[Dan Katz at Bank of America Merrill Lynch] began by explaining that there were a number of different synthetic products that can be used to access a variety of different emerging and frontier market countries.
[snip]
However, he stated that “it can be very difficult to access those [emerging and frontier market] countries” in a timely manner and also be costly to do so locally because of the need to have local accounts in India and qualified investor status in China, for example. “Or it may be from a tax perspective more expensive to invest locally as is the case with certain investors in Brazil,” he added.
Does your market put up significant barriers to entry by foreign capital in order to protect local interests? That may be counter-productive to growth in the long term. The fact is that non-local investors want to be in your market, and if they can’t do it directly, they will find ways to invest synthetically. If they do, it’s the local interests that ultimately lose out, because synthetic investments don’t have the local impacts – market quality, liquidity, listings desirability – that direct investments do. If you want to grow your market, consider eliminating those barriers to entry; as they say, a rising tide will lift all boats.
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