Emerging Market Economies: Does this classification still make sense?

Panel 4 – Developing EconomiesWorld Federation of Exchanges

Paulo Oliveira Jr.Chief Business Development Officer

October 2009

Emerging Markets a World Bank definition and the conventional wisdom to be challenged

Low Income Emerging Markets: USD 975 or less

Lower Middle Income Emerging Markets: USD 976-USD 3,855

Upper Middle Income Emerging Markets: USD 3,856-USD 11,905

Developed Economies: USD 11,906 or more

The World Bank classifies member economies according to gross national income (GNI) per capita

However, the concept became popular to designate nations in a TRANSITION PROCESS or

IN A CATCHING UP PATH

Emerging Economies have attained a relevant position among the top markets

Source: IMF and ECB (Jul09 and Aug09)

Emerging Markets have attracted attention because of their dynamic growth, therefore developing a leading role in the global economy

The BRICs are among the top ten economies in the world

Source: IMF

Emerging Markets

Developed Countries

GDP OF SELECTED COUNTRIES IN 2008In USD billion

INTERNATIONAL RESERVES OF SELECTED COUNTRIES IN 2009In USD billion

The “so-called” emerging markets are leading the recent recovery These economies established a new benchmark for global economic

development, leveraging their strength on the international arena

GDP PROJECTION Developed Economies

GDP PROJECTIONEmerging Economies

Emerging Markets growth has reshaped geopolitics on a global basis

Source: IMF

Emerging MarketsDeveloped Countries

Return in Emerging Markets reflects investors confidence in the potential of such

economies

MSCI INDEX PERFORMANCE IN 2009

Source: MSCIData as of 28th September 09Note: South Korea is classified as a Emerging Economy by MSCI

MSCI Index represents economic performance and market expectations from the most sophisticated investors in the world

Note: Snapshot of the end of 2008 reveals the full impact of the global financial crisis. In December 2007 Brazil Capitalization was over 80% of GDP and in June 2009 is around 60%.Source: Goldman Sachs Research Report

Spain

USAMalaysia

Chile

South Africa

Australia

Korea India

Israel

Netherlands

Brazil

Canada

France

United Kingdom

Japan

20%

40%

60%

80%

100%

0 5 10 15

GDP (US$ trillion)

Market Capitalization/GDP (%)

Hong Kong

Switzerland

Brazil1H09

Liquidity depth of emerging capital markets is advancing within the G-20 economies

MARKET CAPITALIZATION AND GDP OF SELECTED COUNTRIES IN THE END OF 2008

Emerging Markets sustainable achievements are undisputable and globally recognized

Is such classification still applicable and reasonable? The Brazil repositioning case as a crisis aftermath

ARGENTINA, BRAZIL, CHINA, INDIA, INDONESIA, MEXICO, RUSSIA, SAUDI ARABIA, SINGAPORE, SOUTH AFRICA AND TURKEY ARE ALL G-20 MEMBERS

Prudential regulation, reasonable levels of leverage, sound fiscal and macroeconomic policies have proved to be essential

Newly released recommendations by multilateral organizations and international industry bodies demand reinforcing supervision and controls

Efficient and effective regulation

CCP function as a core value

Sound accounting standards

Transparent derivatives markets

Prudent margining and risk management

Strong market surveillance and supervision

Controlled leverage of financial institutions

Regulatory framework is under review in the developed financial markets after the crisis

Brazil has been practicing these benchmarks

consistently for years

BREAKDOWN OF THE GLOBAL DERIVATIVES MARKETOTC VERSUS LISTED EXCHANGE IN 2008

In notional amount outstanding

BREAKDOWN OF THE BRAZILIAN DERIVATIVES MARKETOTC VERSUS LISTED EXCHANGE IN 2008

In notional amount outstanding

Source: Deutsche Boerse Group, BIS, WFE, FIA, BM&FBOVESPA, CETIP

Brazilian prudent regulation and sophisticated markets provided superb defense mechanisms

Organized and regulated markets are by far predominant in Brazil This feature has been fundamental in avoiding market disruptions and

sustaining market integrity

BRAZILIAN INTERNATIONAL RESERVES NET TOTAL EXTERNAL DEBT TO GDP (%)

PUBLIC SECTOR NET DEBT TO GDP (%) TOTAL CREDIT OPERATIONS TO GDP (%)

Brazil remarkable resilience during the crisis anticipates a huge potential for growth

USD billion

Source: Central Bank of Brazil

NET FOREIGN INVESTMENTS IN THE BRAZILIAN STOCK MARKET IN 2009

USD million

*Up to September 18th

FOREIGN INVESTOR PARTICIPATION IN THE BRAZILIAN STOCK MARKET 2007-2009

USD million

Brazilian excellent fundamentals attract liquidity available after crisis deleveraging

16 billion in 2009

International investors have kept their confidence even under extreme scenarios

Reliable and vibrant markets have sustained a steady flow of foreign investments

Source: BM&FBOVESPA

IPO – CAPITAL RAISED BY SHARES ISSUES IN 2009in USD billion

TOTAL CAPITAL RAISED BY SHARES ISSUES IN 2009in USD billion

Source: WFENote: Up to August

Source: WFENote: Up to August

Regulation, transparency and improved corporate governance have reinforced the Exchange as a promoter of economic development

Raising capital in the Exchange became fashionable and profitable

New capital flows reinvigorate the Brazilian Exchange role in financing development

PRICE EVOLUTION OF THE TOP 5 LARGEST LISTED EXCHANGESLocal Currency (Base 100=01/01/08)

Source: Bloomberg

The Brazilian Exchange outstanding performance is perceived and rewarded

BM&FBOVESPA is the largest stock and derivatives exchange in LatAm and the 4th largest listed exchange in the world

81% of Latin America total stock value traded (Jan-Aug09)

89% of Latin America derivatives market volume (Jan-Jun09)

PRODUCT GRID

CASH

Stocks

Funds

Corporate Bonds

Government bonds

US Dollar

Gold

Commodities

SPOT MARKETSFUTURES AND OPTIONS

Equities

Interest Rates

Currencies

Indices

Metals

Commodities

Energy

DERIVATIVES MARKET

Its vertically integrated multi asset class model is important for global footprint

Full Range of ProductsDedicated Platforms and common interface

Robust Risk ManagementMulti-layered and sound safeguards

TRADING POST TRADING

158

All listed companies must disclose annual financial statements in IFRS by 2010

Its corporate governance rules are designed to foster sustainable investment in the

region

• 37% of total listed companies

• 61% of total market capitalization

• 75% of total traded value

Participation of the special listing segments (aug/09)

IPOs per level*

*From 2004 to Jun09

Emerging markets : an elusive concept that has to be revisited by market practitioners

The financial crisis has provided evidence that :

Some emerging countries have built advanced regulation and effective financial infrastructures that withstand volatile markets more efficiently

Some emerging markets have developed original risk management solutions and transparency rules that better cope with financial institutions leveraging

Some emerging economies have created comprehensive corporate governance rules that promote disclosure more widely

New possibilities for developing capital markets are rising

New models for economic development are shaping

Old fashioned capitalism analytical framework is being challenged

Not every country needs to follow the path of more mature and developed economies

In a multipolar world the name of the game is full and open dialogue, not only East West, but also NorthSouth

There are plenty of lessons to be learned and experiences to be shared

Emerging Market Economies: Does this classification still make sense?

Panel 4 – Developing EconomiesWorld Federation of Exchanges

Paulo Oliveira Jr.Chief Business Development Officer

October 2009