D1 banner - Mohammed M'Rabti - Deputy Head of FundsPlace, Euroclear - blog
The link between open, efficient markets and sustainable growth is not always well understood. But, structural reform can boost a country’s capital markets and facilitate more opportunities, like reduced borrowing costs or encourage more international investors.
One of the key concepts is to adopt a market infrastructure model that offers easy and efficient access for international investors. This can set off a chain of events that encourages new capital flows, cuts borrowing costs, improves government finances and provides headroom for development spending.
As a Frenchman I have resorted to a French real-world analogy.
It’s only natural to sit in your comfort zone I suppose … but I like the tale as it demonstrates how a little known French town can become heralded as one of the best ski spots for families in Europe’s largest mountain range – the Alps.
For markets looking to secure a greater presence on the global emerging market indices then they might want to read on and take note as access to an international settlement system usually brings more foreign capital to a market, often lowering bond yields.
Vaujany: a ‘Cinderella’ village
Until 30 years or so ago, Vaujany, in the French Alps, was off the tourist beat. It was not connected to any ski area. Then the French government paid the inhabitants a large sum of money as compensation for building a dam on their land.
They could have chosen to share this windfall between them and spend it. Instead, they invested it in a high-speed, high-capacity cable car system that made the village an integral part of the Alpe d’Huez ski domain.
Vaujany is now a tourist destination but the local authorities have ensured that it retains its original village character. By building the cable car, the inhabitants have secured their future, and the future of their children, in a sustainable way.
For tourists read ‘investors’
Now, for Vaujany read ‘developing market’ and for tourists, read ‘investors’. Just as Vaujany transformed its future by providing first-rate access to the ski slopes, so developing countries can attract international investors by giving them secure, efficient access to their market – the equivalent of a high-speed cable car – without requiring them to make special and often costly arrangements.
This does not mean that local authorities have to relinquish control. The local regulators will still have sway over their markets.
The impact can be diverse, yet positive. From benefitting government finances, better supporting the debt market, bolstering market liquidity or even helping to manage stagnation.
But, above all, we understand that different markets are at different stages in their development. Our approach is understand each country’s individual agenda. Harmonisation and liberalisation are worthwhile goals, and important for the development of international markets, but the interests of an individual country come first.
By becoming ‘Euroclearable’, they show they have met a set of criteria that international investors look for in deciding whether a market is safe, efficient and accessible.
The Euroclearability stamp is like a badge of approval from a tourist authority, but with even greater economic value.
Ivan is the CEO for Euroclear Asia, based in Hong Kong and a passionate business developer and change leader. He is driven by new ideas that support the growth and internationalization of local financial markets and helping his customers reach their full potential.