Emerging markets had experienced greater levels of financial market volatility than “countries that are the source of the problem”, Finance Minister Pravin Gordhan said.
At the annual meeting of the World Federation of Exchanges (WFE) in Sandton, the minister described emerging markets as “innocent bystanders” – a concept formulated at the meeting of the International Monetary Fund in Washington last month. (Download the full speech)
“The sovereign debt crisis in Europe has prompted extreme levels of volatility in stock exchanges around the world. And the volatility on stock exchanges tends to aggravate the crisis,” he said.
“And for developing countries this is even more the case.”
Gordhan said policymakers recognised that markets had played “a critical signalling role, hoping for speedy, decisive and credible action, instead of kicking the can down the road”.
He highlighted the importance of stock exchanges in “mobilising capital” to create growth and jobs.
“Between 2000 and 2010 the total amount of investment unlocked through exchanges amounted to a cumulative $7.5 trillion (R58.3 trillion). The flow of capital through exchanges reached $1 trillion in 2008 and fell to about $800 billion in 2009 following the global financial crisis. Last year global activity recovered to about $1 trillion.”
Gordhan said stock exchanges would play “a central role in our collective efforts to stabilise the world economy and return it to a trajectory which realises the Group of 20 objective of strong, sustainable and balanced growth”.
He praised stock exchanges for empowering ordinary workers who could benefit from the growth of their companies and the broader economy through share ownership.
“No longer are countries controlled by an elite. Ordinary people can participate through their pension funds, mutual funds and investment vehicles.”
Quoting a survey in 2010 by Investment Solutions and Alexander Forbes, he said about 17.6 percent of the JSE’s market value was held by pension funds.
Gordhan appealed to the WFE to provide support to developing stock markets in Africa by creating a chamber for the countries that were still developing their capital markets. He said countries which “today might look small could become significant economies”.
Gordhan spoke of derivatives, which “played a vital role in mobilising capital”, but when “used inappropriately, have devastating effects”.
Last year, he said, the value of derivatives traded globally was 10 times that of gross global product.
At the same conference the stock exchanges of the Brics (Brazil, Russia, India, China and South Africa) bloc announced a joint initiative to cross-list benchmark equity index derivatives on the boards of each of the other alliance members.
Source: Business Report