Developing and Emerging Markets Flashcards
What systems are used to classify markets as Developing or Emerging?
1) FTSE Russell
2) MSCI
The book uses FTSE Russell
Give an example of a difference between FTSE Russell and MSCI
Poland is developed undering FTSE and emerging under MSCI
What are the four categories of criteria that FTSE Russell uses?
1) Market and Regulatory Environment
2) Custody and Settlement
3) Dealing Landscape
4) Derivatives
What measures fall under Market and Regulatory environment for developed economies?
1) High Income (measured by GNI per capita)
2) Authorities who monitor the markets reguarly
3) Fair treatment of minority shareholders
4) Developed equity market
5) Developed FX market
6) simple or no registration for foreign investors
What measures fall under custody and settlement for developed economies?
1) Trade failures are rare
2) Competition in custody to ensure good service
3) T+2 or shorte settlement
4) Free settlement available
5) Omnibus custody for international investors
What measures fall under dealing landscape for developed economies?
1) Brokerage competition for good service
2) Liquidity to support sizeable investments
3) Short sales permitted
4) Stock lending permitted
5) off exchange trading permitted
6) Good transparency / visibility of market depth
What measures fall under Derivatives for developed economies?
Developed derivatives market
What two ways can markets be defined as Emerging?
1) Markets classified by the World Bank as low or middle income
2) Markets with stock market capitalization of less than 2% of total world capitalization
What two types of emerging markets exist under FTSE Russell?
Advanced
Secondary
Give examples of Advanced emerging markets
Greece, Mexico, South Africa, Turkey, Brazil
Give examples of Secondary emerging markets
China, Egypt, India, UAE, Saudi, Brazil
What are frontier markets?
Pre-emerging marktes
Under-researched
Under-owned
Why are frontier markets attractive to some investors?
Low correlation to developed markets
Higher long term return potential
An investor must be able to take on more risk as these countries are less liquid
Give examples of frontier markets:
Morocco, Kenya, Nigeria, Malta, Mongolia, Serbia, Vietnam
What are the 3 main world indices?
FTSE World
MSCI World Index
MSCI All country world index
How do FTSE World and MSCI world differ?
FTSE: 4100 names, 50 countries, 90% of market cap
MSCI: 1500 names, 20 countries
How does FTSE world and MSCI ACWI differ?
ACWI includes smaller countries such as luxembourg which FTSE exlculdes
What is the use of world indexes?
Benchmark for global / world stock funds
What are the two major US stock exchanges?
Nasdaq
NYSE
How does the NYSE work
Open outcry market
Brings together buyers and sellers
50% of volume done electronically
Calls to adopt a hybrid structure
How does the Nasdaq work?
Electronic exchange
3300 companies - tech heavy
Market makers undertake trades
Home to high growth, new and volatile names
What two parties are responsible for settlement in the US?
1) Depository trust company (equities, corporate bonds, munis and money marktes)
2) Federal Reserve (Govt Securities & Bonds)
Give points about US settlement
The Depository Trust Company (DTC) hold in book form
85% immobolised
Have the right to ask for physical certificate
First CD issued electronically in 2021
Effors to remove physical certificates
Why do the DTC want to end physical certificates?
1) Security
2) Efficieny
3) Cost Saving
4) Reduce manual operational risk
