The struggling trading powerhouses of the U.S. and Europe, where many of the world’s most liquid markets are based, may have to deal with new contenders to their crown sooner than they think.
Emerging market economies have proved surprisingly resilient during the global crisis, although some have weathered the crisis better than others. Even so, most emerging markets have seen a rapid bounce-back to high growth.
And it is this confidence that is leading many market practitioners to believe that a new world order may not be too far away as mountains of debt are set to dislocate many Western economies for years to come.
“A number of emerging market economies, the transition economies that have got their acts together both politically and in terms of economic reform, are entering into a sweet spot and have enormous optimism,” said Paul Bate, founder and chief investment officer of Matterhorn Investment, a U.K.-based emerging market, long/short equity fund manager.
Crucially many of these countries are not laden with debt, have expanding populations and also have the ability to expand rapidly.
“There is a sense of optimism in the Asia-Pacific region that they have something right in this crisis and have a good model for growth,” said David Wright, general-secretary of Iosco, the umbrella group of global securities regulators, at the recent World Exchange Congress in London.
And it is the trading infrastructure in these emerging markets, which is being developed at a fair click to be able to handle a rapid influx of volumes, which could one day see the traditional trading venues of Europe and the U.S. being ushered aside by these developing hubs.
“The big battleground for exchanges at present is Asia,” said Terry Keene, president and chief executive of iSys Capital Technologies, a U.S. technology vendor that helps exchanges build new systems.
And once these modern exchanges are in place then there may be no stopping significant amounts of volume moving towards these emerging markets, especially as modern technology can now allow you to trade from almost anywhere these days.
“The question is what will be the acceptability or appetite for these emerging market exchanges?” said Bate at Matterhorn Investment. “My sense is that it will be strong.”
Investors, though, are eyeing these emerging economies with furtive glances even now.
“These transition economies, the leading emerging economies, will be the one area of the world where you will see enormous potential for growth,” said Bate. “They are going to have years of sustained high growth and those stocks will be very good to invest in. It will be hard anywhere else in the world to find stocks to compare with those.”