The securities exchanges of the “BRICS” emerging market bloc have announced a joint initiative to expose investors to the dynamic economies of the bloc members, Brazil, Russia, India, China and South Africa. China and India are among the fastest-growing major economies over the next five years, according to forecasts, and all are increasingly attractive to investors worried about stagnation on US, European and other major exchanges. The initiative was announced on 12 October, during the 51st AGM of the World Federation of Exchanges (WFE), held in Johannesburg.
The stock exchanges will start by cross-listing benchmark equity index derivatives on the boards of each of the other alliance members. Following that, the alliance will develop innovative products to track the BRICS exchanges.
This brings together Brazil’s BM&F BOVESPA stock exchange, MICEX from Russia (currently merging with RTS Exchange), Hong Kong Exchanges and Clearing Limited (HKEx) as the initial representative of China, and South Africa’s JSE Ltd (the Johannesburg Stock Exchange). The National Stock Exchange of India (NSE) and the BSE Ltd (formerly known as Bombay Stock Exchange) have signed letters of support and will join the alliance after finalizing outstanding requirements.
The seven stock exchanges represent a combined listed market capitalization of US$ 9.02 trillion (source WFE and RTS website) with listed 9,481 companies2, equity-market trading value of US$ 422 billion per month and over 18% of all exchange-listed derivative contracts traded by volume worldwide (source Futures Industry Association) as of June 2011.
Ronald Arculli, chairman of HKEx and of the WFE, says in a press statement: “Global investors are increasingly seeking exposure to leading developing markets. The close relationship of the BRICS stock exchanges is behind this initiative, through which investors worldwide will gain easier access to benchmark equity index derivatives, which will now be offered in local currency on these exchanges. These cross-listings are planned to take place by June 2012.”
He adds that this is an important moment in the history of developing countries: “The alliance enables more investors to gain exposure to the BRICS bloc of emerging economies, with its increasing economic power. From a global perspective this alliance points to the growing relevance of the BRICS economies and financial markets in the coming decade and further underlines the reason for the BRICS relationship.”
Russell Loubser, CEO of the JSE, says: “As well as being barometers of market performance, indices also form the basis of other tradeable products, including exchange-traded funds. As a logical second phase in the alliance, the exchanges have agreed to work together to develop new products for cross-listing on the respective exchanges.” These products would combine exposures to equity indices of all alliance partner exchanges. Edemir Pinto, CEO of BM&F BOVESPA, explains: “These products would then be cross-listed and traded in local currencies. They will also allow investors to gain exposure to other emerging markets through a locally listed product.”
A third phase may include product development and cooperation in additional asset classes and services.
Madhu Kannan, CEO of BSE Ltd, says: “The BRICS exchanges alliance holds great promise, as it will create avenues for Indian investors to diversify and expand into other emerging markets. It will also provide unique opportunities to investors in other BRICS nations to participate and contribute in India’s growth. BSE will actively work towards bringing world-class products to India as well as developing new products for other BRICS markets.”
Investors worldwide and those whose homes are in the BRICS economies are increasingly interested in investing in high growth emerging economies. Most of the BRICS countries are predicted to have above-average economic growth. They are going through shifts in that there is rising consumer power generated by a growing middle classes in each, which will accelerate demand.