Is the focus of capital markets finance moving eastward?
Will emerging market exchanges have the sophistication and infrastructure to challenge the IPO services offered by incumbent exchanges in the West? Where will the companies looking to list come from? What are the drivers behind the change in capital market dynamics?
These are some of the questions we address in this special report on the future of capital markets by 2025. In August 2011, we surveyed senior managers from companies across the globe to understand their views on the factors that are shaping the development of equity capital markets. Their answers were bracing.
The economic growth and increasing financial sophistication of emerging markets means that competition between stock exchanges is intensifying.
"Our strategy to focus on foreign listings is partly out of necessity because we don’t have a large domestic pool of companies. It also mirrors the strategy of Singapore as a financial centre, which is to view Singapore as a hub or a gateway for buyers and sellers of equity.”
—Gan Seow Ann, President of Singapore Stock Exchange
- Emerging market exchanges are actively looking to attract foreign listings, especially from companies in other emerging markets.
- Despite current restrictions for international listings, Shanghai will be the exchange most companies will consider by 2025, according to one in two executives.
The focus of IPO activity is shifting East.
- More than 75% of our respondents predict China will be the home of most new issuers by 2025, and 80% believe it will also raise the largest pool of equity capital.
- India ranked in second place in terms of expected number of new issuers, with Brazil and Russia, respectively, bringing up the rear among emerging markets.
What could derail the shift to emerging markets?
- More than 50% of respondents believe an uncertain regulatory environment is a key deterrent.
- 33% believe volatile political conditions are a major concern.
- 27% of respondents listed fear of government intervention as another worry.
For now, developed market stock exchanges still far outstrip their emerging market counterparts in providing what companies expect from their listing venue. Nonetheless, our survey respondents paint a very clear picture of the challenges facing incumbent markets in the coming two decades.