Country Profiles: Up and Coming Markets
MALAYSIA
Malaysia
is the seventh largest market in Asia Pacific in terms of equity lending
revenues, according to IHS Markit data. It is certainly one to watch, with
revenues jumping 40% over the year. Although the total remains low by regional
standards at $32m it is over 10 times that generated five years ago.
Last
year was also a strong year in terms of average balances, growing 30% to $933m,
from inventories that increased by a similar percentage to $9bn. This was
achieved with fees staying flat at 3.2%. The most revenue generated for lenders
came from Maxis and Digi.com.
“There has definitely been an increase in
business in Malaysia,” says Rakesh Patel, head of equities, Asia-Pacific, HSBC.
“It is the one ASEAN market that really pops, in terms of an increase in
activity. It is certainly an interesting market going forward.”
It
is uncertain whether the rapid progress can be sustained, at least in the short
term, as interest peaked during the year. “The outstanding notional values came
up quite quickly last year – but in the meantime it seems that the demand has
reduced a little,” says prime broker based in the region. “There is a
functioning market in place now.”
Bursa
Malaysia offers two securities borrowing and lending models: central lending agency
(SBLCLA) and negotiated transaction (SBLNT). In the SBLCLA model Bursa Malaysia
acts as the central lending agency for all SBL transactions between authorised
lenders and borrowers. The SBLNT provides an on-shore route to agree
transactions an over-the-counter basis and report to its representatives.
INDIA
India
is at the early stages of securities lending relative to other Asia markets,
but it is evolving and starting to mature and become more open to international
market participants.
“India
looks very interesting, having gone through a de-monetarisation phase,” says
HSBC’s Patel. “Hedge funds and clients I speak to think India looks like a
worthwhile opportunity to explore. India is at the early stages of securities
lending relative to other Asia markets. But as an equity market it is maturing,
it’s evolving, which will hopefully follow through into the lending.”
India
is a very large market but one where the authorities have not wholeheartedly
accepted the merits of SBL. A separate source who requested to remain anonymous
says: “The Indian authorities have been relatively averse to having instruments
for shorting capability onshore so it has been challenging from a securities
lending perspective. As the market evolves they will understand that lending
adds to liquidity, so it ends up being a good thing for everyone. India is at
the early stages of that now.”
INDONESIA
Indonesia
remains one of the region’s most exciting opportunities. Its untapped liquidity
profile and economic growth expectations make it an attractive frontier market
for investors, according to Dane Fannin Head of Capital Markets, Asia-Pacific,
Northern Trust.
While
it does not have a securities borrowing and infrastructure in place, this makes
for a viable offshore model. In addition, “we are aware that regulators have
been consulting with their counterparts in other markets to progress Indonesia’s
market further, says Fannin.
Current
key challenges include the need for local currency collateral and for
counterparts to transact under local law. These issues will require resolution
if Indonesia’s potential as a jurisdiction for securities borrowing and lending
is to be fulfilled, and industry participants are continuing to engage with
regulators to reach that end-goal.
THE PHILIPPINES
The
general regulatory framework for securities borrowing and lending (SBL) in the
Philippines was put in place in 2006. SBL remains bilateral and is mostly for fails
settlement. Parties to the SBL are usually trading participants and investment
banks.
“The
Philippine stock market has yet to experience the full vibrancy offered by SBL
given the limited supply and the absence of short selling,” said Hans B. Sicat
president and CEO of the Philippine Stock Exchange. “With the launch of ETFs
and the expected introduction of short selling in the market, the PSE realizes
the need for increased access to SBL.”
Sicat
says the exchange has been in regular contact with international banks
throughout the development process of its SBL and short selling regulations. “We
think that there is significant interest, which we hope to realize by providing
regulations that will be acceptable to these participants.”
“Increasing
the supply available for securities lending and getting our short selling
programme off the ground is therefore one of the priority initiatives of the
exchange.”
ICBC Standard Bank: Expert eye on repo
The
Philippines has a clean netting opinion for GMRA activity. Although there is
currently an active market with local banks in international securities, it
would seem that this is not the main area of focus going forward. The financing
of local assets against US dollar is of great interest to local banks and
financial institutions.
According
to Wei-Shee Chia of ICBC Standard Bank: “Regional assets, denominated in local
currencies, are becoming more accessible in the global markets. ICBC Standard
Bank has local knowledge and risk appetite to provide this product in the
Philippines and is actively looking to expand its footprint in the country.”
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