The Emerging Market Resurgence: Access, Risk and Reward

By | June 16, 2011

This is the press release for my latest research piece focused on the emerging markets.

Emerging Markets Remain Popular with Buy-Side Investors but Prime Brokers Hold Keys to the Kingdoms, Says TABB; New TABB Research Shows Investors Seek Sector- and Company-Based Investment Strategies over Emerging Market Groupings in Their Continued Search for Alpha

NEW YORK & LONDON–(BUSINESS WIRE)–Institutional buy-side investors see the emerging financial markets as a source of ongoing positive returns as developed markets continue to show slower growth and increased risks. But according to TABB Group in new research published today, prime brokers hold the key to the hardest-to-access markets based on their ability to provide cost-efficient access products as well as technology platforms, including direct markets access (DMA) systems and cross-region, cross-asset portfolio management tools.

Emerging-market investors are now utilizing both company- and sector-based strategies rather than macro country strategies, says Kevin McPartland, author of the new TABB report, “The Emerging Market Resurgence: Access, Risk and Reward,” leading to demand for swaps and other access products. “Swaps, participation notes and other similar access structures can offer institutional buy-side investors more well-rounded investment opportunities than exchange-traded funds (ETFs) and depository receipts (DRs). which provide less flexibility. Continued growth in these broad-based, emerging-market ETFs will come largely from retail investors.”

TABB believes that emerging market groupings such as the BRIC countries – Brazil, Russia, India and China – and the CIVETS – Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa – will continue to lose relevance, as similar economic growth patterns for each country do not equate to similar investment opportunities. However, McPartland notes the rise of the CIVETS nations, saying it’s time for the BRIC countries “to move over as the CIVETS are the next wave of emerging financial markets with prospects on par with what the BRIC nations began to experience a decade ago.” He adds that the newly-christened CIVETS countries saw inflows of $10 billion in 2010 and nearly every one of the CIVETS posted double-digit equity returns.

For institutional investors, easy, open access to these individual markets can be more critical than each country’s economic growth prospects. Global prime brokers, he says, are important for both providing products that offer market access and ensuring clients are aware of ever-changing local regulatory policies. “These brokers can open doors to new buy-side clients with investment ideas. It’s their ability to create cost-effective and efficient products, however, that can provide the necessary exposure and differentiates them from competing brokers.”

The new report also addresses Basel III and proposed tax changes in that they may negatively impact further investment in emerging markets. “Global derivatives reform will be a positive step and will drive the availability of access products, some of which will move to a centrally cleared environment” says McPartland, who has been quoted extensively in the financial and trade media on derivatives reform issues for the past two years.

The 49-page report with 47-detailed exhibits drills down into individual emerging financial markets of Brazil, China, India and the Middle East. It also examines US equity vs. emerging market fund flows; emerging market inflows from the US and the UK by vehicle; cash equities and index futures turnover among the BRICs; CIVETS fund flows by vehicle; CIVETS ETF returns; global prime brokerage IT spending on customer portals; country ETF/index performance; bond fund performance and sovereign CDS spreads; and dealer-to-client interest rate swaps (IRS).

The new report is now available for download by TABB Group Research Alliance Derivatives clients and pre-qualified media at https://www.tabbgroup.com/Login.aspx. For an executive summary or to purchase the report, visit http://www.tabbgroup.com or write to info@tabbgroup.com.

About TABB Group

TABB Group is the financial industry’s only strategic advisory and research firm focused solely on capital markets. Founded in 2003 and based on the proven interview-based research methodology of “first-person knowledge” developed by founder Larry Tabb, TABB Group analyzes and quantifies the investing value chain from the fiduciary, investment manager, broker, exchange and custodian, helping senior business leaders gain a truer understanding of financial markets issues. For more information, visit www.tabbgroup.com. In January 2010, TABB Group launched TabbFORUM, the online community currently with more than 7,500 capital markets members, drawn from buy side and sell side firms, exchanges, regulatory agencies, academia, consultant, vendors and media, focusing on thought leadership issues covering current industry-wide topics.

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