Accessing overseas liquidity pools may be desirable but it is not easy. There are an increasing number of options available to connect buy-side firms to equity flow in growth markets, particularly the BRIC countries (Brazil, Russia, India and China).
The BRICs are seen as ripe for investment. With nearly half the world's population between them, these four countries currently account for approximately 14% of world market capitalisation, according to a study released in May by Goldman Sachs entitled ”Is this the BRICS decade?'. Over the past decade, the BRICs have contributed over a third of world GDP growth and grown from one sixth of the world economy to almost a quarter in purchasing power parity (PPP) terms. Goldman Sacs say this trend will continue and even increase in the next ten years.
By 2020, Brazil's economy is expected to be larger than Italy's. India and Russia will individually be larger than Spain, Canada or Italy. Collectively the BRICs countries are expected to account for a third of the global economy in PPP terms and contribute half of global GDP growth. Moreover, with the rise in incomes of the BRIC countries, hundreds of millions of people are expected to join a massively expanded middle class. This in turn could have a drastic effect on demand, changing the balance of world trade.
Understandably then, the potential these markets hold is already being sought out by buy-side firms in developed markets. Meanwhile institutions within the countries themselves are keen to attract order flow, accelerating the investment that will drive growth.
To this end, exchanges have been investing in new cutting-edge technologies that facilitate high-frequency trading flow such as low latency, FIX protocol-enabled order routing systems. New matching engines are being built that will provide the sub-millisecond speeds needed for algorithmic trading engines to effectively trade multiple, large orders through the market.
Local brokers are offering access via overseas subsidiaries, bypassing regulatory restrictions that would have hindered foreign investment.
Global brokerage houses offer access to multiple markets – either through their own local relationships or through membership of exchanges – via a single connection.
Each BRIC country offers it own unique challenges, risks and opportunity for the buy-side investor. For which BRIC market is there most buy-side demand for better connectivity?
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