exchanges and central counterparties (CCPs), hosted a one-day Emerging Markets (EM) Forum to explore the themes arising from two of its recent reports on the factors that attract international investors to emerging markets.
While the WFE represents the world’s largest exchanges and CCPs, nearly 70% of WFE members are located in emerging or frontier markets. Supporting the growth and development of these markets is a core strategic pillar and mandate of the Federation. This support takes a variety of forms, from conducting capacity building and holding information sharing workshops, creating best practices and standards, to undertaking empirically-based research about the optimal market structure. This work is led by the WFE's Emerging Markets Working Group (EMWG), which includes 28 members whose role it is to develop relevant learning and information-sharing sessions for EM exchanges, and to propose EM-relevant research topics.
The two most recent WFE research papers that formed the foundation of the EM Forum - ‘Attracting international investors to emerging markets’ from December 2018, and a second, qualitative report published in January 2019 entitled ‘Investing in Emerging and Frontier Markets – An Investor Viewpoint’ – are interconnected reports on the relationship between international investors and emerging markets.The event sought to explore the findings of the most recent research as well as earlier WFE EM reports, with the objective of identifying ways in which exchanges and policymakers can enhance the effectiveness of their markets.
Speakers at the forum included representatives from the UN Sustainable Stock Exchanges Initiative (SSE), the European Bank for Reconstruction and Development (EBRD), and Aviva, alongside many WFE members such as B3 (Brazil), Dubai Financial Market, London Stock Exchange Group and Shanghai Stock Exchange. The one-day event also featured a fireside chat between Alexander Afanasiev, Chairman of the Executive Board & CEO of Moscow Exchange (MOEX) and William J. Brodsky, Chairman, Cedar Street Asset Management, LLC.
Key takeaways from the event were:
- Future economic growth will come from emerging markets, not developed markets;
- Foreign investors help to diversify the investor base, bring liquidity, improve price discovery, and boost the credibility of a market;
- While infrastructure is important, having a healthy capital markets ecosystem is fundamental to attracting foreign investors;
- A vibrant, diversified local investor base makes the market more attractive for international investors;
- Support for emerging market exchanges needs to come from the top – political leaders/policymakers need to support the role of the exchange in enabling economic growth and development;
- International investors are concerned about corporate governance and how companies are managing ESG risks and opportunities – this applies to companies in both emerging and developed markets;
- Index investing is a huge driver of international investment into emerging markets. However, more needs to be done to drive investment into smaller Emerging and Frontier markets that are not necessarily included in such EM indices; and
- Emerging market companies (at least in some markets) are getting better at engaging with international investors and understanding the need for effective management of investor relations. At the same time, international investors need to understand cultural differences of the markets they invest in, and how these may impact investor engagement.
Nandini Sukumar, Chief Executive Officer, WFE said: “Our Emerging Markets Forum was an excellent, interactive day with spirited debate around the factors that attract, and in some cases, discourage, international investors from investing in EM. There can be no doubt as to how important and interlinked international investors are to the development of emerging market economies. We believe that exchanges and policy-makers can work in partnership to ensure the creation of enabling investor environments, which will, in turn, help emerging market exchanges fulfil their role in promoting long term economic growth and development. We would therefore urge industry stakeholders to use the practical guidance in the WFE EM reports as a starting point for this important development work.”