BRICS stock exchanges form alliance

17 October 2011

The stock exchanges of the BRICS emerging market bloc – Brazil, Russia, India, China and South Africa – have announced an initiative to cross-list benchmark equity index derivatives on each other’s boards, in an effort to expose investors to opportunities in the world’s leading developing markets.

Following that, the alliance will develop innovative products to track the BRICS exchanges. The initiative was announced at the 51st annual general meeting of the World Federation of Exchanges (WFE) in Johannesburg last week.

Exposure to leading developing markets

The initiative brings together the BM&F BOVESPA from Brazil, Moscow Interbank Currency Exchange (MICEX) from Russia, Hong Kong Exchanges and Clearing Limited (HKEx) as the initial China representative, and South Africa’s JSE Limited.

The National Stock Exchange of India (NSE) and the BSE Limited (formerly known as Bombay Stock Exchange) have signed letters of support and will join the alliance after finalising outstanding requirements.

These seven exchanges represent a combined listed market capitalisation of US$9.02-trillion, equity market trading value per month of $422-billion and 9 481 companies listed. They also accounted for over 18% of all exchange-listed derivative contracts traded by volume worldwide, as of June this year.

“Global investors are increasingly seeking exposure to leading developing markets,” said HKEx and WFE chairman Ronald Arculli. “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.”

Growing relevance of BRICS economies

This was an important moment in the history of developing countries, said Arculli. “The alliance enables more investors to gain exposure to the BRICS bloc of emerging economies, with its increasing economic power.”

From a global perspective the alliance pointed to the growing relevance of the BRICS economies and financial markets in the coming decade and further underlined the reason for the BRICS relationship, he said.

As well as being barometers of market performance, indices also form the basis of other tradable 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,” said JSE chief executive Russell Loubser.

The second phase will also include the development of products combining exposures to equity indices of all alliance partner exchanges. “These products would then be cross listed and traded in local currencies,” said BM&F BOVESPA chief executive Edemir Pinto. “They will also allow investors to gain exposure to other emerging markets through a locally listed product.”

Opportunities to participate in growth

The third phase may include product developments and cooperation in additional asset classes and services.

“Apart from cross-listing products, there are other opportunities which can be explored, which have great potential and will promote greater development and understanding of the respective markets,” said MICEX President Ruben Aganbegyan.

BSE chief executive Madhu Kannan said that the BRICS exchanges alliance held great promise, as it would 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,” he said. “BSE will actively work towards bringing world-class products to India as well as developing new products for other BRICS markets.”

The interest in the BRICS economies is prompted by above-average growth predicted for these regions, as well as the rising consumer power generated by growing middle classes in each nation.

“The growth of this consumer class implies that demand will accelerate within these countries,” says National Stock Exchange of India MD Ravi Narain.

SAinfo reporter