GLOBAL EXCHANGE MARKETS

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WORLD EXCHANGE CONGRESS 2016 NAVIGATING A VOLATILE FINANCIAL LANDSCAPE This year´s meeting of the World Exchange Congress (WEC) takes place as stock markets around the world are being roiled by the collapse of oil prices and the slowdown of the Chinese economy.

These market-moving events aside, exchanges today are facing ongoing challenges to their efficiency, security and their very position as the primary venues for equities trading. With “dark pools” and other off-exchange venues taking an evergreater share of stock trading, bourses are seeking alternate revenue streams and ways to attract a new generation of investors and a wider range of issuers.

At the same time, they must adapt to the disruptive technologies that are transforming the nature of securities trading worldwide. This means harnessing the opportunities that innovation offers, while protecting the markets from rising threats to security.

The World Exchange Congress, now in its eleventh consecutive year, will address all these and other issues through a series of in-depth presentations and discussion panels. Specific topics include market integrity, big data, crypto currencies, crowd funding, blockchain technology and post-trade automation. The conference will also explore the ways in which exchanges and financial centres can benefit from collaboration, by examining the advantages these partnerships offer and the obstacles to their success.

This year´s Congress will be attended by over 300 CEOs and CTOS from established and emerging exchanges, as well as mar-

Exchanges today face ongoing challenges to their efficiency, security

ket regulators, at an event that has become known as the “unofficial AGM” of the financial services industry. WEC provides them with a unique opportunity to hear how colleagues around the world are responding to the changes in the financial landscape, which can be summarised in the overarching themes of the event: new customers, new revenues, new partnerships.

New customers A generation of young people have grown up in the midst of a financial crisis that has lasted, in some cases, for almost half their lives. At the same time, they have seen how IPOS and acquisitions in the technological sector – read Google, Skype, YouTube, Facebook - have created youthful millionaires overnight. How do you convince sceptical millennials that investing in stocks is a long-term proposition?

Given the dwindling number of IPOs in the past year, the WEC will also examine what can be done to convince more companies to go public. Particular attention will be given to SMEs and how to modify the rules for new issuers, in order to make it more attractive for them to list, without compromising market integrity.

New revenues With the current state of the markets, bourses are obliged to look for new revenue streams. Among the options are foreign exchange and FX derivatives, which will be discussed in keynote speeches on both days of the event. Another issue is how to bring more over the counter trading onto established exchanges, particularly as alternative markets are coming under increasing pressure from regulators to make their operations more transparent

and even their position as the primary

New partnerships

venue for equities trading.

The idea of cooperation between exchanges is hardly a new one, but what real advantages does it produce? This year’s WEC will hear from SEE Link, the project launched by exchanges in Bulgaria, Croatia and Macedonia to create a regional infrastructure for cross-border securities trading.

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Another panel will examine the plan to create a European Capital Markets Union. Announced with great fanfare in early 2015, the CMU is meant to create a single capital market across the EU’s 28 member states, thereby making available new sources of credit to businesses and more options for investors.

Along with this goes the issue of how to increase stock market performance by attracting more investors from abroad.

A series of sessions will focus on regional opportunities in markets in Europe, Asia, the Americas, Africa and the Middle East. The liberalisation of the Chinese market and the correlation between oil prices and stock market performance in the Arab exchanges will also be discussed.

Apart from these themes, the World Exchange Congress will examine the new technologies that have already begun to transform the way securities markets operate. Blockchain technology will receive special attention, given the possibility if offers to reduce risk and to shorten confirmation and settlement times.

The World Exchange Congress has become the “unofficial AGM” of the financial services industry.

Just as important as the presentations and panel discussions is the opportunity the Congress will provide for “speed networking” in which attendees will meet their peers from other markets, exchange ideas and explore future collaboration.

The 11th World Exchange Congress should once again prove an exciting opportunity for contacts, information and discussion of the major trends affecting the financial services industry worldwide. In this special edition of TheWorldfolio, we have taken a closer look at some of these issues, which we hope you will find useful.

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Challenges for Investors in a

Rocky 2016

The IMF global growth forecast cuts for 2016 call for a year of uncertainty. This publication will shed light on the major trends to watch in the markets for the years ahead.

In January, the IMF cut its global growth forecasts for the third time in less than a year and warned that recovery from the financial crisis could be jeopardised if key financial challenges are not properly addressed. It projects that world output will be 0.2 points lower than in previous forecasts, and substantiates this new figure with a combination of factors including a generalised slowdown in emerging market economies, China’s rebalancing, lower commodity prices that are putting Brazil, Russia and Saudi Arabia in precarious economic straits, and the gradual exit from extraordinarily accommodative monetary conditions in the United States.

The impact of refugees entering Europe was also cited as a potential strain on the job market, and as a buffer, the IMF suggested that central banks continue to boost growth and that finance ministries bolster investment spending wherever possible.

Although economic forecasts vary regionally – the IMF expects the economic output of the US to remain relatively steady at between 2.5%-2.6% over the next two years, to remain constant at 1.7% in Europe, and to slow to 6% in China by 2017 – the overall trend indicates that emerging economies will struggle the most over the coming years. Following a recent increase in interest rates by the US Federal Reserve, for example, emerging Asian economies with currencies not pegged to the US dollar have experienced downward pressure. This is because as US dollar-denominated assets become more attractive as a result of their higher returns comparative to their equivalents in Asia, ensuing money outflows cause

the depreciation of local currencies to kick in. While Asian central banks may try and offset these effects by raising interest rates, this also squeezes growth and may dangerously fuel deflationary expectations in a region already facing a deceleration.

The aftershocks of shifting monetary policy For emerging markets with currencies pegged to the dollar such as Kuwait, UAE, Saudi Arabia and Bahrain, increased US interest rates will have a slightly different impact, as they will be forced to tighten credit conditions. When combined with the low oil prices that are already afflicting the region, Gulf currency systems are likely to face significant pressure, especially if forced to continue spending from reserves.

Overall, between the tightening of US monetary policy that is driving countries with currencies pegged to the US dollar to raise interest rates, and the still loose monetary policies of European and Japanese central banks which is harming competitiveness,

Energy utility assets have been the subject of extra attention since the Paris global climate agreement

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current economic dynamics make things especially challenging for emerging economies. Even so, the Gulf Cooperation Council (GCC) will remain pegged to the US and also gradually increase interest rates. To mitigate the effects of changes in Europe, Asian central banks are also expected to more closely track the monetary policy of their European counterparts.

The uncertainty surrounding global economies has played itself out on the stock market and generated an unexpected effect on treasuries. In fact, as the appetite for a safer, more appeal-

poised to become the most financially important generation in America, Millennials represent an important class of upcoming investors and their investment proclivities are starting to become trends.

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ing alternative to stocks grew larger, investors began increasingly putting their money in treasuries. As US, European, and Chinese stocks continued to decline in the summer of 2015 – in some cases to numbers below those in 2007 – investors saw the value of their U.S. government-debt holdings soar by $67 billion. As James Kochan, chief fixed-income strategist at Wells Fargo Advantage Funds told Bloomberg, “For global investors with large amounts of money seeking a safe haven, it’s Treasuries, Treasuries and Treasuries,” he said, adding, “I can’t think of anything else. “Overall,

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in a time when aggregate demand around the world has hit new lows which no investors are immune from, the game has clearly changed from bullish investment behaviour to cautious capital preservation – a strategy that also applies to commodities.

After suffering from their worst drop since 2008, industrial commodities in particular are seeing exceptionally high losses, though signs indicate that certain commodities may soon be turning around. Iron ore, platinum, copper and coal suffered the biggest hits and the Bloomberg Commodity Index fell a whopping 25% last year, now standing at its lowest level since 1999. Their drop in value was largely due to decreased demand from China, which has begun to invest and construct less, and instead grow consumption. As this was happening, major miners in Australia and Brazil failed to accordingly ease up on production, which led to a glut of commodities that was only compounded by China’s bid to source more of its own domestic ore. In the wake of this decreased demand, it has become clear that newly emerging countries aren’t big enough to require the same quantities of raw materials. For perspective, in 2000, China consumed 12% of the world’s demand for metal, but now accounts for 50% of total demand. Its demand for steel is larger than that of the US, Russia, India, Japan and Korea combined, and between 1998 and 2008, its demand for iron ore rose by fivefold. By the end of 2014, its share of global consumption was 10% for oil, 45% for copper and zinc, and more than 50% for aluminum and nickel. Yet as China’s demand decreased, the value of the US dollar increased, thereby further complicating matters. Having reached its highest level since 2003, a stronger dollar has added pressure to commodities, which are priced in US dollars. When the value of the dollar rises, it takes fewer dollars to buy commodities, which encourages negative performances.

Blue chips save the day?

In these times of increased market volatility for both stocks and commodities, blue chips may be a promising alternative. Several respected investors have already pointed out that while big ‘rocket’ stocks like Tesla, Netflix, Facebook, Under Armour, Salesforce and Amazon have gotten excess attention, blue-chip dividend stocks have proven to be the most reliable. Nonetheless, the popularity of

high-growth stocks often overshadows the security of blue-chips for a variety of reasons, including a tendency for investors to operate with a trader’s mentality and follow momentum rather than investing for the long-term. Some investors also struggle to part with the high-growth stocks that have yielded them huge gains during more bullish times, or want to avoid hefty capital-gains taxes. Still, given a weak global economic backdrop, which offers few opportunities for strong growth, high-quality and defensive blue-chip stocks are proving a safe bet.

Millennial investors bucking investment trends Despite the increased risks of the traditional stock market, however, there is one group of investors that is becoming increasingly bullish as stocks tumble: Millennials. On August 24th when the stock market tanked over 1,000 points, Robinhood, a stock trading app that is popular with Millennials reported that its number of new accounts doubled. 65% of its customers bought stocks that day, a pattern which was mimicked by Degiro, an online trading platform based in the Netherlands. This was all happening as investors pulled nearly $30 billion from stock funds, or the largest weekly outflow since Bank of America Merrill Lynch began collecting this data. It’s an encouraging sign that Millennials are not as concerned with China’s economic slowdown and its aftershocks on the global economy, nor as disengaged from the stock market as often reported.

Nonetheless, there is still reason to believe that Robinhood and Degiro investors represent a small portion of Millennials, especially when considering that a recent Goldman Sachs survey finds that only 18% of Millennials trusted the stock market as a the best way to save for the future. Over 20% claimed they didn’t know enough about stocks to invest, and yet another 16% deemed the market too volatile or too unwelcoming for small investors.

Still, poised to become the most financially important generation in America, Millennials represent an important class of upcoming investors and their investment proclivities are starting to become trends. Unlike their Baby Boomer parents, for instance, Millennial investors are more inclined to put their money into leisure and travel-related stocks such as pubs, airlines, restaurants, live events, online gaming and the sharing economy. They are more interested in experiences, Sarbjit Nahal, head of thematic investing at Bank of America Corp in London told Bloomberg Business, as these help them shape their identity and create memories. They seek alternative roads to satisfaction and tend to favour the stocks of companies they are familiar with. Unsurprisingly, tech stocks like Facebook, Apple, and Netflix are also popular among Millennials because they use and understand the products developed by these companies. Still, larger market trends suggest that tech stocks may be up on harder times than they’ve been in recent, more capital-flush years.

The end of bottomless coffers for tech startups?

Common logic indicates that if big investors begin losing money in the stock market, they might become less keen to invest in companies such as tech startups, which present a higher degree of risk because they are valued on potential more than current profits or dividends. Likewise, startups that have already received one or two rounds of investment and are seeking a third may find themselves with a lower valuation than in previous rounds. Start-

In these times of increased market volatility for both stocks and commodities, blue chips may be a promising alternative

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Financing and fortifying the backbone of world economies

ups might even see a downturn round, and the excessive company evaluations of the past may be corrected by a leaner market.

While this is unlikely to make it impossible for entrepreneurs to get more capital, they may have to work harder to convince investors that their companies are indeed worth their valuations.

On the other side of that equation, however, is the silver lining that as a result of a struggling market, big tech companies are now cheaper to buy. If enough investors decide to sink their cash into them, a rebound for the tech sector may even be quicker than expected. For startups still in growth mode, however, things are slightly more complicated. In addition to being harder to attain seed capital under current market conditions, the outlook for going public is not very rosy for the near future.

Since the seemingly bottomless coffers of seed capital for tech startups are starting to become scarce, companies that need more money to keep afloat are not guaranteed an enthusiastic reception when attempting to go public. At present, if their balance sheets allow it, startups are being advised to hold off on an IPO until the market improves.

The threat of climate change – a boon for energy utility assets?

For as much instability as tech startups present, energy utility assets, on the other hand, may benefit from potential stabilisation following increased investor appeals for clean energy sources. Energy utility assets have been the subject of extra attention since the Paris global climate agreement left it clear to the world that every country must be on

the path to a low carbon economy. Partially in response to this agreement, according to Bloomberg New Energy Finance, new clean energy investments are up six fold since a decade ago and now amount to 330 billion.

The long-term extension of wind and solar federal tax credits in the US is expected to stimulate an additional 73 billion of clean energy investment over the next four years, and a record 42 billion dollars in green bonds were issued last year. Perhaps most impressively, clean energy investments in low-income countries matched investments in the Organisation for Economic Co-operation and Development (OECD) nations.

The real challenge now is finding ways to act quickly and scale up new opportunities. The World Resources Institute reports that the eight largest carbon emitters (Brazil, China, the EU, India, Indonesia, Japan, Mexico, and the United States), will double their renewable energy supplies. In the majority of these countries, ambitious plans are already in place to generate wind and solar power and to increase dependence on fossil fuels while relying less on oil, but for real change, all spheres of the investment community need to be involved. Utility-scale projects such as wind farms, solar parks and biomass plants still only represented 60% of the money invested in clean energy last year.

Small-scale projects represented 20% of investments, and less than $6 billion was allocated to clean energy venture capital.

Though encouraging, these numbers still fall extremely short of the trillions that are needed to address climate change with the speed and scope that is necessary.

One final pillar of the global economy that must be considered when evaluating the world’s future economic outlook are SMEs. The lifeblood of the economy, SMEs are critical to economies around the world, but their financing options are far from abundant. This is largely because they are considered riskier investments than larger companies, and the heightened regulatory scrutiny that followed the global financial crisis has made banks increasingly sensitive to risk.

According to a 2015 study by the International Organization of Securities Commissions (IOSCO), roughly 60% of SMEs worldwide rely on bank loans as their primary source of financing. While capital markets could be a viable alternative source of financing for them, IOSCO found that only 25% of SMEs use equity financing as their primary means of raising capital. High regulatory costs, fear of losing ownership of a business and lack of familiarity with capital markets are all cited as reasons for sticking to bank loans over capital markets.

Beyond capital challenges, a number of other obstacles impede SMEs from reaching the full scale of their potential.

Cyber-threats continue to be a source of lost business, with cost – equipment, machinery, education and employee training – continuing to be a barrier to innovation.

According to Zurich Insurance Group’s third annual global SME survey, it is estimated that small and medium-sized suppliers in the U.K alone are owed $364 billion by their corporate buyers, and that these outstanding payments have either severely strained their accounts, or in some cases, forced them to close.

Fortunately, a variety of new capital markets have been created to meet the funding needs of SMEs, thereby helping them to attain the capital they need and bolstering market integrity. In India, for instance, an “SME Exchange” is a stock exchange for the listing and trading of shares belonging to SMEs that would otherwise not succeed in being listed on a main exchange. The advent of these markets has allowed smaller companies to benefit from capital markets, gain visibility, maximize wealth, scale their operations, and provide new opportunities to investors.

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KENYA’S

CAPITAL MARKETS AIM TO BECOME THE FINANCE CENTRE FOR ALL OF AFRICA Already a funding hub for East Africa, Kenya aspires to widen its scope and become the financial market of choice for companies across the continent. Mr Paul Muthaura, Acting CEO of Kenya’s Capital Markets Authority, tells how his country hopes to achieve this goal.

WF: To what extent do capital markets in East Africa play a pivotal role in the continent’s growth?

PM: When you look at the wider continental story, the majority of the countries are thriving, with financial entities that started 20 years ago with as little as several thousand U.S. dollars worth of loans that are now worth over several hundred million. This transformation has been led by growth in manufacturing of consumer goods, a burgeoning middle class and sprouting infrastructure. The rate of growth and demand is significantly outstripping the ability of the traditional bank structures to finance further expansion; that’s where ultimately we see the capital markets playing such a critical role in the transformation of the continent as a whole.

WF: How is Capital Markets Authority (CMA) in Kenya creating a friendly and convenient trading environment, while increasing the nation’s competitiveness in the region?

PM: In the East African story, the number of IPOs during the last few years has not been as high as expected, which has led us to establish several critical initiatives in order to accelerate the number of companies that are going to come forward. First and foremost, we have introduced a new Companies Act in Kenya that revolutionises and modernises the framework for companies’ operations, public listing procedures, directors’ responsibilities, and establishes much more explicit liability and responsibility for corporate governance and risk management for the board of directors. The Companies Act is complimented by the new Corporate Governance Code for Public Listed Companies, which was developed by the authority in collaboration with industry stakeholders and is currently awaiting publication into law by Kenya’s National Treasury. It was benchmarked against South Africa’s King III, the new code in the UK, the Malaysian and Indian codes, as well as a number of others.

We are very confident that the framework will put us on par with

any other financial centres, whether regionally or internationally, when it comes to transparency, accountability, and clear allocation of responsibility at board level.

In Kenya, we have taken much further strides that will compliment the new Corporate Governance Code with a new Stewardship Code for institutional investors. The primary intention of the code is to encourage responsible management and oversight of assets by institutional investors, through engagement with listed companies in order to ensure a more sustainable growth. If you look at comparative markets that have stewardship codes, closest to us is South Africa, which is significantly larger and more mature; this is the progressive direction we are committed towards. We believe very strongly that the new regulatory changes are going to create the necessary space for confidence in issuance and in the growth opportunity.

We also note that there have been significant developments in strengthening market infrastructure and operations, with the move to settlement of equity and corporate debt transactions to central bank money, the introduction of more stringent corporate governance and conduct of business standards for market intermediaries, the implementation of risk-based supervision, the introduction of international certification standards for market players in conjunction with the CISI (Chartered Institute for Securities and Investment) out of the City of London and the demutualisation and self-listing of the Nairobi Securities Exchange.

WF: How is CMA set to compete with more sophisticated markets in the region, such as South Africa?

PM: South Africa is quite a significant market, but when you look at its impact beyond its borders, other than the jurisdictions that directly have borders with it, it has not been able to play an effective role as a funding centre into the rest of the continent. South Africa is a great destination for capital; however, it is not as effective a conduit for capital.

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That’s where Kenya really has a very strong competitive advantage.

When you look at the scope of countries we’re looking to target, we’re conscious that the continent is ultimately going to be divided into four.

You have Nairobi, Lagos, Johannesburg, and Egypt/Morocco.

“we aim to meet our ambitions over the next 10 years. We have no delusions; you don’t wake up today and become the best.”

WF: How is CMA strategizing to become the conduit for the rest of Africa’s financial sector?

PM: Kenya already stands out as the financial centre for the East African community, but it is true that we are more ambitious and are aiming to become a competitive financial centre able to cater to the whole of Africa, and in particular Middle Africa is our current target.

Looking at the continent, the Master Plan has identified approximately 18 countries in Sub-Saharan Africa, that are ultimately not being adequately catered to, in terms of market-based financing. There is a significant growth occurring; corporate growth, infrastructure development, but no jurisdiction has emerged that can channel funds into all these countries in an effective and scalable manner. CMA and the wider Kenyan industry is conscious, as these markets in the continent grow and with less traditional financing from banks in the context of Basle III convergence, Kenya’s Capital Markets, through it’s 10-year Capital Market Master Plan, will become the market of choice for many of these jurisdictions to raise large amounts of capital.

We are looking at the bigger picture, and this is where our 10year master plan comes in, to bring about the innovation and reform of Kenya’s capital markets. Through the implementation of this blueprint, we will not only be developing Kenya, but creating mechanisms for funding mining in Congo, funding dams in Ethiopia and funding new railways across Tanzania, all through this single market.

WF: Bearing in mind you were recently voted the most innovative capital markets regulator in Africa, how close is CMA to achieving your vision of becoming “The Heart of African Capital Markets”?

PM: We are only beginning, with 2015 being only year one of the 10-year Master Plan which was launched in November, 2014. Within such a short time, CMA had already been recognised the most innovative regulator; we have a global benchmark Corporate Governance framework in place, a new Companies Act; and new products coming in such as Real Estate Investment Trusts, Exchange Traded Funds and Derivatives. Our ambition is targeted to be achieved over the next 10 years, we have no delusions. You don’t wake up today and become the best. It is a very clear and sequential growth pattern, but when you look at the plan, what was critical to us is we identified ab-

solutely clear milestones, so that even from an external perspective, you can assess whether the Master Plan was just a piece of paper, or it’s actually a committed blueprint to growth and development. We have already exceeded the targets for year one.

By the end of 2016, we expect to be reclassified into an MSCI emerging market, as opposed to a frontier market. Which means underlying work around growing market capitalisation, and creating greater flexibility for foreign investors. To this end, in July 2015 we amended the law to remove the 75% cap for foreign investors to come into our listed companies. All of these are very conscious and sequential actions to make sure that we’re going to achieve our goal of becoming an international financial centre and the heart of African capital markets.

We further note that implementation of the Master Plan has been embraced at the highest levels of Government, with the Steering Committee including four Cabinet level representatives and the Chairman who is the Cabinet Secretary to the National Treasury.

WF: How would a Nairobi - London Dual Listing play a role for increasing foreign investment, and also domestic reinvestment, into the Kenyan capital markets?

PM: When we look at dual listing, we see it from two different perspectives. At one level, where you have domestic Kenyan companies realising that, with some of their growth parameters and aspirations, the size of our local capital markets are not going to be adequate to raise the kind of capital they need. They have an opportunity to dual-list, so capital can be raised both in Nairobi and in London. By the same token, we see dual listing as an opportunity for companies looking to enter into Kenya. As with many countries, there is a local content expectation for companies coming into Kenya, be it a 30% or a 20% local ownership, and we want to make it very clear that if they use dual listing, they can effectively raise their local participation through the markets as opposed to identifying and negotiating with a particular investor.

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Emerging STAR performers buck global trends 2015 was generally a year to forget for most emerging and frontier markets, however for a few exceptions it was also a year to break out the champagne. We take a look at some of the big movers and shakers across the emerging world in 2015 and the outlook for 2016 and beyond.

With the economic slowdown in China, Russia and Brazil in recession, the plunge in oil prices and the prospect of an increase in U.S. interest rates looming, 2015 was yet another tough year for emerging and frontier markets.

Both the Morgan Stanley Capital International (MSCI) Emerging Market and MSCI Frontier Market indexes plummeted last year, falling -14.92% and -17.67% respectively. It is estimated that emerging markets saw $531 billion worth of net capital outflows last year compared with $48 billion net inflows in 2014.

However, taken on an individual basis, it wasn’t all doom and gloom for emerging and frontier markets and a few star performers bucked the global trends.

LATIN AMERICA AND THE CARIBBEAN The Jamaica Stock Exchange (JSE) was the top performing stock market in the world in 2015 with gains of 96.27%. In May Jamaica became the first country in the Caribbean to introduce an online trading platform which helped to attract more investment, particularly from the diaspora in North America and the United Kingdom. But overseas Jamaicans were not the only source of capital inflows from abroad; there has been increasing investor interest from large multinationals also. Investors that were in the market at the start of last year would have doubled their money up until mid-February.

Local Jamaican brewer Desnoes & Geddes saw its shares rise more than 500% following its acquisition by Heineken; while Mexican theme-park operator Dolphin Discovery Group bought 58.5% of ordinary shares in Jamaican-based Dolphin Cove Ltd. Analysts are bullish about the JSE’s prospects for 2016, as the government plans to divest state-owned enterprises through initial public offerings. The JSE continued on its upward trend into the early part of 2016 with gains of over 6% up to the end of February.

The other outstanding performer in the Latin American and Caribbean region was Argentina, finishing 36% up on the previous year. The election of Mauricio Macri to the presiden-

cy in November bodes well for investors, as he is seen as a more pro-business, market-friendly alternative to his predecessor, Cristina Kirchner.

“This will change everything. Argentina has done so many things wrong during the last few years that even if you have halfsensible policies from a new government, it’s going to be a massive improvement,” said Bloomberg editor Gavin Serkin, who ranked Argentina third in his book, Frontier: Exploring the Top Ten Emerging Markets of Tomorrow.

EMERGING EUROPE In emerging Europe, Latvia, Malta and Slovakia were amongst the best performers and joined Jamaica and Argentina on the list of the top-five performing frontier markets in 2015 (second, fourth and fifth respectively). Latvia’s Riga bourse increased 45.66%, as market reforms have translated into gains on its stock exchange. Elected in January following the resignation of Laimdota Straujuma, Maris Kucinskis is expected to follow on the reform path of his predecessor, which should help to maintain investor confidence and keep the OMX Riga rising in 2016.

Also continuing on an upward trend in the first quarter of the year is Slovakia’s SAX index, which experienced a 31.11%

In emerging Europe, Latvia, Malta and Slovakia were amongst the best performers and joined Jamaica and Argentina on the list of the top-five performing frontier markets in 2015 (second, fourth and fifth respectively).

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rise in 2015 and has been the best-performing stock market in Europe so far this year. Macroeconomic performance has also been positive, with 3% growth in 2015. The European Commission has predicted growth of 3.2% in 2016, while its debt-to-GDP ratio is expected to fall slightly to around 52%. That compares with projected GDP growth of 1.7% for the whole of the euro area this year, and a debt-to-GDP ratio of 93%.

“The recovery in the Slovakian stock exchange comes after a relatively long period of stabilisation in the country,” Jaromir Sindel, an economist at Citigroup, told the Wall Street Journal’s Christopher Whittall in February.

With three stocks – Mapfre Middlesea, Medserv and RS2 Software – more than doubling in price over the year, the Malta Stock Exchange (MSE) grew 33% in 2015. In 2016 the MSE will continue to target overseas companies in China, Turkey, Italy, Spain and Eastern Europe; and in February it launched its Shariahcompliant index in a bid to attract more investors from the Middle East.

“The MSE’s index outperformance is a testimonial to the Maltese economy being one of Europe’s best performers, to improved corporate profits and an economy awash in liquidity. Consumer confidence is also quite strong, which along with other positive economic fundamentals should bode well for the Maltese equity market,” said MSE Chairman Joseph Portelli.

ASIA Freefall in China’s stock market was well documented last year. The bubble burst in June with shares plummeting 30% in as little as three weeks. Last year outflows hit an estimated $1 trillion, more than seven times higher than the whole of 2014, and analysts in China say that the benchmark index is yet to bottom out, meaning more difficult months ahead.

Huang Weimin, the hedge fund manager whose Chinese stock-index futures wagers famously returned more than 6,200% last year, has warned that the Shanghai Composite Index could drop another 15 percentage points in the first half of 2016, as slower growth and a weaker yen have led investors to jump ship. Economic growth forecasts for China this year have ranged from an highly optimistic 7% to a highly sceptical 3%; the IMF has called it at 6.3%.

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All smiles in Jamaica: the tiny Jamaican Stock Exchange was the world’s top performer in 2015 China’s slowdown has affected everyone, including its neighbour and BRIC counterpart India. After a mediocre 2015 for its stock markets, things are not looking much better this year, with Mumbai’s Sensex entering bull territory in February for the first time since 2010, after a record bull-market run that lasted 1,514 days. Like China it is expected to bottom out over the next few months.

India’s stocks have also been indirectly hit by the oil price slump. The Wall Street Journal reports that in the first 10 months of 2015 foreign investors had bought up $4.7 billion in shares, but between November and January had withdrawn $3 billion. Much of the selling has come from sovereign-wealth funds based in the Middle East and other regions that earn income from oil, it says, as their shrunken budgets have forced them to sell assets. But it’s not all bad news for India: while its stock markets struggle, its economy is set to grow by over 7% this year.

So with China and India’s exchanges set for turbulent year, are there any bright spots for traders in Asia? Enjoying robust growth, strong foreign inflows and with a new pro-business regime, Myanmar could be one to watch over the coming years. In December it launched the Yangon Stock Exchange, opening up to foreign investors one of the world’s last untapped frontier markets.

MIDDLE EAST There was another stock market opening last year that garnered somewhat more attention than that of Yangon: Saudi Arabia’s $500bn Tadawul Stock Exchange, which in July opened for the first time to foreign investors, representing a huge opportunity for those with an eye for the Middle East’s biggest economy.

With 169 companies spanning 15 different sectors, the opening of the Tadawul bourse to foreign capital is part of a broader plan to diversify the kingdom’s economy away from oil. However, like other bourses in large oil producing nations in the region, the Tadawul exchange will remain highly susceptible to oil prices. Since July 2014, its All Share Index has fallen around 50%. With the Saudi bourse directly linked to the oil market, many analysts agree that 2016 is not looking good. “If the oil price remains under pressure, TASI will most likely struggle for the rest of the year,” Akber R. Naqvi, executive director of Al-Masah Capital Management Limited told Arab News.

It is a similar story for other stock markets across the Gulf and the Middle East, indicative of how important it is for these countries to diversify their economies away from oil. There is huge potential for technology. As several countries across the region facilitate the growth of promising hi-tech startups, venture capital is pouring in. “In the past five years,

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the tech ecosystem in the Middle East has swelled to more than 100 funds investing in the region and more than 75 accelerators,” writes Elizabeth MacBride in a report for Forbes.

“The growth in the ecosystem stems partly from the long-term economic forces at work: the growing middle class, the rapid adoption of technology and growth in Internet penetration — and the fact that, as far as tech goes, it’s early movers’ advantage. The Middle East also benefits from a core group of local investors, who invest personally in the region, and who have ties to the finance and tech communities in Silicon Valley. Some of their work is beginning to pay off.”

One stock market has managed to significantly buck the trend in the Middle East: since the U.S.-Iran nuclear deal came into force on January 16, the Tehran Stock Exchange’s TED-

PIX index has rallied about 15%, while the volume of trading by foreign investors, most of whom are European, has increased 10-fold. “The total trade value is not remarkable yet, but it is a very good indication that foreign investors are now more enthusiastic about our market than before,” exchange spokesman Hamid Rouhbakhsh told the Associated Press in February.

AFRICA Following significant gains in 2013 and 2012, African exchanges faced a second consecutive year of difficulty in 2015, with gross returns of the MSCI Emerging and Frontier Markets Africa (excluding South Africa) Index falling 19.2%.

South Africa’s Johannesburg Stock Exchange, the continent’s largest, has been on steady decline since November. And with the country’s

India’s economic performance has been impressive, but it hasn’t been reflected in its stock market

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current economic woes, the outlook for the JSE remains bleak for 2016.

Nigeria, Africa’s largest oil producer has naturally been hit hard since the oil price collapse, as well as by political uncertainty surrounding the presidential election last year. The All Share Index of the Nigeria Stock Exchange (NSE) – the second largest in Africa after the JSE – has fallen around 45% from its peak in July 2014. Oscar Onyema, Chief Executive Officer of the NSE has told reporters in Lagos that he anticipates another challenging year in 2016, adding that the Exchange would focus on structural reforms to boost investor confidence and attract new listings in the years ahead.

One to watch, Ivory Coast’s tiny BRVM exchange was one of the top performers in Africa in 2015, riding on the back of the country’s strong growth. With only 39 listed companies and a market cap of $15 billion as of December 2015, the BRVM expects to add a further 20 companies over the next three years through the privatisation of state-owned enterprises and by introducing incentives to attract more private businesses.

“While it is still difficult to attract companies to list on the regional ex-

Saudi Arabia’s $500bn Tadawul Stock Exchange opened for the first time to foreign investors, representing a huge opportunity for those with an eye for the Middle East’s biggest economy.

change, we hope that this will change over the next three years as governments begin to drive forward with the process of privatisation and as the exchange continues to introduce preferential tax rates and the likes to boost listings and interest by companies,” BRVM chief executive Edoh Kossi Amenounve told Euromoney in February.

While it was a challenging year for African markets as a whole, PwC’s recent report, African Capital Markets Watch, paints a brighter picture. According to PwC, $12.7bn was raised in 2015 in equity capital markets (ECM) activity across the continent, with over $41.3bn raised over the past five years; while there was an overall increase in IPOs of 12% in terms of transaction volume and 17% in terms of US dollar denominated value in 2015.

Over the past five years, PwC reports that there have been 105 IPOs raising

$6.1bn by African companies on exchanges worldwide and non-African companies on African exchanges. The trend looks set to continue and there will be a number of high profile IPOs over the coming years, which include the Nigerian government’s long-anticipated selling of assets in the Nigerian National Petroleum Corporation in 2018.

“Growth across the African continent will require continued investment in various sectors including infrastructure, agriculture, financial services, and telecommunications, alongside other industries more traditionally associated with Africa,” said PwC South Africa Capital Markets Partner, Coenraad Richardson.

“In 2015, the capital markets reflected this continued need for investment and continued appetite from investors with key portfolio allocations targeted toward emerging and frontier markets.”

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Entrepreneurial talent taking India in new direction The fastest stock exchange in the world, in fact 10 times faster than secondplaced Singapore, BSE LTD (Formerly known as the Bombay stock exchange) is enabling India’s deep-rooted entrepreneurism to get off the ground with the latest technology and a paradigm shift in financing regulations. Ashish Kumar Chauhan, Managing Director and CEO of the BSE, explains how.

WF: Given India’s current economic performance and future prospects, how well do you feel is India equipped to replace China as the world’s engine of growth?

AC: From 1979 onwards, China’s growth, in a very different context, has focused on manufacturing. China’s growth has been planned and followed a top-down approach while India, being a hugely democratic country, has followed a bottoms-up approach. In this respect, India is very different to China. Demographically, there are similarities between the India of 2016 and the China of 1979 given that India, just like China at that time, has an unrivalled youth demographic. China planned its future growth by capitalising on this advantage by creating employment/entrepreneurial opportunities for its young population.

India’s progress will be different as it only has 2% of the world’s landmass and 17% of the world population. So, while China chose manufacturing, based on government decisions, India, without centralised planning, chose to go with services, since the advantage China had was already too big, based on those demographics.

Whether India will be able to replace China as next global growth engine remains to be seen, but our country is definitely well equipped to maintain a sustainable growth pattern in the medium term. India has improved in ease of doing business recently. The current government is making huge efforts to make India business friendly. Government policies of Make in India, start up India stand up India etc. are bringing desired results. A huge entrepreneurship talent pool is building up which will take India in to a new direction of technology and wealth creation.

WF: How would you evaluate the apparent contradiction between the impressive economic performance of India and the recent lower stock market performance?

AC: The year 2015 will be one to forget for investors in India as most of the top asset classes failed to make money. Equity markets couldn’t match last year’s stellar performance and showed how improving economic fundamentals don’t always lead to higher stock prices. Key economic indicators, including gross domestic product growth, inflation, current account deficit and fiscal deficit improved in 2015, but the benchmark S&P BSE Sensex index–which rose 30% in 2014 – fell 5% in 2015. However, India in my opinion has not been performing that bad. It is true that many funds have been moving away from emerging markets recently, but most of the emerging market funds contain a portion of Chinese, Brazilian, Venezuelan, etc. stocks, as well as Indian. In other words, it is more than an Indian issue alone. When things calm down however, people will start treating India separately. Rising domestic consumption demand and lower commodity prices are expected to boost company earnings and stock prices.

WF: Do you think the financial community in India has a role to play in sending a positive message about the Indian Market and its positive outlook?

AC: India is such a big country. I sometimes feel that there are too many different opinions impeding us from having a single unified vision of India and how to market our country. When we meet at international forums however, the message is more compelling. There is a need to market India more positively and there are a lot of people that need to be reached both within India and outside.

For this, we will continue to reinforce our communication efforts, investment awareness programs, and we will continue to use technology as a tool for that.

WF: What is in your opinion the significance of the “Fourth Industrial Revolution” both for India and for an institution such as BSE?

Ashish Kumar Chauhan, Managing Director and CEO of BSE AC: BSE used to be a floor-based exchange. Today we are not only easily accessible to all Indians; we have also become the fastest exchange in the world with a speed of six microseconds. In finance, the faster you receive information, the better you are able to make decisions. India is adapting more rapidly to the fourth industrial revolution than we would have thought 10 years ago. Key indicators such as connectivity are evidencing this.

Technology is changing the way humans are interacting. This will lead to a complete new ecosystem. One small innovation in technology can change the world forever. We are also noticing this in India.

The IT industry in our country has provided many Indian success stories from nontraditional backgrounds. Many people have grown with these stories. Today, almost every youngster wants to become an entrepreneur. We see incubators and angel investors everywhere and new venture capital is being raised more easily than it has ever been before. After the U.S, India is the entrepreneurial country per excellence.

In the past 10,000 years, we have not seen the level of wealth that is being created in the world today and that will continue to be created in the following 30 years. By using new technologies such as

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“Once you get involved and have a vision for the medium or the long term, India is a tremendous addition to your portfolio.�

robotics, life sciences, nanotechnology, artificial intelligence, the world is destined to grow. Many of these technologies will require for people to use their brain. And this expands the spectrum beyond IT. For instance, just last week a young company announced a vaccine for the Zika virus in India. This is something to be proud of, since it came out of India.

WF: The entrepreneurial spirit is deeply rooted in India. How easy is it for its young entrepreneurs to use BSE as a platform to raise capital?

AC: Four years ago, we created a new SME segment. Previously, only companies with US$ 3 million profit in their last three years of operation could be listed. For Indian standards this is a very large company. Today however, even if a company needs to raise $100,000 in capital, BSE can assist in that process. This is a paradigm shift and we have currently 123 companies listed in that segment. We expect thirty more to join in the following three months. In other words, every week 2-3 companies are joining.

We expect to develop them from SME into a bigger scale company. Additionally, we are also starting a new high-tech segment for companies. In India, stakeholders will trust a company more if it has BSE involved as a regulator. It is also worth mentioning that we have created an incubator a few years ago that we are seeking to expand. The future is bright for this new incubator with many intelligent and ambitious people involved in several areas such as 3D printing and robotics and many other areas that are already shaping the future of India tomorrow.

and their experience in implementing the framework for most emerging markets around the work, including Africa, Latin America, Asia, the Middle East, Central Asia and some parts of Europe.

We want to make this scorecard widely available to further strengthen confidence in the market. Our collaboration with IFC to develop this scorecard is a not only a revolutionary step towards benchmarking companies in India, it will also result in increased transparency, access to capital, economic development and boost investor confidence.

WF: Can we expect BSE to do an IPO in the near future?

AC: We have been trying to list since 2005. It has however not been possible due to regulatory conditions not being in place. In 2009 the regulator set up a committee recommending that Stock exchanges cannot list. The government did not accept this, but it was not possible to proceed with the listing at the time. Then in 2012 the regulations became too strict. In December 2015 however, the regulators issued more flexible conditions for listing, so, in January 2016 we reapplied for SEBI (Securities and Exchange Board of India) approval. We will undergo all due processes in order to list our shares, and after an initial approval, the process will be similar to any other company.

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WF: What separates BSE from other stock exchanges in India?

AC: First of all, we do have a brand advantage: when people think about the Indian stock markets they think about BSE. Our brand is thus highly recognised; everybody grows up listening about the Indian stock market through BSE indexes. Secondly, BSE has the higher reach, 3000 cities in India and 200,000 terminals. As we come up with newer and better products, we can take more advantage of those distribution channels ensuring that BSE is available to more people. And thirdly, we have achieved a clear technology advantage: we are the fastest stock exchange in the world, with six-microsecond response time, ten times faster than the second, which is the Singapore Stock Exchange. We want to continue to be pioneers of technology and achieve even faster response times. Technology is not just about speed, it is also about being able to launch new products and continuously transform.

WF: BSE also excels in Corporate Governance. Recently, you released a corporate governance scorecard in collaboration with International Finance Corporation (IFC). Can you provide an overview of that?

AC: Indeed, IFC worked with us and assisted us developing this scorecard that, in terms of disclosure and ethics, will enable companies to assess their corporate governance performances against global benchmarks. We want to tell companies that if you do behave ethically, the market will reward you. The scorecard derives from global learning of IFC in the field of corporate governance,

The Bombay Stock Exchange (BSE)

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‘We are trying to be a part of

what’s happening in Egypt’s Dr. Mohamed Omran, Chairman of The Egyptian Exchange

transformation’

WF: Beginning with the global financial situation: in 2009 many people lost confidence in stock markets as a result of the global financial crisis. How can this trust be regained?

MO: The 2008 and 2009 financial problems originated with the subprime lenders, which is quite a different situation than what we have now. We began 2016 with what is most likely the worst January ever for financial markets in the world, but the way I see it is that the turbulence in the financial market now is not coming from the structure of the financial market but because of the fear of the slowdown in the world economy. These are very separate issues. 2008 yielded fear in the financial element of the economy but this time many people fear sustainability in the real economy which is hurting investors’ sentiment.

You can see that in the world’s second largest economy, China, there was very slow growth. Many international financial institutions have downgraded economic growth forecasts for this year. Commodity prices are going down, oil prices especially, not necessarily because supply is high, but because a lower demand is being reflected in lower manufacturing and production rates.

In general you feel that there is a legitimate fear that the world economy will face problems in 2016. We’re not saying that we’re entering into recession, but the level of expectation is going down. With a slowdown of the world economy, this will affect many countries including Egypt as you can expect that the private capital flow and availability to attract foreign direct investment will decrease as well.

This is what’s happening in the world as well as neighbouring countries in the region which of course are very important to Egypt. Lower commodity prices will affect their budget, and lower their investments. It is a complex situation which gives investors a negative sentiment which is affecting the stock markets, making January such a terrible month.

WF: And how has Egypt weathered such a situation?

MO: We are no exception to the world economy. The Egyptian stock market has been similarly affected. Twenty-five percent of our daily trading is coming from outside the country, whether from Arabs or non-Arab nations, so many are rebalancing their positions and portfolios, which is affecting our stock exchange similar to what is happening in the world economy.

Until we have a clearer picture of the direction of the world

“ Twenty-five percent of our daily trading is coming from outside the country. ”

Egypt’s economy has recovered well since political turmoil subsided in 2014, with growth of 4.2% last year. But with 900,000 people entering the job market each year, Dr. Mohamed Omran, Chairman of the Egyptian Exchange, believes that sustained growth of 6-7% will be required to keep unemployment low. Moving forward Dr. Omran says that the Egyptian Exchange will play a strong role in economic growth as a source financing for the country’s big infrastructure projects. He also discusses the benefits of the government’s plan to list shares of some state-owned companies on the exchange. economy, we will have a higher level of volatility here in Egypt when looking at the stock market. Overall, the sentiment is not on the side of the financial markets. We hope that economic policies will end up giving trust and confidence back to the international investment community.

WF: When you look at the general forecast for the Egyptian economy for 2016, what do you see?

MO: Except for last year, the Egyptian economy was growing at a low rate, of 1-2% on average. Last year was around 4.2%. It’s good but it’s not enough, because you’re talking about a country that needs between 6 or 7% to keep the unemployment rate low, and absorb the newcomers to the job market, which number 800900,000 people per year.

WF: You have spoken in the past about both “good growth” and “bad growth” when referring to the income inequality gap. Do you believe that last year’s growth can be sustained and inclusive?

MO: It’s difficult to say because we must achieve long-term growth through long-term action. You need sustainability as an equalitybased strategy for how you are managing the country; not just the economic sector but other sectors as well. The government is confident that we can achieve these levels of growth in the future. We need flexible economic scenarios and plans. While we need a master plan, we must be flexible enough so that we can adjust our policies based on day-to-day variables. We need solid 6 or 7% growth to be sustained, and we need to make sure that this growth rate is sustainable for the citizens at-large, across all sectors and income levels. This is what I’m talking about with “good growth” and “bad

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growth”. Bad growth is when an elite benefit from economic progression, and good growth involves everyone’s participation and is for everyone’s benefit. You need to put policies in place to ensure that citizens at large will benefit, and not a small group of people.

WF: As you oversee the Egyptian Exchange, how do you see the past four years since you’ve been there as Chairman?

MO: There have been ups and downs as in all stock markets. The good thing is that I’ve seen a positive trend in the functionality of the stock market. Mobilisation of resources is improving. The ultimate goal is to help the listed companies to increase their level of investment, to get the needed financing, and to list new companies as well. The main objective of the stock market is to be a hub and axis for finance.

In 2014, the stock exchange was able to finance the listed companies an estimated LE 9 billion. In 2015 it was around LE 15 billion. Egypt in 2015 was able to list 15 companies which is the highest number since 2010, and in 2013 we were able to list 13 companies. In 2015 the Egyptian Exchange led the region with three big IPOs. What I can see is that the market is playing a strong role in supporting listed companies and the economy.

We are trying to help the private sector finance infrastructure projects through the stock market. We are trying to be a part of what’s happening in Egypt’s transformation. Egypt will need huge investment, so we will adjust our financial tools.

The last initiative by the presidency itself was announcing the possibility to publicly list state-owned companies. This is an example of how the stock market can help not only the private sector but the public sector as well.

WF: You have spoken on how the private sector must also be an engine for growth, not just government policies.

“We hope that economic policies will end up putting trust and confidence back with the international investment community.”

MO: It is beneficial for the state to be a regulator to facilitate the best practices for investment; the majority of growth must come from the private sector. It has been proven everywhere that the private sector is better at managing assets and mobilising resources. I think the fact that the government is willing for stateowned companies to be publicly traded is a great move for the management of state assets.

It’s not only about capitalising the stock market and finance, but even for citizens at large. We need the tools to understand how these companies are managed, how they are performing. When these state companies are listed and traded, we see how the stock prices reflect the value of the company. It creates transparency and better governance.

What is on your agenda for 2016?

We want to improve Egypt’s economic ranking internationally, and are working hard on this issue. We are also trying to have more companies listed on our index. We want to make the life of the investor easier. Other things are out of our hands because of the global economic situation, but we are trying to improve our legal and IT infrastructure, and anything that can have an impact on how we do business here.

We are getting closer to our stakeholders with better communication and having them engaged in our decision-making.

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cyprus rediscovers its

shine

With Cyprus finally back on its feet and on the road to recovery following a major banking crisis that crippled the country’s economy, the Eastern Mediterranean island is brimming with possibility once again, CHARACTERIsED BY A NASCENT FUNDS INDUSTRY AND NEW OPPORTUNITIES POSED BY POSSIBLE REUNIFICATION. The old saying that even the severest crisis brings opportunity has become the new reality in Cyprus, a country that has weathered major upheavals and is now in the process of reinventing itself. That statement is just short of being literally true, given the geopolitical game changers in play. After four decades of stagnation between the Greek and Turkish Cypriot communities, real progress has been made towards reuniting the divided island.

It is even estimated that reunification of the island could double per capita income within 20 years, and that Cyprus could become a major investment centre in the region. At the same time, discovery of what appears to be a very significant deposit of natural gas in its territorial waters suggests that unprecedented prosperity might well accompany political convergence.

Meanwhile, the island is making great progress in its two service-sector standbys, tourism and financial services. Investment firms are now being closely monitored and supervised by the Government, as are the listed companies on the Nicosia stock exchange.

The modernisation of Cyprus’ regulatory framework for investment funds is also strengthening the island’s profile as an emerging European funds and asset management domicile. Showing potential to develop into a multi-billion-euro industry, Cyprus’ efforts have already begun to bear fruit, having seen increasing interest and appetite from investors and fund service providers looking for EU-regulated ju-

risdictions. Offering both Undertakings of Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs), and with the Cyprus Securities and Exchange Commission (CySEC) taking steps to increase the island’s appeal as a fund domicile, Cyprus is confident that it will make significant progress in attracting fund managers in the foreseeable future, with a long term vision of developing a world-class funds sector.

In addition to its proximity to major markets, Cyprus also scores high on connectivity. The country is linked through its two international airports with major cities in Europe and key destinations in North Africa and the Middle East, and also has long-established links with Eastern European countries. A good many Cypriot professionals have in-depth knowledge of these markets, and often act as business facilitators.

Corporate giants such as Weatherford, Buena Vista Hospitality Group, NCR, Bernard Shultz Ship Management, Kardex, Wargaming and AMDOCS are just some of the companies that have ba-

sed their operational or corporate management functions on the island. Cyprus is also one of the most influential global hubs for ship ownership and nautical management services.

The bottom line is that in Cyprus “the fundamental things apply.” The former British colony still has its strategic location in the eastern Mediterranean, an EU-compliant tax code and legal environment, an educated, English-speaking workforce, excellent telecommunications and transportation infrastructure, and that is to say nothing of its living standards.

A long-established free trade zone near Larnaca routes customs-free goods to Europe, Africa and the Middle East, while plans are being drawn up for a modern Science and Technology Park.

Did someone mention the lowest crime rate in the EU, a superb Mediterranean climate, competitive personal tax rates, as well as excellent educational and healthcare systems? Cyprus is an easy sell for expatriate executives, particularly those with families.

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New streams of revenue: expanding the portfolio of products and services for exchanges WITH A MORE SOPHISTICATED ENVIRONMENT, BOURSES IN EMERGING AND FRONTIER MARKETS ARE LOOKING FOR NEW SOURCES OF REVENUE. NEW PRODUCTS AND SERVICES ARE BEING DESIGNED TO BOOST BOURSES’ Profitability AND ABILITY TO COMPETE IN A CHALLENGING WORLD.

Standard for the un-standardised: Embracing multi-asset platforms in the exchanges’ infrastructure While emerging markets may not boast the array of products being offered by the world’s global financial centres, innovative leaders are coming with bold plans to grow their exchanges through diversifying their offerings. Like many of his peers, Loh Boon Chye, who took the helm of the Singapore Stock Exchange (SGX) in 2015, is forging ahead with fixed income and foreign exchange initiatives. “The Asian bond market outside Japan is $8 trillion in size,” Mr. Loh told the Straits Times last year. “But the secondary liquidity is fragmented, and most bonds, after their initial placement, will eventually wind up with investors and regional dealers,” he said.

“So we saw a need for a market infrastructure solution.

That’s why we aim to launch our bond trading system early into 2016. Yes, we need equities, we need IPOs (initial public offerings), but debt financing is also a significant part of the capital market.”

Similarly, the Qatar Stock Exchange (QSE), is seeking to attract more activity with products catering to a variety of traders. “With the introduction of Margin trading, investors will be given the opportunity to increase the size and scope of their portfolios without having to tie up more of their capital,” explains CEO Rashid bin Ali Al-Mansoori. “This will also improve market liquidity. Our product diversification strat-

egy is simple; list products that provide access to markets outside Qatar and allow easier access to a broader range of asset classes within Qatar. What should be noted by regulators, policy-makers and ordinary citizens is that, while a range of alternatives exist for many of the things exchanges do, how these markets are operated remains extremely important. Certain values, including transparency and fairness, are very valuable indeed.

Another possible space for revenue growth exists in posttrade services, industry analysts say. “We conducted a study of the post-trade ecosystem for sell-side firms, custodians and utilities, in both the United States and Europe,” Michael C. Bodson, president and chief executive of The Depository Trust & Clearing Corporation (DTCC) told FTSE Global Markets. Bringing more of these services in-house, Bodson believes, can allow bourses to help customers bypass inefficiencies of non-integrated systems, provide more confidence, safe regulatory compliance and operational robustness.

“If the industry could more effectively leverage its utilities, such as DTCC, Euroclear, SWIFT, the Options Clearing Corporation (OCC) and others, and if the utilities could collaborate to a greater degree than they have in the past, then we would see huge opportunities to centralise and standardise certain non-differentiating processes to drive down costs and risks through economies of scale.”

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Meanwhile, India’s National Stock Exchange (NSE), introduced ambitious new technology services last year that aim to provide traders with deeper insight into the market. NSE launched its new services ‘NLABS,’ which features an algorithm trading system with replay of historical market data and near live trading test experience, we well as a revamped NSEIL Dashboard which caters to traders functioning on currency derivatives, futures and options, capital market segment, securities lending and borrowing market, mutual fund service system.

A new set of clients: opportunities from changes in the profile of investors and companies Even as exchanges look to add products and revamp services, the allure of bringing more clients into the fold holds promise. Here, exchange leaders are looking for opportunities to cash in on the evolving profile of investors and companies in their home markets, and many see small and medium enterprises (SMEs) as a key to expanding their reach. The Philippine Stock Exchange (PSE), to cite just one example, last year held a special listing forum for SMEs. The PSE, along with the state-owned Development Bank of the Philippines (DBP) sought to help familiarise business owners with the basics of equities investment, initial public offerings and equip them with steps and process for developing their business through capital markets.

Working the other end of new business generation, exchanges in Africa have sought to roll out mobile financial services (MFS), which they hope will expand their pool of investors. Emerging players in this space include South Africa’s Jumo, which is developing microloans and credit checks via mobile usage history. Proponents point to the explosion in mobile banking in Africa, and say that sufficient momentum exists to build out investment products that cater to sophisticated investors.

Showing this potential, early this year, the Dar es Salaam Stock Exchange (DSE) reported that mobile trading volumes shot up by more than 40% just in

the last four months of 2015. “We envisage the increase of the size of mobile trading platform as more and more people get to know the existence and operability of this technology,” DSE Chief Executive Officer Moremi Marwa told AllAfrica.com.

The potential for mobile business extends beyond Africa. Mobile trading turnover on India’s NSE increased by nearly 50% in 2014 alone, while it doubled on the Bombay Stock Exchange (BSE) during roughly the same time period. Experts say that these volumes could double in the next two years as

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smartphone sales in India surge and mobile networks provide faster and more reliable service.

Benefiting from the technology beat With trading technology becoming ever-more sophisticated and imbedded in the basic functions trading, more attention is being paid to how the kind of specific data that belongs to exchanges can be leveraged and monetised. “Opportunities can hide in plain sight,” according to a research report published

by Strategy&. “Consider, for example, the data available to financial-services

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firms about their customers’ behaviour, their suppliers’ practices, their costs and profits, and their own operations.

Data of this sort is so abundant that it is often overlooked. Its growth is so exponential that the companies are unprepared.”

Strategy& estimates that the revenue from commercialising data and analytics will soar from $175 billion in 2013 to about $300 billion per year by 2018, with capital markets accounting for 30% of this potential revenue, second only to consumer finance and banking at 35%. Similarly, research by CSC urges financial services providers to embrace user and client data not only in their IT departments, but also in marketing, sales, customer service, product development and so on.

Kenya: Building market liquidity through transparency Even as many exchanges worldwide look to entice traders and investors with new technologies and expanded portfolios of products, liquidity remains a preeminent challenge.

“Liquidity in African markets is low compared to international norms,” says Geoffrey Odundo, CEO of the Nairobi Securities Exchange (NSE).

“Many factors contribute to this, such as a lack of counters listed on the exchanges, restrictive limits on shortselling, the absence of retail investors from the markets, a lack of both product and documentation standardisation, the large and long term holdings of pension funds, and high transaction costs. International investors are certainly keen on Africa, but poor liquidity in these financial markets is deterring them.

The answer, Mr. Odundo argues, is to create and nurture confidence in the country’s capital markets by emulating the best practices from around the world. “In Kenya the Nairobi Securities Exchange is working with various stakeholders to develop a comprehensive framework and requisite regulations to enable market makers, short sellers and stock lenders to operate in the domestic capital market,” he explains. “The market makers will provide both selling and buying prices to ensure that an investor actually buys or sells the units they seek to at a specified price at any time. The Exchange Traded Funds (ETFs) will help us to balance and increase our liquidity, as some smaller exchanges his-

“Right now in Kuwait the infrastructure is being redone, and the scale of projects are much greater than they were previously.”

Ayad Abdul Mohsin Al Thuwainy, Vice Chairman of Kuwait’s Ahmadiah Contracting & Trading Co.

torically had suffered from a lack of liquidity – as it was the case for NSE before. Investors want to be able to trade when they choose. Listed companies, on their part, are always looking for liquidity in their own stock, as it tends to lead to a fair market-driven valuation. Liquidity is the lifeblood of any exchange; it is the ease with which shares can be bought and sold and is critical for buoyant secondary trading.

For a market to work effectively and have a stronger liquidity it must have the ability to engage in short selling.

“If you look at our capital markets framework today in Kenya compared to other markets, we have set up one of the most modern frameworks that can meet the international investor expectations. We have a very modern regulatory framework, proper regulatory and capital markets infrastructure, a modernised depository and an exchange. There is a strong capacity in Kenya where over the last years the number of graduate charter-holders of CFA have increased tremendously. Our corporate finance sector is vibrant and doing very big transactions in East and Central Africa. If you look at the whole framework we’ve got everything that a

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modem market has but it’s small-sized, so what’s next? Scale! I’m very bullish about our economy in fact it’s only this year that we have suffered challenges on macros but it’s all over the world. I think Kenya is one of the few countries in Africa with one of the most advanced and progressive constitutions.”

These developments will help the country build up both confidence and a critical mass that will help to sustain an investor culture and sow the seeds of entrepreneurism, Mr. Odundo concludes. “Kenyans know their democracy has really expanded that growth, so I’m very confident about this market.

I think we have got everything right in place, we just need to scale up on growth, so I’m very bullish about it.”

Compelling stocks still the main draw for exchanges worldwide Even as many developing countries face significant economic headwinds, their securities exchanges continue to be home to companies that, while they may not be household names, continue to present investors with compelling stories. “Certainly with the price of oil where it is we could see the development plans scaled back somewhat,” says Ayad Abdul Mohsin Al Thuwainy, Vice Chairman of Kuwait’s Ahmadiah Contracting & Trading Co. “However,

this is really an opportunity for more public-private-partnerships (PPPs), which have already started successfully in Kuwait a few years ago with the Az-Zour North gas-fired combined cycle power plant. The results of these partnerships have been very positive in terms of delivering on time and on budget, so we will be seeing more of those coming soon. We see the opportunities in PPPs on both the investment and construction side. Whatever the government might decrease from its own budget will ultimately be made up by the private sector.

“Right now in Kuwait the infrastructure is being redone, and the scale of projects are much greater than they were previously. $50 million was a big project 30 years ago, now a big project is considered to be more like $500 million and over.

“Things have changed and the magnitude of our projects have changed.

The scale for things like malls, we are currently doing a 600-metre extension to the one-kilometre mall; the avenues, the projects are much greater now.”

While infrastructure holds promise in Kuwait, Israel’s thriving start-up scene has produced dozens of companies that have gone on to become global brands.

Science and Technology in Israel is one of the country’s most developed sectors.

exchanges in Africa have sought to roll out mobile financial services (MFS), which they hope will expand their pool of investors.

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“You don’t get large companies if you don’t have small companies,” says Eyal Waldman, CEO of Mellanox Technologies. “I think we need as many startups as there are. You don’t want to count every three guys that start a new application as a real startup, but I think the more opportunities, the more companies we start here, the higher probability of more success stories.

“Mellanox is an interconnect company,” Mr. Waldman explains. “We connect servers to storage. Our main market is building large supercomputers or high performance computing. We connect 50% of the largest supercomputers in the world, for many applications. We’re also in the database market, and that’s where Oracle comes in, it has a very deep understanding of the technology that we can provide. We lead in terms of products, technology, and we’re very fortunate that our products are always a generation or a generation and a half ahead of our competition, which adds to our success. We sell to companies such as HB, IBM, Dell, Oracle, EMC, Fujitsu, etc. And we also sell to most of the Web 2.0 companies, so nearly every time you touch your phone you go through Mellanox. Most of the cars you drive have

been designed with computers that are connected with Mellanox. Most of the airplanes you fly have been designed with us. We’re also in a lot of government agency and military projects, fighting terror, and we’re helping a lot of entities do the right things in many cases.”

True to the engineering and technology roots of his firm, Mr. Waldman sees an increasingly interconnected future, one in which Mellanox’s products will be in demand. “The story is very simple, if you think of the world’s data, it’s growing exponentially, and every day there are more devices that are producing and consuming data. Your watches, your phones, your cars, your clothes, and to be able to process the data, store the data, you need a very high-speed interconnect. Our products are moving data the fastest on the planet, and that’s why we’re seeing more and more market share moving in our direction, because we can help people be able to do more, and when you can do more with your data, you can make more money.

It’s a very simple equation.”

Israel’s technology sector has produced globally important companies, including firms like Netafin, which has brought a high-tech approach to the age-

old problem of growing more and better food. “Netafim is not only about the product,” explains CEO Ran Maidan. “It’s our design capabilities and tools, our agronomic support, our service, our technology for monitoring and control systems.

At the end of the day, it’s all about offering a system that produces more yields with less resources. It’s also about providing the right software. Think about drip irrigation as a delivery system. It’s not only about water. We started with just water, but now it’s a delivery system that will take your water, fertilizer and crop protection products directly to the plant’s roots in the most efficient manner. In the end, I’ll put in the software to automate it. All you have to do is plant your seeds, and you’ll get the best yields you ever had, while using 30% less resources. Less crop protection products, less fertilizer, less labour, less water.

“We combine everything together – investing in growth engines, investing in differentiation, creating the right culture, having the right people – and continue to maintain a strong passion within the company to create a better world, a better company, and a better product for our farmers. By doing that we’ll continue to win.”

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Orascom Construction builds on longstanding

track record

The last 12 months have been very exciting for Orascom Construction (OC), Egypt’s leading builder and one of the largest engineering and construction firms in the world.

In March 2015, the company demerged from its parent, Amsterdambased OCI N.V., and launched a dual listing on the Egyptian Exchange and NASDAQ Dubai, becoming the first company to simultaneously list in the two countries. The move brought OC back to the Middle East, where its roots extend to the 1950s, and better positioned it to focus solely on its core construction and infrastructure investment businesses.

The company has achieved some major milestones since the Initial Pub-

“Our goal is to create more value to shareholders and have a business that is sustainable.”

Orascom Construction CEO, Mr. Osama Bishai

lic Offering (IPO), especially in Egypt and the United States, the two countries in which its efforts are largely focused. Its backlog of construction orders has grown to record levels and now stands at $6.7 billion, a 20% increase from the third quarter of 2014, bolstered by new contract wins. Of the company’s current order backlog, almost half is in Egypt and 38% is in the United States, with the rest divided between Saudi Arabia, Algeria and other countries. Not only is the company adding landmark projects to its backlog, but it is also delivering them at a record pace.

“People who understand the company and the stock know that we are the same company that they saw back in 1999, but slightly bigger, smarter, with more experience and diversity,” says OC’s Chief Executive Officer, Osama Bishai. “Today we are independent, we are implementing our growth strategy and we are confident in the long-term value that we are creating for shareholders.”

A leader in the domestic building business, OC is taking advantage of its longstanding track record and a recovering Egyptian economy to win contracts in the infrastructure and power sectors.

Responding to the country’s pressing need for electricity generating

plants, the company is building projects based on both renewable and conventional energy sources. Most recently, an Orascom consortium constructed simple-cycle power plants in West Damietta and Assiut with a combined capacity of 1,500 megawatts (MW) in a record seven and eight months, respectively. After delivering them ahead of schedule, OC is now converting these power plants from simple-cycle to combined-cycle plants.

The conversion will increase capacity by 50% through re-using waste products without any additional fuel intake.

Furthermore, the company is currently building the two largest power plants in the world in Egypt, each of which will run on a combined-cycle scheme with a capacity of 4,800 MW. OC and its subsidiaries are also making a push into the renewable energy and coal spaces under a Build Own Operate model that will help it grow its infrastructure concessions portfolio, and have already been involved in the construction of the first solar power plant in the Middle East and the first large-scale wind farm in Egypt.

The company is also part of some of the most important infrastructure developments in Egypt, such as the Cairo Metro, where it is currently executing various packages for Line III after hav-

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Orascom Construction’s extensive portfolio of construction projects includes the Cairo Metro, Kuraymat Solar Power Plant, the Grand Egyptian Museum and the New Cairo Wastewater Treatment Plant ing previously completed significant work on existing lines; the expansion of Egypt’s road network; and the New Cairo Wastewater Treatment Plant, the country’s first Public-Private Partnership project in which OC is co-owner and developer. This facility has a capacity to pump 250,000 cubic metres of water per day, serving one million people.

But perhaps the most iconic project in the company’s Egyptian portfolio is the new Grand Egyptian Museum (GEM), which, when up and running, will be the largest archaeological museum in the world. With 13,000m2 of floor space spread out on three levels, including a conference hall, a conservation lab and a learning centre, the GEM is sited on the Giza plateau, about a mile to the south of the country’s most famous pyramids.

In the US, OC is working to replicate its successful business model as builder, owner and operator, which allows it to benefit from ongoing cash flow from a project even after the construction phase is completed. Its US

subsidiaries, Weitz and Contrack Watts, are well positioned to benefit from the recovery of the construction business in the United States, where an estimated $4.6 trillion in building projects are to be awarded through 2018.

But OC has already experienced significant growth in the United States.

Since the acquisition of Weitz in December 2012, the US subsidiary’s order book has grown 3.5 times, as it targets sizable contracts such as the largest student housing complex in the US. Closer to home, BESIX Group, of which OC owns 50%, was founded in 1909 and has been operating in the Middle East and North Africa (MENA) for 60 years. Its track record in the Middle East includes the Burj Khalifa tower in Dubai, the world’s tallest building, which opened in 2010.

Complementing the construction business, OC also has investments in companies focused on the manufacturing of building materials, such as fabricated steel products, glass curtain walling, paints and concrete pipes. But Mr.

Bishai says the company’s main focus will be building sustainability by driving its infrastructure investment arm.

“Our goal is to create more value to shareholders and have a business that is sustainable alongside the construction, mainly through investment in infrastructure in Egypt and elsewhere,” adds Mr. Bishai. “This is our drive for the next couple of years.”

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Tokyo Stock Exchange headquarters building is located in Nihombashi Kabutocho, Tokyo, Japan.

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INTERVIEW WITH Akira Kiyota, CEO of JPX

JPX raises appeal of Japanese stocks

Japan Exchange Group (JPX) plays a crucial role in the on-going development and provision of a reliable, efficient, transparent and profitable market on the Japanese stock exchanges. Group CEO Akira Kiyota explains how JPX provides support for companies seeking to list, while working to raise IPO quality and ensure confidence among shareholders and investors. He also discusses the effects of new codes of conduct in force, challenges such as cyber attacks facing the industry, and the motivation for companies to increase their levels of performance and governance.

What key role do you think JPX plays towards generating trust with investors?

You cannot say that there is only one thing that generates trust with investors. Japan Exchange Group (JPX) was established in January 2013 through the business combination of the Tokyo Stock Exchange (TSE) and Osaka Securities Exchange (OSE).

The reorganisation of the underlying market functions have delivered a variety of benefits, including improved accessibility and reduced costs. After the business combination, subsequent steps were taken to integrate the cash equity market, self-regulatory and clearing operations in July 2013, and then integrate the derivatives markets in March 2014. We see increased accessibility and convenience brought by the business combination and market integration as important steps toward ensuring the future development of the Japanese market.

TSE is the third largest stock exchange after the New York Stock Exchange and Nasdaq. TSE is known for high market liquidity, where those who invest and participate in the exchange can trade anytime easily. In addition, TSE offers fair and transparent price information which determines the value of the market. Also, under the JPX corporate umbrella, Japan Exchange Regulation (JPX-R) acts as a self-regulatory body for TSE and OSE, dedicated to maintaining financial market transparency and fairness so as to ensure investors are able to trade financial instruments with confidence. Since foreign entities and individuals own 32% of the Japanese stocks, and they account for 60% of the total trading value in the TSE market, TSE has trust and reliability in international markets.

Do you think that the majority of Japanese companies have regained their full market strength now, four years after the introduction of Abenomics?

Aggressive initiatives of Abenomics have enhanced corporate value in Japan. It has been required that listed companies improve their corporate governance to enhance corporate value and their capital efficiencies.

In February 2014, Japan’s Stewardship Code was launched.

The code required institutional investors to enhance the medium-

to-long-term investment return for their clients by improving the corporate value and promoting sustainable growth through constructive engagement or purposeful dialogue based on an understanding of the companies and business environment.

In June 2015, TSE introduced Japan’s Corporate Governance Code, which is a principle-based code for listed companies to follow. For example, the Corporate Governance Code requires companies to appoint at least two independent directors within the company. The proper implementation of the principles is expected to contribute to the development and success of companies, investors, and the economy as a whole, by virtue of individual companies’ self-motivated actions aimed at achieving sustainable growth and increasing corporate value over the medium-to-long term.

The Corporate Governance Code is for listed companies’ internal staff and monitoring, whereas the Stewardship Code requires external institutional investors. I believe that through the introduction of these two codes, the mindset for company management going forward will change.

Return of Equity (ROE) of the listed companies in Japan grew from 5.7% in 2012 before Abenomics to 8.5% in 2014 – a relatively short period of time. The improvement of ROE in this period is not only a result of the launch of the codes. However, I believe that we can see more improvement of ROE from the effects of the codes in the near future.

Regarding your new index, the JPX-Nikkei Index 400, that was recently introduced, can you explain what the implications are for foreign investors and the market as a whole?

The introduction and creation of the JPX Nikkei Index 400 was perfectly timed with the introduction of the Governance Code and the Stewardship Code. To raise the corporate value of the listed companies, TSE focused on further enhancing corporate governance and the importance of ROE from the standpoint of capital and management efficiency. We introduced the JPX-Nikkei Index 400 among other measures aimed at encouraging a shift in management toward raising corporate value.

The JPX-Nikkei Index 400 is composed of companies with high appeal for investors, which meet requirements of global investment standards, such as efficient use of capital and investorfocused management perspectives. This index will promote the appeal of Japanese corporations domestically and abroad, while encouraging continued improvement of corporate value, thereby aiming to revitalise the Japanese stock market.

The index is designed to include companies that prioritise capital efficiency, profitability, and investor viewpoints.

We select 400 companies for the JPX-Nikkei Index 400 constituents from the 3,500 listed companies, according to the publicly announced criteria.

The JPX-Nikkei Index 400 adopts ROE as a selection criterion. The impact of this index is so immense that we have seen numerous companies review their distribution policies to shareholders and pay out greater dividends in a bid to secure inclusion in the index. We are also seeing the creation of many investment trusts and exchange traded funds (ETFs) tracking the index. As this trend becomes increasingly prominent, we believe that cor-

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Akira Kiyota, CEO of Japan Exchange Group

porate awareness toward effective capital use based on the shareholder perspective will become more pronounced. This will lead to an increase in corporate value and fuel the push toward creating a new Japanese stock market.

What is your view on the overall potential of the support that you bring to companies in the JPX? Securities markets have a crucial role to play in stimulating Japan’s economy and industries by providing a steady supply of capital for growth companies through IPOs. The relentless efforts of those involved in the market have seen IPO activity in Japan exit its post-financial crisis slump and embark on a path to recovery, with the number of IPOs conducted rising from 19 in 2009 to 98 in 2015. JPX will continue to provide support for companies seeking to list while working to raise IPO quality and ensure confidence among shareholders and investors.

How are you using that opportunity to look at the major issues and opportunities facing the industry?

I am a board member of the World Federation of Exchanges (WFE), which is new for me this year, but I would like to participate in general assemblies going forward.

Before being elected as a board member,

I had attended a general assembly where large concern was raised regarding cyber security, and the risk management and stability of the clearing industries. The market is globalised and the large amount of trading is occurring. From the perspective of those who operate the markets, proper clearing, accounting and safety are large concerns. Commodity Futures Trading Commission Chairman, Timothy G. Massad, has expressed the strong interest in clearing. Japan Securities Clearing Corporation (JSCC), part of the JPX corporate group, focuses on stability of management.

We have to be attentive about possible cyber-attacks on the exchange, which could be devastating for the exchange and for the market itself, bringing large damages.

How are you utilising your extensive experience across markets to heighten the visibility of the brand of the exchange group?

JPX continues to pursue measures to raise the appeal of Japanese stocks. Through observing and practicing the principles in the Corporate Governance Code, corporations can be expected to take initiatives toward sustainable growth and increasing corporate value in the medium-to-long term. In regards to the JPX-Nikkei Index 400, we would like to make the Japanese market more appealing to investors. I be-

lieve Japanese companies try to improve performance to become part of the index.

The securities industry has benefitted a lot from Abenomics, but what JPX has to do in the future is to generate earnings power. JPX’s earnings structure, including its core earnings from trading services, may be easily affected by economic conditions and market trends, which are out of its control. Therefore, JPX needs to ensure stable earnings through appropriate cost controls and strengthen its earnings power through diversifying its revenue sources. To expand our business fields, JSCC seeks to sharpen its competitive edge while also expanding its fields of business.

Also, we would like to enter into the commodity market in the future, in order to diversify our revenue sources. I also would like JPX to build a global business portfolio that is well balanced and competitive with the overseas exchanges. In order to achieve this, we are currently creating cooperative alliances with partners in Asia and S&P Dow Jones for the index. In Taiwan, JPX and the Taiwan Stock Exchange link our markets with cross-listing of index products. We initiate the product cooperation with the Taiwan Futures Exchange as well. In Myanmar, we have supported the launch of the Yangon Stock Exchange.

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Italy comes out

stronger than ever before Italy has emerged from a deep crisis and in 2015 had the best performing stock market in the Western economy, according to Raffaele Jerusalmi, the CEO of Borsa Italiana. In this interview Mr. Jerusalmi talks about how Italy has returned to growth, government reforms to stimulate activity in the BI, and the possibility of future IPOS of private companies in the luxury, fashion and food sectors.

WF: Considering diverging monetary policies and the vulnerability of emerging markets due to the increase of interest rates, are developed countries back at the core of global investment trends?

RJ: The global economic outlook at the moment is very difficult to catch because it’s not just the diverging monetary policies; there is a general lack of liquidity in the markets. There have been reforms made in the banking sector to limit the amount of capital allocated towards market-making activity and this has limited the ability of the banks to participate in the market to some extent.

Massive liquidation – like we have seen at the end of last year and at the beginning of this year – is clearly creating a problem, and the volatility that we see today is something that, in my opinion, will continue for many more years unless something changes in banking regulation.

At the moment the problem is the disconnection between the investors and the market in the sense that when investors decide to divest their interests, they hardly find available liquidity like there was in the past. So there is an extreme vulnerability in the market place in general and this is a key issue for us, as a trading market venue, it must be dealt with. In the

past, the market was able to mitigate this kind of massive liquidation effect because capital formation in the banking sector was different and there was a lot of capital available. But this is not the case anymore. If we take a look at inventories in the corporate market, they have decreased by 80% since 2007. This means that basically there are no more inventories in the banking sector for corporate bonds.

Even if we created a market that is accessible to all, where everybody is connected to the platform, it will be difficult to mitigate this problem effectively, because the banks who once were the main players, have disappeared in some ways. With regards to the diverging monetary policies, there is a general willingness from the central banks to have weak currencies. Especially in the Western economy, the process of devaluation that most central banks seek is therefore real; it is very important to have a weak currency, especially for export driven economies.

of communication. When using more appropriate metrics to analyse the stability of a banking system the result will portray that Italy’s performance is better than most European countries.

We have very low leverage and the crisis was caused by the excess of leverage, not by non-performing loans that are covered almost completely by the collateral in reserve of Italian banks.

The Italian banking sector is very solid. The problem is that the system in general is very unstable. The equity

WF: Looking at the banking system in Italy, is it solid enough to override this increasing volatility that the country is experiencing?

RJ: Absolutely. The problem is that there are many different ways to measure the solidity of the banking system. It is a question of trend in terms

Raffaele Jerusalmi, CEO of Borsa Italiana

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of a bank could go to zero and still remain very solid but the perception of a saver that sees the equity collapsing will induce him to withdraw his money, despite the fact that the bank itself is extremely solid. If these withdrawals are made in a short period of time this will lead to bankruptcy. We need to make sure that there is proper communication. This was inappropriately managed by regulators when announcing the bail-in. Communication was insufficient. A transition period should have been introduced instead of creating retroactive measures. Other than that, the banking system in Europe remains quite strong, with some exceptions, which are to be found in banks with a high level of leverage.

WF: Italy is finally coming out from a 7-year long crisis, the longest since World War II, and expectations for growth in 2016 are set at 1.6%.

What would you say were the main highlights of 2015 in terms of the Italian stock market?

RJ: 2015 was a very good year for the stock market in Italy. Our country was actually the best performer in the Western economy. What I would underline about last year is the fact that Italy was able to emerge from a very deep recession that was extremely painful which strongly hit the financial sector. Italian banks were not leveraged and did not get any State support - with one exception involving Monte dei Paschi di Siena.

The financial sector in Italy is composed mainly of SMEs, which rely on the banking system to continue their activities. The credit crunch for those companies lead to a very negative effect, many of them in fact went bankrupt, not because their business was not solid but because of their inability to access credit.

The same thing happens to a bank if their customers withdraw their deposits. It’s like an engine running out of oil. This caused one of the biggest crises in terms GDP contraction.

However, the fact that we were able to come out stronger than we were in the past is good news.

WF: Can you tell us more about the innovative ELITE Programme?

RJ: We spent almost 15 years trying to convince Italian entrepreneurs to turn their private companies into public listed ones in order to raise capital in the market, but we realised that there was a cultural issue that needed to be solved. It took us a long time to understand that we needed to create a softer measure to allow Italian entrepreneurs to approach the market.

We decided to create this programme which is, first of all, educational and that put

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together entrepreneurs and investors on the same platform from the very beginning. In cooperation with some universities in order to create a teaching and training program we aimed to help these companies build a proper structure and provide them with the ability - within a maximum of three years - to gain access to the capital market. We require that a company has a solid organisational structure; this has been the cause of which many Italian companies have needed to rely on banking loans or banking support in almost 90% of the cases, instead of having a more balanced capital portfolio.

The programme conveys that companies must rely on a structure that is composed of 50% banking loans and 50% equities, or 50% banking loans and a combination between equities and debt. The ELITE program has been very successful. ELITE is the alternative road for companies to find capital to thrive. Of course, as the name suggests, this programme cannot be applied to all the companies but only those that are proving to be good already. We set parameters of eligibility to participate in this programme, for example 15% growth rate, at least 15% of the revenues need to come from export activities and an existing activity of at least 6-7 years excluding the start-up year.

WF: What is your personal perspective towards the government’s agenda in terms of incentivising private companies to go public or the real estate investment trust reform?

RJ: The government is making good progress but we have to recuperate a lot of time. This government is probably the first one that is effectively addressing this issue in a serious way.

A number of reforms have been carried out and this has brought progress in different areas. The government is vocal in their statement about the importance of the capital market in general, and is trying to show that they are the first to believe in what we are doing. One further thing that they could do is to get rid of the financial transaction tax which is providing very little income in terms of tax revenues. Actually the net effect is

More Italian firms in the fashion and luxury sectors are expected to launch IPOs probably negative according to some estimates made by some of the financial players – and I find it absurd that a country introduced a tax to discourage both international and domestic investors to buy companies listed in the home market.

WF: If we look at expectations for 2016, we have already heard rumours of future listings in different sectors - especially fashion and infrastructure.

Could Italy become a hotbed for IPOs and are there other sectors involved?

RJ: Of course. We are trying to leverage on the success that we had during the last few years especially in the luxury and fashion industry, but we are obviously expanding our scope to include also food, design and other sectors that are very much linked to the concept of Made in Italy.

We think that there is a real chance to enlarge the number of companies listed in those areas, because if you take Made in Italy as a broader term there are a huge number of companies that could be listed. You know, our market is probably one of the two leading markets - along with France - in the world when it comes to luxury and fashion manufactory and brand recognition.

WF: The Transatlantic Trade and Investment Partnership is currently a hot topic. Italy is one of US’ greatest trade partners in the EU. What would your message be to the American institutional investor community to come and invest here in Italy?

RJ: Italy offers an ideal combination of circumstances: our government is

moving forward with reform. If the right reforms are introduced, there is huge potential for growth. For instance the labor reform has made Italy a very attractive market.

If we look at new companies that are coming from abroad to invest in Italy we recognise the signs of change.

The new labour reform is creating effectively a lot of competitiveness for companies that currently operate in Italy. Our labour cost is probably the lowest in Europe and it is highly skilled. So there are huge opportunities to invest in Italy. It is possible to invest in companies that carry out international business, that are run by very capable managers. The big bet consists in unlocking their potential which would allow them to positively explode in the right direction.

Watching what is going on now and watching the evolution in the European landscape, Italy finds itself in the best place to take advantage of the current situation.

Usually consumption estimates in Italy are low by definition. The fact that domestic consumption and consumer trust is on the rise, is a good sign that can probably be attributed to some of the initiatives taken by the government like the additional 80.00€ on the pay slip or the reduction of some of the taxes like the one on your first home. Reducing the tax burden is one of the main challenges of this government, which is way too high at the moment whether it is corporate or individual. By doing so, Italy could be repositioned as one of the most competitive countries in Europe.

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Turkey’s Borsa Istanbul Uses Technology & Partnerships to Become a World-Class Exchange One of the keynote speakers at this year’s World Exchange Congress is Tuncay Dinç, CEO of Borsa Istanbul. Since taking up his post in April 2015, he has embarked on a mission to make Borsa Istanbul one of the world´s leading exchanges, by installing the most advanced technology, expanding its product range and leveraging its partnerships with major bourses around the world.

In December, Borsa Istanbul went live with new NASDAQ technology for its equities market, clearing and settlement systems, with risk management and support systems slated to come on later. Shortly afterwards, the exchange was recognised as having the fastest-growing derivatives market in the world during 2015.

In this interview, Tuncay Dinç discusses his overall vision and future plans for Borsa Istanbul, including a possible IPO during 2016.

Istanbul aims to be a world financial capital. It ranked 47th in last year´s Global Financial Centres Index and seeks to be in the top 10 by 2023. How do Borsa Istanbul’s partnerships with NASDAQ and other exchanges, such as London Stock Exchange, help serve this goal?

We seek to establish a strong network with exchanges in neighbouring countries, as well as our links to the most

prominent exchanges in the world. Borsa Istanbul has shares in the Kyrgyzstan Exchange, as well as Bosnia-Herzegovina and Montenegro. In Europe, we are also strengthening our presence through our partnership with the EDC in London and the London Metal Exchange. Also, as a strategic partner, NASDAQ owns 5% of Borsa Istanbul. In Europe, the Middle East, Central Asia, and finally to the major exchanges worldwide, Borsa Istanbul’s links to other exchanges will globalise the brand and streamline our network.

One of your strategic goals is to attract more foreign companies to list on Borsa Istanbul. How do you assess the progress of the Listing Istanbul project so far?

Under my tenure as CEO of Turkish DO & CO, it became the first foreign company to list on Borsa Istanbul. Further listings have not gotten off the ground due to regulatory difficulties, which are prompting us to change things. Firstly, we need to change the language that can be used in the communications with Borsa Istanbul. By regulation, all communications and all of the exchange’s financial news must be in Turkish. You cannot ask for a foreign company in Greece, for example, to use Turkish for all its correspondence with BIST. We are in contact with the Capital Markets Board and we

are attempting to establish English as an additional working language in the operational logistics of foreign companies.

What makes Borsa Istanbul an attractive place to list for non-Turkish companies?

When comparing access to capital, Borsa Istanbul has a strong relative advantage compared to its counterparts elsewhere in the region. While many companies today go for more recognised exchanges such as London, after our regulatory reform has been enacted, we hope that companies will reap the benefits of a strong market in Istanbul and will continue to establish themselves here, diminishing their need to establish themselves in other countries.

Why is corporate ‘sustainability’ so important to Borsa Istanbul, and what are the advantages for companies listed on the BIST Sustainability Index?

Exchanges traditionally act as a centre of liquidity to enable companies to access sources of much needed capital and offer investors opportunities to diversify their portfolios. Due to their involvement with an extensive variety of market participants, they increasingly play the role of protagonists in defining the rules and best practices that reflect the aspirations of these participants and of society

“We seek to establish a strong network with exchanges in neighbouring countries, as well as links to the most prominent exchanges in the world.”

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as a whole. In this respect, Borsa Istanbul, through diversified means, including specially designed and focused products and services, aims to enhance the awareness and knowledge.

BIST Sustainability Index aims to provide a benchmark for Borsa İstanbul companies with high performance on corporate sustainability and to increase the awareness, knowledge and practice of sustainability in Turkey.

Moreover, the Index facilitates access to global clients, capital, and lower-cost finance. It aims to create an instrument, which allows investors to select and invest in companies that adopt the principles of sustainability and corporate governance.

Today, responsible investment is preferred mainly by institutional investors. BIST Sustainability Index encourages the foundation of such funds, while helping Index-constituent companies to get a larger share from such funds. At the same time, the Index offers a new financial asset category for all investors.

Borsa Istanbul recently launched an initiative to facilitate better access to finance for SMEs. How will this agreement help Turkish SMEs to access global value chains, and what further support does Borsa Istanbul offer to small businesses and start-ups?

SMEs account for 60% of all enterprises in emerging markets and employ 95% of the workforce in these countries. It is also a very well known fact that companies in this category have limited access to funds in organised markets.

In this respect, Borsa Istanbul stepped up its efforts to facilitate the access of SMEs to much needed funds. In a recent effort, a protocol was signed for the collective bond issue by SMEs for the first time in Turkey and Europe in cooperation with Turkish Capital Markets Association (TSPB), different portfolio management companies and banks under the leadership of Borsa Istanbul.

Moreover, the Emerging Companies Market of Borsa Istanbul gives companies which have growth potential but cannot meet the strict requirements of the National Market, a chance to access capital. Borsa Istanbul has also established a venture-capital platform where early-stage companies meet potential institutional investors such as venture capitals, angel investors and private equity funds. Such a move will not just make it easier for start-up firms to have access to funds, but will also boost the number of IPOs as investment firms in those start-ups might prefer to turn their investments into cash by offering these companies to the public.

How will your IPO planned for 2016 serve the vision of turning Istanbul into a global financial centre?

Integral to our goal of becoming a global financial centre is promoting our capital markets, with Borsa Istanbul at the heart of this promotion. Turkish participation in capital markets is still relatively low, so as we ask other companies to come to Istanbul and be publicly traded. More domestic involvement will electrify the economic environment. A great catalyst to this phenomenon is the IPO, something that doesn’t happen every year, and which will entice foreign investors to Borsa Istanbul. This will likely happen in the first or second quarter of 2016.

What role do you foresee for capital markets in general, and Borsa Istanbul in particular, in financing the major energy and infrastructure projects of the future?

Major energy and infrastructure projects require significant amounts of funding and in Turkey, we have seen the banking sector provide most of this funding so far. Today, the total ban-

“In order to compete…we need to have the most advanced technology, the widest range of products, human capital of the highest quality and the strongest links possible with global players.”

king assets to GDP ratio reached over 110% in Turkey from only 61% in 2002. The Turkish economy has grown 5% on average in the last decade and new energy and infrastructure projects will be at the top of the agenda. As a result, in addition to the banking sector, capital markets and Borsa Istanbul will play a more significant role in the future.

We believe that the fixed income business offers vast opportunities in this respect. In the past five years, new corporate debt issues jumped to $30.3 billion in 2014 from almost nothing in 2010. As Turkey gets used to a low interest environment and the private sector looks for alternative financing sources, the corporate debt securities segment will flourish.

What would you say that other stock exchanges in emerging economies can learn from Borsa Istanbul?

Throughout history, Turkey has been at the crossroads of commerce and it maintains strong relations with neighbouring countries and regions, which have historical ties. With the advent of our modern partnerships with these countries’ exchanges, we seek to move forward with our goal of becoming a global finance centre.

At Borsa Istanbul, our most precious asset is our human capital, with our well educated, experienced, and English-speaking team.

What is your underlying vision and philosophy that will guide your leadership of Borsa Istanbul going forward?

My vision for Borsa Istanbul is shaped by solid numbers and facts.

Let me give you some statistics in this context. Today, a structural change is taking place in the world economy. Advanced economies continue to slow down and emerging economies increase their share in world GDP year by year. The IMF foresees that the share of emerging markets in global output will increase to 60% by 2019 from only 40% in 1990. Accordingly, this results in a significant evolution in the geography of corporates and financial flows as well. In 2010, 73% of 8,000 global companies with annual revenues over $1 billion were based in developed regions. In 2025, headquarters of almost half of 15,000 global companies with annual turnover over $1 billion will be in emerging regions.

We believe that Turkey should and will be among those leading emerging markets. Turkey, in the context of Vision 2023, also aims to be among the 10 biggest economies in the world, with an export volume of $500 billion and Istanbul positioned as an important financial centre. Such goals require the presence of a strong capital market and efficient exchange. Borsa Istanbul is fully aware of its responsibilities in reaching these targets and has redesigned its legal, organisational and technological infrastructures accordingly. We believe that in order to compete in this new era, we need to have the most advanced technology, the widest range of products, human capital of the highest quality and the strongest links possible with global players. That is what I would like to achieve while I lead the stock exchange of Turkey.

•

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Partnering for success: Strategies for collaboration between financial centres As conditions tighten in their home markets, investors look for new options in cross-border trade.

Bourses with links to other financial centres provide a gateway to new opportunities for their customers.

International cooperation is often the way countries navigate their way out of a financial crisis. G20 and G7 financial leaders meet regularly to discuss shared concerns and goals. Now the same spirit of collaboration is spreading to the world’s stock exchanges as many are finding international partners to help extend their reach beyond traditional boundaries.

The Balkans The Balkans is the inspiration behind SEE Link, a project that links the stock exchanges of Bulgaria, Macedonia and Zagreb.

Launched earlier this year with a portfolio of more than 400 companies and offerings from all three exchanges, SEE Link is designed to enhance the cross border trading of securities listed in all three markets.

Thanks to state of the art routing technology SEE Link integrates the regional equities markets without a merger or corporate integration. The participating stock exchanges remain independent yet complement one another to allow investors more flexibility to move among the exchanges through a local broker.

“The SEE Link is a prominent initiative aimed at increasing liquidity in Southern and Eastern Europe,” says Jacek Kubas, a representative from the European Bank for Reconstruction and Development (EBRD). “We’re delighted to support the regional integration efforts that will contribute to improving options for raising funding through capital markets. SEE Link will standardise and improve financial services in the region, making it more attractive to international investors including EBRD.” The EBRD is helping to fund the project with a $600,000 grant to support the electronic re-routing system and each of the exchanges is claiming equal ownership with a $90,000 stake in the operation, based in Skopje, the capital of Macedonia.

“For many years one of the main priorities for the Macedonian Stock Exchange (MSE) was establishing some kind of regional network,” said Ivan Steriev, CEO of the MSE. “The foundation of our joint company and ensuring support from the EBRD are very encouraging steps for successful creation of functional linkage model which will be beneficial

for all regional securities markets players.” Ivan Takev, CEO of Bulgarian Stock Exchange, adds, “Our common project is developing rapidly and successfully and we are encouraged by the preliminary interest expressed by investors.”

Ivana Gaži , President of the Management Board of the Zagreb Stock Exchange, echoes the same enthusiasm. “We strongly believe in success of the project and we think that we have found the model that could strengthen regional markets,” she says. “The attention that the project already got in this early stage from the financial community certainly proves that.”

SEE Link simplifies cross border trading by providing a single point of entry for routing buy and sell orders between investment firms from different countries.

It acts as both the messenger and the traffic cop, receiving the orders then rerouting them to a designated investment intermediary who then is responsible for placing the orders with the respective exchanges. The system is flexible enough to take on new participants, and the Serbian and Slovenian stock exchanges have also expressed interest in the project.

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While SEE Link may be just the latest model in cross border trading, many other markets are adopting collaborative strategies to increase their visibility and value. Bourses with links to other financial centres are providing a gateway to new opportunities for investors.

Across China Earlier this year the Hong Kong Bourse announced a three year-plan to expand links to China that would include starting a system for mainland investors that would allow them to take part in the city’s initial public offerings.

“Our vision is connecting mainland China with the world,” says Charles Li, Chief Executive of Hong Kong Exchanges and Clearing Limited. Mr. Li views the relationship as a key growth factor. “Only if we focus on China willl we be able to develop rapidly and prepare in advance for any emerging risks.”

The HK Exchange’s plan is designed to capitalise on fund managers with an appetite for Chinese assets as well as interest from mainland investors who want to move their money out of their home markets. Hong Kong currently has a link to the Shanghai Stock Exchange, which was established in November 2014, and plans are underway to create a similar link that would connect Hong Kong to Shenzhen.

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The partnership represented a major boost for the Lima Stock Exchange, or the Bolsa de Valores de Lima (BVL), which is also a member of the Integrated Latin American Market (MILA). MILA brings together the stock exchanges of the Pacific Alliance, including Mexico, Colombia, Chile, and Peru and represents the 8th largest market in the world and the largest in Latin America.

“The UK is the natural partner for Latin America’s international financing needs,” says George Osborne, Chancellor of the Exchequer, who was speaking at an annual IMF meeting in Lima. Noting that for more than a century, half of Latin American foreign investment came from the UK, Osborne said the region once again represented fertile ground for investment.

“UK-based financial institutions can help provide access to international capital via London, supporting growth in Peru and across Latin America.”

The ELITE programme, run by the London Stock Exchange (LSE) Group is designed to help small and medium businesses grow. It currently has operations in the UK, Italy and Spain, and under new agreement LSEG is looking to expand into Peru.

The scope of the work also includes helping Peru to enhance its trading and post-trading activities, as well as assisting with its technology, and legal and regulatory framework.

Istanbul & NASDAQ

Asia Pacific

Finding the right partner can also put a stock exchange on the fast track to world-class status. That’s the case for Borsa Istanbul, as its partnership with NASDAQ will give Turkey one of the world’s most advanced exchange technologies.

Last December Borsa Istanbul and Nasdaq, the world’s electronic stock market, announced the Turkish exchange had officially gone live with nine of Nasdaq’s market leading technologies including trading and clearing, settlement, market data management, index calculation, market surveillance, business intelligence and pre and post trade-risk management.

Adopting Nasdaq’s technologies was a complex, ambitious program that took the better part of two years, but it was a crucial step toward making Turkish capital markets more competitive on the world stage.

“We’re delighted to have established a high impact global partnership with Nasdaq,” says Tuncay Dinc, CEO of Borsa Istanbul. “I’m confident that our combined know-how, powered by one of the most advanced technology suites available in the world today, will consistently offer a cutting edge trading experience to customers worldwide with greater opportunity, innovation, and flexibility.”

The technology upgrades will help Borsa Istanbul secure its position as the capital markets centre of the Eurasia Region. Borsa Istanbul is a shareholder in numerous exchanges in the region including those in Sarajevo, Baku, Krgyzstan, and Montenegro.

The LSE Group’s helping hand has considerable reach, and last December it announced it was working with India’s National Stock Exchange (NSE) to set up a research centre with the aim of collaborating on products and services that would address capital market issues.

“India is one of the world’s fastest developing economies and global investors are keen on exploring investment opportunities,” says Chitra Ramkrishna, the CEO of India’s NSE. The partners are eyeing the potential in developing India’s special economic zone initiative, the Gujarat International Finance Tec-City, or “GIFT,” which is being touted as the country’s first global financial hub. Gujarat’s natural beauty, which includes hundreds of miles of pristine coastline, is a natural draw. The vision is to make it a world-class financial district catering to India’s commercial sector that would incorporate state-of-theart connectivity, infrastructure and transportation access. The proposed research centre plans to conduct feasibility studies on areas of development in GIFT City including the potential for establishing a global trading platform.

As growth in the Asia Pacific region remains steady at a rate of 5.5%, financial integration among stock exchanges is increasingly being viewed as a way to maintain if not increase growth. But there are formidable challenges concedes Dr. Vajira Kulatilaka, Chairman of Sri Lanka’s Colombo Stock Exchange.

“The region needs stock exchanges to integrate so that capital flows freely,” says Dr. Kulatilaka. “This will make it easier for any business. We need countries to open up and allow capital to move which is a good thing for us, but the most difficult task is to integrate infrastructure resources.”

Overcoming the logistical challenges associated with integration is the least of the stumbling blocks according to Dr. Kulatilaka, who also chairs the South Asian Federation of Exchanges.

“We see integration as a huge challenge, because of the nation-

London & Lima Longstanding relationships are paying off in a number of ways.

The London and Lima Stock exchanges recently announced that they would work together to enhance liquidity in Peruvian financial markets. Among the activity the exchanges planned to pursue was collaborating on the ELITE programme, a business support programme to boost growth of private companies.

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alistic feelings attached to stock exchanges and capital markets,” he says. “Integration may take longer here but I’m certain that capital will flow freely from one country to another in the future.

It’s not going to be a fast approach, as we have to open people’s minds before we aim for a full integration. The process will be slow – we come from very different environments.”

While regional integration remains a distant prospect, the Colombo Stock Exchange (CSE) is looking to cultivate a wider breadth of international resources for growth opportunities.

“We’ve experienced strong renewed interest from foreign investors such as Europe and the U.S. Potential and existing investors should take into consideration that present market volatility has not dissuaded foreign investors, but rather increased their contribution to overall market turnover and daily average turnover,” says Rajeeva Bandaranaike, CSE’s CEO. The CSE is also hoping to capitalise on interest from the Middle East, which contributed 10% to Sri Lanka’s foreign investment inflow in 2014.

“Qatar and Saudi Arabia have shown interest in Sri Lanka in the past,” says Dr. Kulatilaka. “I believe it’s time to return to the negotiation process with them as they are countries with a lot of capital to offer.”

Like the Colombo Stock Exchange, Philippines’ Bourse has attracted considerable attention for its vigorous performance in recent years. The institutional investment magazine Alpha Southeast Asia, in February named PSE the ‘Best Stock Exchange in Southeast Asia.’

“We take pride in being named the Best Stock Exchange in Southeast Asia for the second time in the last three years.

We share this recognition with our stakeholders who have been supportive of our projects and initiatives,” says PSE President and CEO Hans B. Sicat.

The Philippine Stock Exchange earned the award for striving to achieve world-class standards for disclosure and corporate governance among its listed firms as well as accomplishing its trading system shift in record time. Also noteworthy was the record high of 8,126.48 the bourse hit in 2015, capping a seven-year streak of double digit gains and a place on the list of the world’s top ten best performing markets in 2014.

China’s economic slowdown has set the PSE on a reverse course since the start of the New Year.

While the PSE has been experiencing a sharp downturn in recent months, analysts are optimistic about the country’s growth prospects. And there has been increasing pressure on the Manila exchange to launch new products prompting the PSE to cultivate its international ties to meet investor demand.

CEO Mr. Sicat travelled to Japan last year to speak to executives from 150 Japanese companies about the benefits of issuing stock in

the Philippines, and it has cut a deal with the Singapore Exchange to offer access to contracts based on the MSCI Philippines index.

Africa Stock exchanges are traditionally considered a motor for development and nowhere is that more apparent than in Africa where the number of bourses has grown from five to 25 in 20 years. Investors who grumble about stagnant growth rates in developed markets are hungry to explore the continent for its untapped potential.

“Africa is seen to be becoming more politically mature and easier to access and this, together with its growing population and rise in consumption, is adding to its attractiveness for foreign investors,” says Geoffrey Odundo, CEO of the Nairobi Securities Exchange (NSE). “Africa also has vast tracts of unutilised land and significant mineral and other untapped resources.”

However lifting the countries out of poverty by 2020 or 2030 will require an immense amount of capital, some estimates put the figure at $200 billion a year to cover energy, infrastructure, transportation. The bill is just as high for improvements to social services like health, education and law enforcement.

“Countries will need to make progress on all these fronts to reduce poverty and improve the standard of living of their populations. Africa is looking for ways to accelerate development and meet the expectations of their populations,” says Mr.

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Odundo. “Financial institutions are making great strides, and traditionally African financial markets are still dominated by banks. However capital markets are slowly developing and are beginning to play an increasingly important role.”

So too is foreign investment, with changes in government regulations having stimulated foreign trading on the NSE, making Kenya one of the fastest growing financial centres in Africa.

“We’re 70% foreign traded market, which again is good volume,” says Mr. Odundo. “We have sought to create further incentives for foreign traders, removed things like foreign tax on companies. Now 100% of foreign ownership is allowed.”

Kenyan President Uhuru Kenyatta hopes he can attract more investment dollars when he hosts several heads of state this year, including British Prime Minister David Cameron who is expected to visit the country in a bid to improve bilateral ties.

The impending visit is being viewed with great excitement, an opportunity for Kenya and Britain to strengthen cooperation on economic, diplomatic and security fronts.

Cameron’s visit will be a chance to build on Kenya’s close ties with UK’s business community. The Capital Markets Authority, a regulating agency responsible for supervising, licensing, and monitoring the activities of the stock market, recently hosted a dual listing seminar that would allow a Kenyan company to raise both domestic and global equity capital to finance growth through a single offer.

“If you look at the current investor profile in our market, it is already mainly from London,” says Mr. Odundo. “A dual listing in London and Nairobi will allow a Kenyan company to raise both domestic and global equity capital to finance its growth through a single offer. It will offer Kenyan companies a chance to attract the world’s largest investors and gain international visibility without compromising its ability to tap domestic capital and develop a robust domestic shareholder base.”

Mr. Odundo hopes to achieve even greater visibility on a more personal level. He is planning a Capitals Day, a field trip to London, where participants, investors, traders and issuers will meet and engage with their counterparts in the U.K. “We have great companies here especially in the SME sector that are looking for venture capital investors. We want to showcase SMEs to potential investors so they can identify target companies,” says Mr. Odundo. “I think we have got everything right in place, we just need to scale up on growth, so I’m very bullish about it. That’s why we need to do things in a different and modern way so we can continuously compete with other destinations.”

The formula for success for exchanges appears to be equal parts competition and collaboration no matter what part of the world you’re in.

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WIEF

With small and medium enterprises (SMEs) a key contributor to ASEAN economies – accounting for more than 95 %of total business establishments across the region, generating about 50 to 85% of total domestic employment, and contributing 20 to 50% of GDP – the establishment of the World Islamic Economic Forum (WIEF) ‘SME Business Pavilion’ last year was a significant development.

Created to provide a platform for business owners and entrepreneurs to exchange insights on international growth and encourage activities that foster cross-border collaboration to increase competitiveness in the international marketplace, the ‘SME Business Pavilion’ was officially inaugurated at the 11th annual WIEF in Kuala Lumpur on 4 November 2015.

Chairman of the World Commenting on the Islamic Economic Forum development, Chairman (WIEF) Foundation, Tun of the WIEF FoundaMusa Hitam tion, Tun Musa Hitam, said, “We strongly believe that giving priority to the development of SMEs is the right thing to do in line with the strong commitment demonstrated by governments towards building a strong base of vibrant and competitive SMEs in the region.”

The WIEF chairman highlighted the particular importance of this to ASEAN countries considering the Launch of the ‘SME economic integration opportunities presented by the ASEAN Economic ComBusiness Pavilion’ at the munity (AEC), which came into effect World Islamic Economic on 31 December 2015.

Forum (WIEF) However, it is not just Southeast Asian nations participating in the ‘SME underlines importance Business Pavilion’. A total of 14 counfor small and medium tries from across ASEAN, Africa, Central enterprises to build Asia, Europe and North America are also involved, with the United Kingdom (UK) resilience, especially leading a contingent of 11 companies. with the realisation of Alongside ASEAN, Africa is the oththe Association of South er major region that promises exciting economic growth thanks largely to the East Asian Nations contribution of its SMEs to GDP, employ(ASEAN) Economic ment and exports. As countries in both Community in 2016. regions transition from an industrybased to a commodity-based economy,

encourages

SME

growth and

resilience

their respective governments are making greater efforts to build resilience among domestic SMEs to ensure that they are able to participate in the next level of sustainable economic growth.

Cambodia, for instance, is a good example of a Southeast Asian nation preparing its SMEs to compete regionally by encouraging them to enter the formal sector as well as by creating more special economic zones to attract foreign direct investment and strengthening the national education system.

Good examples across Africa include Rwanda, which is building an institutional ecosystem to grow SMEs via interventions that promote access to markets and finance, prioritise technical vocational education and training (TVET) and increase digital connectivity.

Mozambique plans to ensure sustainable economic growth by increasing the number of new SMEs in the formal economy as well as by improving the competitiveness of existing SMEs. Gabon, meanwhile, is supporting SME growth by simplifying company registration processes, providing the right kind of training, as well as through the establishment of special economic zones.

Aside from the ‘SME Business Pavilion’, the 11th WIEF also saw the implementation of a comprehensive Global SME Business Match-Making network to address the barriers and sustainability challenges faced by the SME community.

The WIEF Foundation – the notfor-profit organisation which arranges the World Islamic Economic Forum to showcase business opportunities in the Muslim world – will host its 12th annual forum in Jakarta, Indonesia, later this year. The 12th WIEF, themed “Decentralising Growth, Empowering Future Business”, will again focus on the issue of SMEs, and other topics including sukuk for infrastructure investments, zakat and waqf management, and Islamic tourism.