Emerging: 1, Developed: 0
The scoreboard between the two investment regions changes again to account for perhaps, better market structure in the emerging universe.
The emerging markets have gotten ahead of the developed markets, not just because of their growth prospects, but also for their better market structure.
Market participants can’t deny that trading has become increasing more electronic, with more than 70% of U.S. equities trading being conducted through algorithms. From ATS (Alternative Trading System) to exchange, market structure evolution has taken place to make it easier and cheaper for buy-side traders to buy and sell.
When it comes to trading efficiency, some emerging markets have already gotten the solution down to a tee.
Pratik Sharma, managing director of Miami-based, Atyant Capital, through its privately-offered Indian equities fund, is focused on looking for undervalued opportunities in the Indian market, which happens to be one of the most liquid in the emerging universe.
“India is a very sophisticated market, mainly because it’s 100% electronic. There’s no market maker, it’s just order matching, so the transaction costs are very low,” Sharma said. “We have people on the ground because we’re primarily searching for under-owned, under-researched, and under-valued buying opportunities…Indian ‘gems.’ But you don’t need people on the ground as it’s become easier to access India.”
India’s two main exchanges, the National Stock Exchange, and the Bombay Stock Exchange rank 4th and 7th by exchange volume in Asia in 2011.
India’s initiative to offer traders ease of market access has helped lead to an inflow of foreign and institutional capital. One advantage to lowering costs for traders is India’s lack of “legacy infrastructure.”
“The emerging markets have the benefit of not having a legacy infrastructure,” Sharma told Markets Media. “Historically, India didn’t have local phone lines so when it came time to build trading venues; they went straight to wireless, which has more cutting edge technology. India’s exchanges have been electronic since the late 90s…they skipped the intermediate steps.”
“Intermediate” steps may refer to what U.S. (and other developed markets) traders remember were the golden days of Wall Street…floor brokers, phone calls exchanged between brokers and traders…aspects of today’s trading world that have been scaled down.
However, Atyant doesn’t trade too often. The India Fund’s portfolio turns over every one to 24 months, according to Sharma—and he plans to keep a long-term view.
“In terms of brokers’ fees, we pay nothing,” he continued. “We like the value-oriented Warren Buffet-type strategies.”
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