As global markets continue to cast their eye to emerging markets, an increased focus on market structure shifts is vital, agreed experts speaking on the ‘navigating the evolving landscape’ panel on Thursday.
Omar Bennani, head of EMEA delta one trading at JP Morgan, asserted that an increased appetite in EM is being sustained, with strong inflows into South Africa specifically as the region’s story “has become topical”.
“We discuss this in risk meetings through different angles […] it has become a subject of discussion on the positive side,” said Bennani.
He explained that demonstrably positive momentum is continuing to enhance the region’s attractiveness despite previous challenges. Delving further into the specifics, Bennani highlighted a rotation in investor focus away from US tech-heavy sectors.
“Clearly people are shifting from what has been predominant the last few years which was the US magnificent seven companies into something that is broader.
“[…] On the delta side I would say that’s what we have observed this year is consumer inflows into EM in general, from Europe in particular we see a lot of requests, inflows, to that market – EM has been a big topic and continues to be a big topic.”
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Elsewhere, panellists discussed shifts in capital market processes, including the question of increased liquidity moving to the closing auctions.
Luke Alers, head non-linear derivatives, Absa, highlighted the challenges for market makers, explaining that despite large pools of liquidity, trade size is a key factor and that while more and more liquidity is moving towards the closing auctions, this works for smaller sized trades, and it is when trades get larger that things need to be considered more carefully.
“The reality is if you’ve got bigger orders to work, it does become problematic and you obviously you don’t want to move the market. Our job as a markets business is to provide access to markets and bring both sides of a trade – buyers and sellers – together as brokers.”
Delving further, Alers explained that it affects clients from a pricing perspective, with trading at the close equalling a fixed price.
“If you have a client coming in during the day and saying, ‘okay I’ve got this order to work, what basis can you offer?’ You can actually offer a discounted basis. And the reason why you can do that is because you’re actually matching all flows. As you know, as a brokerage we have the other side of the trade, the other side of the order. At least in some of the stocks we can subsidise that.
“So, I think there is something to be said for not always coming in for the close.”