Foreword
So far, 2023 has been another rollercoaster ride for investors.
2022 closed with the fallout from a series of collapses which threatened to cast a deep shadow over the crypto market. However, what may look like large failures actually has positive undertones for digital asset custody - recognised weaknesses are driving regulators to address the risks they are rapidly developing a firm and very real understanding of. We see potential for markets to create the right regulatory environment and sandbox for development.
With such a wide footprint across emerging and frontier markets, we’re privy to exciting, budding opportunities. Models of access to investor markets in our footprint are diverse – and at different stages of foreign openness and technological readiness. This means that regardless of the backdrop, there are always opportunities for yield and growth. The growth of domestic fund regimes within our footprint offers us a unique opportunity to leverage the benefits of our global reach and unique domestic footprint.
There are geographies, and technological developments that are gaining increasing interest from our clients at present. Therefore, this edition of The Custodian looks at Emerging and frontier markets: What’s on the horizon.
On the technology front, digital assets are persistently popular despite the recent crypto commotion. In Securing the future: The crucial link between crypto custody and counterparty risk, we discuss how certain investors view such assets as central to diversification. We now see an opportunity for emerging markets to leapfrog developed counterparts.However, this will require fostering an environment that incentivises product development, particularly around promising areas such as tokenisation. As these markets develop, investors should stay close to custody providers that are prudent, regionally experienced, and that understand the interconnectivity with traditional finance.
Turning to geography, the Middle East is a current bright spot, thanks in part to strong economic growth (in sharp contrast to regional counterparts). This growth – combined with a booming commodities market, and government investment in the economy and financial markets – is creating a perfect storm of opportunities. We evaluate these advancements in our second article, Investors race into MENA. We also analyse the region’s two highest-potential players – Saudi Arabia and Egypt – and share exciting news about our custodian offerings in these markets.
Onto product opportunities, and Islamic finance is on the clear ascent, with global assets expected to more than double by 2025. In Islamic finance and the securities market outlook for 2023, we unveil the leading products driving this growth, and the top markets for issuances and demand. Like traditional finance, Islamic finance products are having to manage through macroeconomic uncertainties. Yet with developments like the evolution of secondary markets and ESG in this space, this remains an exciting opportunity to keep an eye on.
We turn back to technology for our fourth article, Leading from the front: Back office is key to the next tech evolution. The funds services industry continues to be somewhat manual, from account opening through fund lifecycles. Yet with growth potential on the horizon – particularly among tech-savvy retail investors in Asia and the Middle East – the lack of automation needs be tackled. We explore how often-underestimated back-office providers could prove central to the embedding of technology in the funds space, especially around Transfer Agency.
And in our final piece, we update on another market experiencing contrarian economic growth. In India’s moment to shine: Connectivity and investment flows transform the post-trade landscape, we review the expansion of its investment market. Further foreign investor liberalisation, increased focus on ESG frameworks, and ambitions to become a leading regional financial centre are all propelling this market into the investor spotlight. And with India’s recent takeover from China in population size, it’s becoming a stronger competitor – especially given the latter’s continuing geopolitical tensions with the US.
I hope these articles give you a good understanding of the current trends and opportunities in emerging and frontier markets. And with so many exciting regulatory and technological advancements on the horizon, we’ll be sure to keep you posted on what all this could mean for your business.
Margaret Harwood-JonesGlobal Head, Financing and Securities Services, Financial Markets
