On January 21, 2019 “the World Federation of Exchanges (“WFE”), the global industry group for exchanges and CCPs, published a report – from the investor viewpoint – that seeks to understand what encourages or discourages international investor participation in emerging markets.
The key findings of the report are as follows:
- Financial returns are important for investors; however, their broader investment strategy will also guide how they evaluate returns, and how they decide where to invest;
- Frontier (smaller) markets struggle to attract the same levels of attention as their emerging market counterparts;
- Lack of certainty about ownership of shares would prevent investors from investing in a market;
- Corporate governance (or lack thereof) was a particular challenge in emerging market investing, as was government interference, and, in some markets, the length of time it took to open investment accounts;
- Liquidity was a concern, but this was measured in different ways by different investors (e.g. at market level versus at individual stock level). Some investors required a minimum liquidity threshold to invest, whereas others noted they were not overly concerned with liquidity as they adopted a long-term investment strategy;
- The importance of market infrastructure features (including the presence of an electronic trading platform, ability to short-sell, presence of market makers, and the ability to engage in securities lending and borrowing) varied across respondents. Notable exceptions were the existence of a delivery versus payment (DvP) settlement system, and the presence of global custodians; and
- Environmental, social and governance (ESG) factors are important when evaluating investments. In some instances, poor ESG performance would prevent investment while in others, investors said they would engage with companies to look for improvement on relevant metrics.“
You may read the press release on the WFE internet site, where you can also download the report.