You know things are heating up when George Soros wants to invest, and in this case, it’s Asia’s oldest stock exchange.
As the FT reports on Wednesday, Soros is in final talks to buy Dubai Holding’s 4 per cent stake in the Bombay Stock Exchange (still somewhat anachronistically called after the old colonial name for the city of Mumbai) for about $40m, valuing the bourse at about $1bn.
The maximum an individual foreign entity can hold in an Indian bourse is 5 per cent, and Soros’s move follows a series of relatively small but strategic investments by foreign investors in India’s stock and derivatives exchanges. The growing pace of such deals highlights the growing push among Indian exchanges to diversify into new asset classes and introduce technologies to attract high-frequency traders.
Soros himself continues to display an intellectual preoccupation with Europe as well as of course with America, but Asia is clearly of growing interest in his investment strategies.
His investment group, Soros Fund Management, moved to establish a beachhead in Hong Kong early this year as it stepped up investments in Chinese companies. In May, the Soros group was revealed to be one of the biggest investors in Alibaba.com, China’s largest e-commerce provider.
While the great man himself no longer actively manages the group, he had this to say in an FT interview late last year as he outlined why China would replace the US consumer as the source of global growth: “China will be the engine driving it forward and the US will be actually a drag that’s being pulled along through a gradual decline in the value of the dollar”.
Soros’s BSE deal follows NYSE Euronext’s retreat when it agreed in May to sell a 5 per cent stake in India’s National Stock Exchange to Singaporean state investment group Temasek.
NYSE Euronext has said justified its retreat from India, telling Reuters in May that strategic avenues” failed to pan out there. But it may well rue its Indian exit, amid signs of new and growing interest among the world’s large exchanges in their emerging market counterparts.
It’s all part of what the FT’s Trading Room describes as a new, “scratch-my-back-and-I’ll-scratch-yours” approach by some of the world’s biggest exchanges and their smaller counterparts in emerging markets, as both sides seek to expand their businesses.
One factor that’s also behind this is the explosion in emerging market exchange-traded fund vehicles in the West, and comparative western-themed ETFs in emerging markets.
As the FT’s BeyondBrics observed last week in a post on capital export controls, these products are already knocking down entry barriers to previously inaccessable markets.
The opportunities for cross-border flows are hence massive. It’s also one of the factors now driving the cross-listing of associated futures markets — since to properly nurture a growing exchange-traded product business in an exotic emerging markets zone, you have to provide the means for market makers to hedge in a timely and efficient way.
Liquidity for such products thus becomes greatly improved.
Think of an India-listed Euro Stoxx 50 ETF — it would need Euro Stoxx futures trading in an Indian timezone for perfect hedging. Market-makers providing liquidity to an Indian ETF in the US, meanwhile, would ideally need access to Indian futures to hedge the risk effectively.
And hence what goes around, comes around.
Related links:
Hugh Hendry: Soros has embraced socialism – FTAlphaville
Bill Baker: The wants and fears of George Soros – Huffington Post
India raises rates – Lex
Hemindra Hazari: Behind India’s stress tests - BeyondBrics