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Hong Kong and Singapore as Asia´s Financial Gateways

Celent predicts a paradigm shift around access to Asia. There is likely to be two gateways, providing access to different Asian regions, with Singapore emerging as the preferred gateway to Southeast Asia and Hong Kong becoming the gateway to Mainland China.

In a new report, the third of a series looking at the financial markets in Hong Kong and Singapore, Celent aims to provide a comparative analysis of Asia’s two main financial gateways, focusing particularly on derivatives. Asia’s Tale of Two Cities: Hong Kong and Singapore as Financial Gateways begins by noting that Western governments have emerged from the financial crisis in a weakened state, with economic prosperity blunted by high unemployment and an emerging debt crisis. The question is no longer when or if we need to enter the Asian markets, but how to best think about the issues of accessibility, entering the market, developing products, and forming strategic partnerships. The fundamental question that needs to be asked now is: “Where do we go from here, Hong Kong or Singapore?”

Although the HKEx and SGX may not be the biggest derivatives players in Asia-Pacific, they tend to be the most accessible for segments located outside the region. Taking advantage of their geographic location, political climate, and internal strengths, these city-states are poised to become hubs for trading of Asia’s regional products while also being easily accessed by US traders via retail trading accounts.

There are several factors that are likely to continue to drive growth in the derivatives market. These include:

• A relatively muted response to regulating over-the-counter markets as compared with the US and Europe. The type of products that led to the financial crisis in the West are not widely established throughout Asia, and as a result, the regulatory structure governing OTC markets are unlikely to change significantly.

• Continued desire to manage foreign exchange risk.

• Continued enhancement of processes of structuring derivatives risk management policies.

“We are seeing changes in relation to access to Asia. Hong Kong is no longer destined to become the sole hub to Southeast Asia,” says Alexander Camargo, Analyst and coauthor of the report. “Inherent strengths in Singapore are making it an extremely attractive financial gateway. Both English and Chinese are frequently spoken in Singapore, making it an ideal cross-roads for East and West. Furthermore, Singapore is viewed by most Asian countries as a neutral party and less politically tied to China than Hong Kong. This is likely to entice Indian investors and even Japanese and Korean investors to Singapore’s shores.”

However, this does not mean that Hong Kong will recede as a major financial center in Asia. Hong Kong residents are often fluent in both English and Chinese; contract laws are strong; and there remain strong historical ties to the West. As a Special Administrative Region of the People’s Republic of China, Hong Kong has stronger political ties to China. Hong Kong has also been busy integrating its financial markets with mainland China. These factors make it likely that Hong Kong will become a key gateway to mainland China.

This report begins with an overview of each country’s financial infrastructure and regulations, providing an introduction to the countries’ various demand market segments, followed by a look at the main exchanges, HKEx and SGX. A summary of HKEx and SGX focuses on derivatives trading, providing a brief description of products offered, market access, alliances, and clearing on the exchanges. The report then looks at each country’s fixed income markets, OTC derivatives, and FX markets. It concludes with a discussion of market supremacy and also the countries’ ongoing efforts to improve market structure and access.

Source: Bobsguide, 10.02.2012


Filed under: Asia, China, Exchanges, Hong Kong, Indonesia, Japan, Korea, Malaysia, News, Singapore, Thailand, Vietnam, , , , , , , , , , , , , ,

ASEAN Exchanges plans on track to promote ASEAN as an asset class

Following the November 2011 ASEAN Exchanges CEOs meeting, the ASEAN Exchanges CEOs today announced that the collaboration framework is on track towards meeting its goals of collectively promoting ASEAN as a highly investable asset class.

The Philippine Stock Exchange President and CEO, Hans Sicat said, “the marketing of the ASEAN Stars and the work on an ASEAN index series continues as planned with the ASEAN Exchanges collaboration members. The 2012 marketing activities for ASEAN Exchanges will be finalised at our scheduled CEOs meeting on December 2nd in Hanoi.”

The seven ASEAN Exchanges have a combined market capitalization of approximately USD2.0 trillion and more than 3,600 companies listed on their exchanges. Some of these companies are the largest and most dynamic companies in the world, including leaders in finance and banking, energy, telecommunications, commodities, automotive manufacturing and other industrial sectors.

The CEOs also announced the awaited roll-out plan of the ASEAN Trading Link which will see the participation of member exchanges taking place progressively in stages. The first stage will see the connectivity of Singapore Exchange and Bursa Malaysia in June 2012 and the Stock Exchange of Thailand added in August 2012 after its new trading engine goes live. The participation dates of the other ASEAN Exchanges collaboration members, namely, Hanoi Stock Exchange, HoChiMinh Stock Exchange, Indonesia Stock Exchange and The Philippines Stock Exchange will be announced at a future date.

Tajuddin Atan of Bursa Malaysia Berhad said, “The three bourses that will participate in the first stage of the ASEAN Trading Link represent approximately 70% of the market capitalization of the 7-member collaboration, thus offering substantial investment opportunities for investors.”

Source: MondoVisione, 17.11.2011

Filed under: Exchanges, Indonesia, Malaysia, Singapore, Thailand, Vietnam, , , , , , , , , , , ,

2010 Top 10 Developments in Asia’s Electronic Trading Industry;Asia E-Trading

2010 was the year that Asia’s electronic trading industry focused on competition and services in what have traditionally been anti-competitive market places. We recorded over 1000 separate news items this year in Asia alone. We recognize that some of the developments that made our list will not be relevant to everyone but as a neutral third party observer we have come up with a list that we feel are the Top 10 Developments in Asia’s Electronic Trading Industry in 2010.

Original Article: Asia E-Trading 2010 Top Developments

10) The US CFTC now allows Malaysian futures brokers to deal directly with US customer. Perhaps individually not a Top 10 item as other brokers in Asia have been given the nod by the US regulator too. But when taken together with the recent Bursa Malaysia exchange technology upgrades in both the equity and futures segments, migration to the CME Globex platform and the record prices in the Crude Palm Oil contract Malaysia is now poised to take its place as a south-east Asian trading center. It will become a key anchor in the ASEAN link planned in the coming years.

9) China’s Index future launched April 16 after many years of delay was an important development not only for electronic trading but also for China’s budding algorithmic and hedge fund industry. The index has quickly become one of the largest index futures now traded in Asia. Though the back month doesn’t trade as much as it should it will only be a matter of time before that open interest picks up too. It shouldn’t be long before we see index options and an interest rate future for China as well.

8 ) Singapore Mercantile Exchange launched in late August this year. Asia is demanding more and more commodities as wealth and consumption grow around the zone. Generally, in Asia, commodity exchanges tend to offer just one product but the Singapore Merc is offering a basket of commodities to trade both physical and cash contracts. Trading is available in WTI crude, currency, gold and black pepper to name a few. Interestingly, though, is that the SMX is owned entirely by Financial Technologies Group (FTIL) an India based company that will see its exchange compete head on with SICOM, the SGXs commodities arm. Expect to hear more from the SMX this year.

7) The Japan Securities Clearing Corporation (JSCC) began clearing trades for Proprietary Trading Systems (PTS) in August substantially reducing the costs in the post trade for alternatives in Japan. While the playing field still isn’t level with the Primary exchanges, this development at the JSCC was a boost for Japanese PTSs. SBI Japannext, a consortium PTS, has regularly traded 1 percent of daily volume on its venue as a result of this change. We expect fragmentation to accelerate in 2011 in Japan which is already around 3 to 5%.

6) The launch of Chi-east. The joint venture between the Singapore Exchange and Chi-X called Chi-east made it to our list of top 10 developments in Asia electronic trading industry in 2010. The venture is a big step for Singapore in terms of spurring exchange competition and becoming a regional one-stop-shop for trading in Asia. Chi-East is a broker to broker alternative that will offer off-shore crossing using different clearing facilities around Asia.

5) China is now the largest agricultural commodity market in the world with the Dalian Commodity Exchange seeing record volumes in Corn and the Soybean complex. Coupled with the Shanghai Futures Exchange and its metal products the opportunities and future for the electronic trading industry vertical in China and the rest of the world are huge.

4) Exchange competition in Australia. On March 31 the Australian government announced its support for Exchange competition in Australia. While we are still waiting the promise of competition is compelling. The Australian Securities Exchange (ASX) has long held a monopoly over the industry with poor service and high trading fees (explicit and implicit). The ASX passed its supervisory duties to the Australian Securities and Investments Commission (ASIC) August 1 and with the Market Integrity Rules being finalized it shouldn’t be long before trading in Australia is much cheaper and better served. The ASX SGX merger could put a spanner in the works, however.

3) Smart Order Routing in India – SEBI finally permitted Smart Order Routing in India in August of this year much to the National Stock Exchanges chagrin. The Bombay Stock Exchange promptly offered this service to its customers in a bid to take market share from its larger rival. India has the tightest spreads in Asia of around 6bps and with SORs on offer we can expect spreads to tighten even further and volumes to shoot up. This long overdue regulation puts India on the road to offering best execution far ahead of its BRIC peer China. Deutesche equities was the first FII to receive approval for using SORs to both the NSE and BSE.

2) SGX / ASX Merger – We have seen it in the US and Europe and it has finally come to Asia, exchange consolidation. While the news of this reverberated around the world like a tsunami the reality, in AsiaEtrading’s view, is that this is a merger of survival. Both exchanges are very small and in aggregate are still quite small but would command the largest futures market in Asia (not including China’s commodities of course). The announcement is further evidence that Asia is moving to a more competitive industry and should be a wake-up call to the rest of the region. Our webinar on the topic had the panelists agreeing that the merger won’t happen. We’ll wait and see if this merger does indeed take place.

1) We ranked the Tokyo Stock Exchange Arrowhead upgrade as the most important development in Asia’s Electronic Trading industry in 2010. This was a significant and crucial development for one of the top exchanges in the world. Previously, order round trips were around 4 seconds and orders per second were on par with a Starbucks barista. The improved matching engine performance has tightened spreads, increased trading volumes and reduced order sizes. This in turn has attracted more sophisticated traders, reduced implicit trading costs and has generally benefited the Japanese trading industry significantly. Not only that, having come out of 2009 and the aftermath of the GFC, the successful upgrade was the turning point for what was a very activity business in 2010. To us it was the catalyst for the entire industry in Asia.

Source:, 02.01.2011

Filed under: Australia, China, Exchanges, Hong Kong, India, Japan, Malaysia, News, Singapore, Trading Technology, , , , , , , , , , , , , , , , ,

Asean exchanges select Nyse Technologies to build trading network

A group of Asean stock exchanges have appointed Nyse Technologies to build a direct market access electronic trading link.

Last February Bursa Malaysia, the Philippine Stock Exchange, Singapore Exchange and the Stock Exchange of Thailand outlined plans to create a single access point to ease cross-border trading and attract more international fund flows into the region. Indonesia’s exchange was initially part of the group but is no longer involved.

The partners have now signed a letter of intent appointing Nyse Euronext’s IT unit to design, build and manage the technology required for the trading link.

Nyse Technologies says its system will be underpinned by a resilient networking infrastructure that will interconnect the Asean member exchange’s and, through them, their respective communities.

The system will include services that tap this network to provide integrated market data feeds from all the participating markets and a standardised entry point for trading. Expansion of the trading link’s markets will be helped by the risk management and controls put in place, says Nyse.

In addition, the system will integrate with the Nyse Euronext communication network infrastructure, SFTI. This will give STFI members streamlined and cost effective access to trading in the Asean Trading Link markets.

Duncan Niederauer, CEO, Nyse Euronext, says: “The Asean Trading Link will strengthen the competitiveness of the member exchanges and enable them to better serve their customers. National and regional interest will be well served by giving investors greater access to global capital to facilitate new development, growth and wealth creation.”

Francisco Edralin Lim, CEO, Philippine Stock Exchange, adds: “Nyse Technologies brings to the table vast experience in the Exchange solutions business and we are confident that they will deliver cutting edge solutions that meet all our requirements. We are also excited about the possibilities of leveraging their extensive order routing networks to bring order flow into the Asean markets.”

Source, Finextra, 08.02.2010

Filed under: Asia, Exchanges, Malaysia, News, Singapore, Trading Technology, , , , , , , , , , , , ,

China and India – Himalayas, Water and growing conflicts

The brewing disputes and growing concerns of the Himalayan Region by worlds two most populus nations, is a further indication of increasing dangers of latent resource wars, particularly on water. The continuing desertification in China and migration to coastal region increase pressure. While planned deviation of water ways to Chinese low lands could severely affect South- and South East Asia, see also

Political Hands across the Himalayas, FT, 15.11.2009

Excerpt: India and China are touted as white knights coming to the rescue of the world economy. Considerable hope rests on these two countries, with fast-paced growth, developing domestic markets and high savings rates, reviving demand and leading other languishing parts of the world out of recession.

The two rising powers, however, may yet be clashing knights. For in New Delhi it is fear of Beijing, rather than partnership, that all too frequently characterises the trans-Himalayan relationship. While some size up trade balances and growth trajectories, others are measuring missile ranges and comparing military parades.

Mr Mishra advised Atul Behari Vajpayee, the former premier. His views, albeit hawkish, are respected by the current Congress party-led government and carry weight with the diplomatic community.

So his recent forecast that India might face a second military front within five years turned heads. The former intelligence chief predicted that India could find itself locked in an armed stand-off simultaneously with Beijing and Pakistan, the traditional rival.

Mr Mishra’s suspicions of China have been newly aroused by Beijing’s warm relationship with Islamabad and its supply of military hardware to Pakistan’s army.

They have also been stoked by territorial claims to Arunachal Pradesh, a north-eastern Indian state, and predictions on Chinese websites that India, a country of huge diversity, is doomed to fall apart.

Mr Mishra says China’s stridency in its territorial ambitions has grown over the past two years to a level not seen since the early 1960s. Moreover, he accuses China of trying to bring into question India’s sovereignty over the state at the international level.

Military strategists interpret China’s policies as a regional power play. They say that tying India up within its own borders prevents it from projecting itself in the region and rivalling China.

In spite of the fighting talk in India, the relationship between India and China holds much more potential than antagonism. China’s impressive record of infrastructure development and lifting people out of poverty holds lessons for India. Likewise, India’s democratic credentials and inclusiveness are instructive to China.

Read full article hear:  15.11. 2009 by James Lamont in New Delhi

The high stakes of melting Himalayan glaciers, CNN 05.10.2009

Execerpt – The glaciers in the Himalayas are receding quicker than those in other parts of the world and could disappear altogether by 2035 according to the 2007 Intergovernmental Panel on Climate Change (IPCC) report. The result of this deglaciation could be conflict as Himalayan glacial runoff has an essential role in the economies, agriculture and even religions of the regions countries.

Satellite data from the Indian Space Applications Center, in Ahmedabad, India, indicates that from 1962 to 2004, more than 1,000 Himalayan glaciers have retreated by around 16 percent. According to the Chinese Academy of Sciences, China’s glaciers have shrunk by 5 percent since 1950s.

Dr. Vandana Shiva, an environmental activist, physicist and leader in the International Forum on Globalization, has just returned from a “Climate Yatra,” a research journey to the Himalayas to study the impact of climate change and the glacial melt upon communities in Asia.

“Himalayan rivers support nearly half of humanity,” Dr. Shiva told CNN. “Everyone who depends on water from the Himalayas will be affected.”

Both India and China are exploring opportunities to harness Himalayan waters for hydroelectric power projects, and while the initial melt promises to provide plenty of water for both sides, the loss of glaciers could lead to water shortages further in the future.

Water-related conflicts have already been witnessed in other parts of the globe such as in the West Bank and in Darfur.

According to Himanshu Thakkar of the South Asia Network on Dams, Rivers and People, almost 70 percent of the non-monsoon flows in almost all the Himalayan rivers come from glacier melt.

International water security issues within Asia could be likely since the waters of the Indus, Ganges and the Brahmaptura basins flow into China in the upstream, and are shared across South Asia in the downstream.

Dr. Shiva believes the situation will render major security issues, between India and China particularly, as flows reduce and demands intensify.

Read full article here: CNN, 05.10.2009

In retreat: the roof of the world is experiencing rapid summer melting.


Filed under: Asia, China, India, Malaysia, News, Risk Management, Singapore, Thailand, Vietnam, , , , , , , , , , , , , ,

Why China and Japan Need an East Asia Bloc

Withering exports and asset bubbles have forced Asians – especially China and Japan — to work harder at free trade pacts.

All kinds of proposals have been floated about creating an Asian bloc a la European Union. Bilateral and multilateral free trade agreements (FTA) have been suggested for various combinations of Asian countries. Lately, there’s been a flurry of new ideas as Japan’s recently installed DPJ government seeks to differentiate from the ousted LDP.

By promoting ideas that lean toward Asia, DPJ’s leadership is signaling that Japan wants less dependence on the United States. This position offers a hope for the future to Japanese people, whose economy has been comatose for two decades. Closer integration with Asian neighbors could restore growth in Japan.

Whenever global trade gets into trouble, Asian countries talk about regional cooperation as an alternative growth driver. But typically these talks die out as soon as global trade recovers. Today’s chatter is following the same old pattern, although this time global trade is not on track to recover to previous levels and sustain East Asia’s export model. Thus, some sort of regional integration is needed to revive regional growth.

Which regional organization is in a position to lead an integration movement? Certainly not ASEAN, which is too small, nor APEC, which is too big. Something more is needed – like a bloc rooted in a trade pact between Japan and China.

ASEAN’s members are 10 countries in Southeast Asia with a population exceeding 600 million and a combined GDP of US$ 1.5 trillion in 2008. The group embraced an FTA process called AFTA in 1992, which accelerated after the 1997-’98 Asian Financial Crisis and competition with China heated up. When AFTA began, few gave it much chance for success, given the region’s huge disparities in per capita income and economic systems. Today AFTA is almost a reality, which is certainly a miracle.

ASEAN has succeeded beyond its wildest dreams. These days China, Japan, and South Korea join annual meetings as dialogue partners, while the European Union and United States participate in regional forums and bilateral discussions.

China and ASEAN completed FTA negotiations last year, demonstrating that they can function as an economic bloc. Now, China is ASEAN’s third largest trading partner. Indeed, there is a great upside for economic cooperation between the two.

Before the Asian Financial Crisis, the ASEAN region was touted as a “miracle” by international financial institutions for maintaining high GDP growth rates for more than two decades. But some of that growth was built on a bubble that diverted business away from production and toward asset speculation. This developed after credit expansion, driven by the pegging of regional currencies to the U.S. dollar, encouraged land speculation. ASEAN’s emerging economies absorbed massive cross-border capital due to a weak dollar, which slumped after the Federal Reserve responded to a U.S. banking crisis in the early 1990s by maintaining low interest rates.

Back then, I visited companies in the region that produced goods for export. I found that, despite all the talk of miracles, many were making money on financial games — not business. At that time, China was building an export sector that had started exerting downward pressure on tradable goods prices. Instead of focusing on competitiveness, the region hid behind a financial bubble and postponed a resolution. Indeed, ASEAN’s GDP was higher than China’s before the Asian financial crunch; now China’s GDP is three times ASEAN’s.

China today faces challenges similar to those confronting ASEAN before the crisis. While visiting manufacturers in China, I’ve often been discovering that their profits come from property development, lending or outright speculation. While asset prices rise, these practices are effectively subsidizing manufacturing operations – an asset game that can work wonderfully in the short term, as the U.S. experience demonstrates. When property and stock markets are worth more than twice GDP, 20 percent appreciation would be equivalent to four years of business profits in a normal economy. You can’t blame businesses for shifting their attention to the asset game in a bubbly environment. Yet as they focus on finance rather than manufacturing, their competitiveness erodes. And you know where that leads.

I digress from the main focus for this article — regional integration, not China’s bubble challenge.

So let’s look again at ASEAN’s success. In part, this reflects its soft image: Other major players do not view ASEAN as a competitive threat. Rather, the FTA with China has put pressure on majors such as India and Japan to pursue their own FTAs with ASEAN. Another dimension is that the region’s annual meetings have become important occasions for representatives from China, Japan and South Korea to sit down together.

In contrast to ASEAN’s success, APEC has been an abject failure.
Today, it’s simply a photo opportunity for leaders of member countries from the Americas, Oceania, Russia and Asia. APEC was set up after the Soviet bloc collapsed, and served a psychological purpose during the post-Cold War transition. It was reassuring for the global community to see leaders of former enemy countries shaking hands.

However, APEC is just too big and diverse to provide a foundation for building a trade structure. So general is the scope that anything APEC members agree upon would probably pass the United Nations. Now, two decades after end of the Cold War, APEC has clearly outlived its usefulness and is withering, although it may never shut down. APEC’s annual summit still offers leaders of member countries a venue for meetings on the sidelines to discuss bilateral issues. Maybe the group is useful in this way, offering an efficient venue for multiple summits concurrently.

Although ASEAN has succeeded with its own agenda, and achieved considerable success in relation to non-member countries, it clearly cannot assume the same role as the European Union. Besides, should Asia have an EU-like organization? Asia, by definition, clearly cannot. It’s a geographic region that includes the sub-continent, Middle East and central Asia. Any organization that encompasses Asia as a whole would be as unwieldy as APEC.

I am always puzzled by the word “Asia,” which the Greeks coined. In his classic work Histories, it seems ancient Greek historian Herodotus primarily referred to Asia Minor — today’s Turkey, and perhaps Syria — as Asia. I haven’t read much Greek, but I don’t recall India being included in ancient Greek references. So as far as I can determine, there is no internal logic to treating Asia as a region. It seems to encompass all places that are neither European nor African. Africa is a coherent continent, and Europe has a shared cultural past. Asia belongs to neither, so it shouldn’t be considered an organic entity.

Malaysia’s former prime minister Tun Mahathir bin Mohamad Mahathir was a strong supporter of an East Asia Economic Caucus (EAEC) which would have been comprised of ASEAN nations plus China, Japan and South Korea. But because Japan refused to participate in an organization that excluded the United States, the idea failed.

Yet there is some logic to Mahathir’s proposal. East Asia has a shared history, and intra-regional trade goes back centuries. Population movements have been significant, and as tourism takes off, regional relations should strengthen. One could envision a future marked by free-flowing capital, goods and labor in the region.

Yet differences among the region’s countries are much greater than in Europe. ASEAN’s overall per capita income is US$ 2,000, while it’s US$ 3,500 in China and US$ 40,000 in Japan. China, Japan, South Korea and Vietnam share Confucianism and Mahayana Buddhism, while most Southeast Asian countries embrace Islam or Hinayana Buddhism, and generally are more religious. I think an EU-like organization in East Asia would be very hard to establish, but something less restrictive would be possible.

Because Japan turned down Mahathir’s EAEC idea, there was a lot of interest when recently elected Prime Minister Yukio Hatoyama’s proposed something similar – an East Asia Community — at a recent ASEAN summit. Hatoyama failed to clarify the role of the United States in any such organization. If the United States is included, it would not fly, as it would be too similar to APEC. Nor could such an organization be like the EU. But if Japan is fully committed, the new group could assume substance over time.

The Japanese probably proposed the community idea for domestic political reasons. Yet the fundamental case for Japan to increase integration with the rest of Asia and away from the United States grows stronger every day. Despite high per capita income, Japan remains an export-oriented economy, having missed an opportunity to develop a consumption-led economy in the 1980s and ’90s. In the foolish belief that rising property prices would spread wealth beyond the industrial heartland in the Tokyo-Osaka corridor, the government of former Prime Minister Kakuei Tanaka pursued a high-price land policy, discouraging the middle class from pursuing a consumer lifestyle as they saved for property purchases.

Even more seriously, high property prices have been a major reason for Japan’s rapidly declining birth rate, as land prices inflated living costs. Now, facing a declining population and public debt twice GDP, Japan has few options for rejuvenating the economy by promoting domestic demand. It needs trade if it hopes to achieve any growth at all. Without growth, Japan will sooner or later suffer a public debt crisis.

Japan’s property experience offers a major lesson for China. Every Chinese city is copying the Hong Kong model — raising money from an increasingly expensive land market to fund urban development, leading to rapid urbanization. But this is borrowing growth from the future. Rising land prices lead to rising costs and, hence, slower growth and the same rapid decline in the birth rate that Japan experienced. Unless China reverses its high-land price policy, the consequences will be even more disastrous than in Japan or Hong Kong, as China shifted to the asset game much earlier in its development.

Yet I digress again. The point is that Japan has a strong and genuine case that favors more integration with East Asia. The United States is unlikely to recover soon and with enough strength to feed Japan’s export machine again. There is no more room for fiscal stimulus. Devaluing the yen to gain market share is not an option as long as Washington pursues a weak dollar policy. Without a new source of trade, Japan’s economy is doomed. Closer integration with East Asia is the only way out.

In addition to Hatoyama’s EAC proposal, a study jointly sponsored by China, Japan and South Korea is considering the possibility of a FTA. Of course, ASEAN could offer a template for any new East Asian bloc. ASEAN has signed an FTA with China and is talking with Japan and South Korea. If they all sign, regional integration would be halfway completed.

Whatever proposals for East Asian integration, the key issue is a possible FTA between China and Japan. Adding other parties avoids this main issue. China and Japan together are six times ASEAN’s size and 10 times South Korea’s. Without a China-Japan FTA, no combination in East Asia would truly support regional integration.

Five years ago, I wrote an op-ed piece for the Financial Times entitled China and Japan: Natural Partners. At the time, a prevailing sentiment was that China and Japan were antithetical: Both were still manufacturing export-led economies and could only gain at the other’s expense. I saw complementary demographics and capital: Japan had a declining labor force and China needed to employ tens of millions of youths migrating to cities from the countryside. China needed capital and Japan had surplus capital. And their trade relations indeed tightened, as Japan had increased the Chinese share of its overall trade to 17.4 percent in 2008 from 10.4 percent in ’04.

Today, the situation has changed. China has a capital surplus rather than a shortage. Demographic complementarity is still good and could last another decade. As China shifts its development model from resource intensive to environmentally friendly, a new complementarity is emerging. Japan has already made the transition, and its technologies that supported the transition need a new market such as China’s. So even without a new trade agreement, bilateral trade will continue growing.

An FTA between China and Japan would significantly accelerate their trade, resulting in an efficiency gain of more than US$ 1 trillion. Japan’s aging population lends urgency to increasing the investment returns. On the other hand, as China prepares to make a numerical commitment to limiting greenhouse gas emissions at the upcoming Copenhagen summit on global warming, heavy investment and rapid restructuring are needed for its economy. Japanese technology could come in quite handy.

More importantly, a China-Japan FTA would lay a foundation for an East Asian free trade bloc. The region has a population of 2.1 billion and a GDP of US$ 13 trillion, rivaling the European Union and United States. Blessed with a low base, plenty of capital, sound technology and a huge market, the region’s GDP could easily double in a decade.

Trade and technology are twin engines of growth and prosperity. No boom is sustained without one or the other. And when they come together, the boom can be massive. Prosperity seen over the past decade, for example, is due to information technology along with the opening up of China and other former planned economies. But these factors have been absorbed, forcing the world to find another engine. An integration of East Asian economies would be significant enough to play this role.

The best approach would be for China and Japan to negotiate a comprehensive FTA that encompasses free-flowing goods, services and capital. This task may appear too difficult, but recent changes have made it possible. The two countries should give it a try.

It would be wrong to begin by working out an FTA that includes China, Japan and South Korea. That would triple the task’s level of difficulty, especially since South Korea doesn’t have a meaningful FTA with any country. To imagine that the Seoul government would cut a deal with China or Japan is naive. China and Japan should negotiate bilaterally.

A key issue is that China and Japan should put economics before politics. If the DPJ government wants to gain popularity by increasing international influence rather than boosting the economy, then all the current speculation and discussion about an East Asia bloc would be for nothing. But if DPJ wants to sustain power by rejuvenating Japan’s moribund economy, chances for a deal are good.

While Japan is talking, China should be doing. China should aggressively initiate the FTA process with Japan. Regardless of China’s current difficulties, its growth potential and vast market are what Japan will never have at home nor anywhere else. Hence, China would be able to compromise from a position of strength.

Some may say a free trade area for East Asia is beyond reach. However, history belongs to the daring. The world has changed enough to make it possible. China and Japan should seize the opportunity.

Source: Caijing, 10.11.2009 by Andy Xie, guest economist to Caijing and a board member of Rosetta Stone Advisors Ltd.

Full article in Chinese

Filed under: Asia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, News, Singapore, Thailand, Vietnam, , , , , , , , , , , , , , , , , , , , , , , , ,

Bursa Malaysia introduces Direct Market Access for Equities Marke

Bursa Malaysia today introduced Direct Market Access (DMA) for the equities market which is aimed to enhance trading efficiency and accessibility for market participants. With this, the Exchange will be providing a complete DMA infrastructure for both the equities and derivatives markets. The DMA for derivatives market was successfully launched in April 2008.

Bursa Malaysia Berhad’s Chief Executive Officer, Dato’ Yusli Mohamed Yusoff said, “DMA is a critical component for Bursa Malaysia to remain competitive in the global investment arena. We are committed to investing in the right technologies to promote market accessibility and liquidity, as well as increased trading efficiencies. This will enable us to meet the requirement for growth and alignment with international trading practices.”

“We are confident that similar to our experience with DMA derivatives, DMA equities will attract new segment of trading participation given its increased accessibility and low latency. Market participants will also be able to enjoy greater connectivity and more control of their orders via the DMA infrastructure for equities market,” he added.

The benefits of DMA:

  • It is a ‘zero-touch electronic trading’ solution which enables investors to route orders directly to the Exchange for immediate execution.
  • It will significantly reduce the time for orders to be sent and matched from the previous average of three (3) seconds per transaction to a fraction of a second.
  • It has the ability to support algorithmic and block trading which allows institutional investors greater control through using pre-determined order conditions.
  • It provides greater access to international investors as Bursa Malaysia allows ‘Sponsored Access’ for institutional investors.
  • It enables market participants to connect their own trading front-end to the Financial Information Exchange (FIX) DMA Gateway.
  • It allows market participants to install their own servers in the Exchange’s data centre through the co-location hosting service where faster order management can be processed and lower latency when trading.

For further information and details on DMA Equities, please contact Bursa Malaysia via email at

Source: Bursa Malaysia, 09.11.2009

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SMX Singapore Mercantile Exchange successfully completes Go-Live testing

Taking the next big step towards its launch, the Singapore Mercantile Exchange (“SMX” or the “Exchange”) has successfully completed the testing of its electronic trading platform, risk management and clearing & settlement systems. The Exchange received overwhelming support from the industry which included participation from clearing members, broking houses, high frequency traders, and independent software vendors. The Go-Live testing was conducted over four days from October 20 to October 23, 2009.

The Go-Live testing was conducted in an environment which mirrored the actual trading environment. Such testing enables market particpants to trade on the Exchange platform, get a feel of the Exchange systems and sort out any connectivity related issues, if any, which may crop up in a real life scenario. This Go-live test scenario also provides an opportunity to the Exchange to test and fine tune its own systems, where all the entities from the eco-system participated.

Thomas McMahon, CEO of SMX, said “We are very happy to announce that the Golive testing went off without a hitch and all systems and processes performed to our satisfaction. I would like to thank the participants for their over whelming support and for taking time off during their busy trading day, to punch orders and help us in testing the Exchange systems. This provides me with a lot of encouragment that the industry is eagerly awaiting the launch of the new Exchange.”

The total of 44 traders particpated in the testing which included representatives from 16 companies. A number of remote users accessed the Exchange platform from Indonesia, Japan, India and Australia, and were able to successfully place and execute orders on SMX.

The feedback received from the market participants has been very positive and encouraging. Traders are very enthused by the functionality offered by the Exchange platform for trade execution and the in-built real time risk management features of the system.

Barry White from Patsystems, one of the ISVs connected to the Exchange platform, said: “The Exchange platform provided by SMX has proven in these Go-live tests, its ability to offer users with an uncomplicated yet sophisticated solution for trading commodity derivatives. A number of our existing and potential customers who participated in the trading were very pleased with the performance of the system and Pro-Mark functionality in these tests.”

Mike Donahue, Managing Director, TransMarket Group Pte Ltd said “We are very enthusiastic about the imminent opening of SMX and are looking forward to increased access to the regional and global commodities markets during the Asian time zone.”

Over the last few months, SMX has been actively promoting its membership programmes. The Exchange has received keen interest from leading international and local insitutions based in Singapore and from market participants based in Indonesia, Hong Kong, Taiwan, Malaysia, Japan, Australia, India and Middle East.

“Our multi-product commodity derivatives exchange platform has successfully attracted a broad spectrum of leading international commodity players, as well as top financial and banking insitutions, traders and brokers from around the world. We are encouraged by the response from the global market players and are confident of building on this to create an attractive and vibrant pan-Asian exchange,” Mr McMahon added.

With the succesful completion of Go-live testing, SMX has moved one more step closer to its impending launch.

Source: SMX, 29.10.2009

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Currencies: A Front Line for Global Balance

Fluctuating currency values can make or break foreign exchange traders. On a far wider scale, they affect global economic balance.

(Caijing Magazine) Anyone who has read the Chinese bestseller Currency Wars by Song Hongbing knows about the conspiracy theory that says currencies can be used as instruments of war. As one who witnessed the turmoil among Asian currencies during the 1998 Asian financial crisis, I can confirm that currency speculation can be highly profitable for some traders in over-the-counter and thinly regulated markets.

Even today, I would not encourage anyone to take up foreign exchange trading. Accumulator products that bet on currency volatility are famously called “I’ll kill you later” with good reason: You might never have enough collateral to pay for margin calls, and your counter-party actually has the option to foreclose and crystallize your losses. Read contracts very carefully and make sure a contract seller discloses how much collateral you have to pay when prices hit certain levels.

As far as I am aware, no central bank has yet been able to launch regulatory cases against insider trading or market manipulation involving currencies. That’s because currencies are traded in pairs. Unless both central banks and/or financial regulators overseeing a pair of traded currencies are willing to help with an investigation, it’s unlikely that any investigation targeting market manipulation in this area would succeed.

However, the current financial crisis has convinced financial regulators around the world that naked short-selling during a crisis can have harmful effects, and that markets are not as innocent as free market fundamentalists claim.

The trouble with foreign exchange markets is that a mouse in a large market can be an elephant in a small market, so that a large speculator (or group of them) can move prices fairly quickly unless central banks supervising these markets are willing to cooperate to stop market manipulation activities. Until recently, major central banks tended to shun market intervention.

Yet the importance of currency values exceeds the forex trading sphere. I was reminded of this while returning from a think-tank conference in New Delhi recently, when it came to my attention that global imbalance is once again a hot topic. Some are again trying to blame Asia for saving too much money, claiming Asian saving habits caused the current crisis. It’s the same excuse we hear when a banker blames his non-performing loans on depositors who save too much.

Anyone interested in the technical issues of global imbalance should read the famous debate between Stanford University Professor Ron McKinnon and Michael Mussa, former chief economist at the International Monetary Fund, published by the Bank of International Settlements Working Papers ( McKinnon argued China should maintain stable exchange rates to anchor monetary policy while concentrating on fiscal policy to deal with its balance of payment surpluses. Mussa, on the other hand, argued that a revaluation of the yuan is necessary for an adjustment that steers the world away from global imbalance.

The debate turns on the question of whether the U.S. current account deficit is structural and can be resolved through devaluation. By definition, conventional economic theory assumes this means non-U.S. currencies should revaluate. Proponents of this line of thinking, therefore, think Asian currencies should be revalued significantly.

As Nomura Chief Economist Richard Koo argues quite convincingly in his new book The Holy Grail of Macroeconomics – Lessons from Japan’s Great Recession, the Japanese crisis and the current crisis can be described as balance sheet recessions. The trouble with the flexible exchange rate argument is that the Japanese yen has revalued significantly, with hardly any effect on the U.S. current account deficit, implying there are structural reasons for the deficit that must be dealt with through fiscal and non-monetary policy measures.

This comes back to the Triffin Dilemma, which explains why a reserve currency country faces a conflict between its domestic monetary policy and global liquidity needs. If a reserve currency country tightens monetary policy, large capital inflows will negate monetary tightening policy moves. Raising interest rates will make exchange rates stronger and encourage more imports. It’s a contradiction that says the stronger the dominant reserve currency, the stronger is global growth. But the larger the deficit, the less sustainable is the situation.

So in a globalized world of free-flowing capital, a reserve currency country’s monetary policy is largely ineffective. When that country is unwilling to adopt a tight fiscal policy, a current account deficit is a consequence. So why should the blame fall on foreigners who have no say in a reserve currency country’s policy decisions?

This is why Nobel laureate Robert Mundell and others have argued that we should have a single, global reserve currency to replace the current use of four, major reserve currencies in the SDR, in which with the U.S. dollar accounts for roughly 66 percent, euro 25 percent, pound 5 percent and yen 4 percent. A single, global reserve currency would mean the world would become one currency area. This would prevent nations from quarrelling about trade deficits, just as California does not fuss over a deficit or surplus with Texas.

However, since it is unlikely that any sovereign nation will be willing to cede power to a global central bank, a global financial regulator and a global taxation regime that taxes winners and compensates losers, that goal is many years away.

The current recession has already shrunk the U.S. current account deficit to 3 percent of GDP, but the funding requirements of the growing fiscal deficit are rising. This is where Koo’s book is quite helpful in explaining how complicated the world has become, since the Japanese experience shows that a balance sheet recession throws conventional economic theory out the window.

I am convinced that conventional theory has put too much emphasis on the monetary and financial side of the analysis, and not enough on what is happening to the real, structural side of the world’s economies.

Andrew Shen is a guest economist of Caijing and former Chairman of Hong Kong Securities and Futures Commission.

Source: Caijing, 26.10.2009

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ASEAN markets cross trading links in demand – TABB Group

In new equity markets research published today, TABB Group says US and European demand for electronic linkage to Association of Southeast Asian Nations (ASEAN) exchanges is strong and primed to expand, as seamless access will attract brokers already trading in other parts of Asia. However, there is a wide range of needs across the different market segment, including direct market access (DMA), low-cost versus real-time market data, advanced order types, and reliable trading platforms.

TABB’s senior analyst Kevin McPartland, who authored the ASEAN Equity Markets Pinpoint report, an industry update on equity trading in the ASEAN region covering the Indonesia, Philippines, Thailand, Vietnam, Malaysia and Singapore exchanges, says the global financial crisis had little impact on growing buy-side demand for trading in ASEAN markets.

“More seamless access will drive brokers already operating in other parts of Asia to begin trading in the ASEAN markets,” he says, with the sell side set to benefit most from that seamless access. Explaining that the availability of real-time market data is crucial for all trading in the ASEAN markets, and that real time data is a requirement for the sell side even when trade volumes are low or non-existent, he adds, “High costs and time zones do tend to limit buy-side market data usage outside of the region.”

Addressing the relationship between the buy side and sell side, McPartland says that although no single broker currently dominates across all Asian markets, over 90% of buy-side firms are unwilling to give brokers full discretion over their orders. However, while the buy side does look to their brokers for market access, they agree that more seamless access would lower costs for execution and market data. There is also significant support for the idea of central ASEAN execution venue, McPartland adds.

The report’s in-depth coverage includes 24 charts:

  • Support for a central ASEAN venue
  • Improving ASEAN trading
  • Sell-side interest in ASEAN linkage
  • % of bulge-bracket participants trading in each market
  • Impact of the financial crisis on ASEAN interest
  • Roadblocks to sell-side trading in ASEAN markets
  • Buy-side broker usage – all Asia ·
  • Buy-side broker usage – ASEAN markets
  • Top brokers by country (by # of mentions)
  • Bulge-bracket participants trading in each market
  • Mid-tier participants trading in each market
  • Buy-side interest in a seamless ASEAN linkage
  • Roadblocks to buy-side access of ASEAN markets
  • Average number of buy-side orders per week
  • Average blended commission rates (bps)
  • % for which counterparty risk is an issue
  • Importance of each component when trading in ASEAN markets
  • Markets providing real-time market data to sell side
  • Market data sources for sell side
  • Markets providing real-time market data to buy side
  • Reasons for buy side’s lack of market data
  • How the buy side trades ASEAN markets
  • % of buy side using multiple data providers ·
  • Sell-side and buy-side market data providers

TABB Group collected data through interviews with heads of electronic trading from 12 top global broker-dealers, 9 hedge funds and 14 institutional asset managers. On the buy side, participants had combined global assets under management (AuM) of approximately $6 trillion and are currently trading in Asia from slightly under $10 million to over $5 billion monthly.

Source: MondoVisione, 23.10.2009

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Asian stock exchanges find ways around falling volumes

The financial crisis has reduced profits for Asia’s stock exchanges, but they are finding a variety of opportunities to grow revenues.

It’s a tough time to be an Asian stock exchange. A new study by Celent finds all of them suffering lower trading volumes, lower margins and reduced profits as a result of the global financial crisis and the introduction of alternative trading systems — at a time when new regulations and risk management issues are likely to impose additional challenges. Click here for original article.
Exchanges are, however, finding a variety of ways to maintain their position, and in many ways, may be in a better position than counterparts in Europe and America to grow.

On average, Asian exchanges enjoyed robust growth in the years before the crisis, with an almost 30% compound annual growth rate in revenues from 2005 through 2007. But in 2008 this reversed: for example, Singapore’s exchange saw net profit down 40% in the first three quarters of 2008; Hong Kong’s exchange saw revenues fall by 10% and profits down 17% in 2008. The news is similar for others in the region.

These declines are due to the lack of listings and steep declines in both cash and derivative trading. These had a knock-on effect on other revenue-generating services offered by exchanges, including clearing and information products.

Celent reckons these losses are not going to be easily reversed in 2009. Exchanges are relying more on new initiatives to maintain their quasi-monopolistic positions and their profitability.

These include trying to attract cross-border listings in emerging markets, going head-to-head with the likes of NYSE, Nasdaq and the London Stock Exchange. The Korea Exchange, for example, has entered into equity stakes in the new bourses of Laos and Cambodia, partly in order to get new companies there to cross-list in Seoul. Singapore’s exchange has a partnership with the provincial government of Fujian to attract its companies. Hong Kong and Shanghai have signed a number of collaborative measures.

Trading is the biggest revenue generator, and has come under pressure from the rise of alternative systems such as Instinet and Liquidnet, and from the promotion of dark pools by broker dealers or the likes of ITG.

However, in Asia, such alternatives do not threaten exchanges as they have done in the United States, in part because Asian bourses enjoy monopolistic positions among fragmented, less liquid markets. This has prevented alternatives from being able to undercut the exchanges on pricing or service, despite the anonymity they offer. In Hong Kong, alternative platforms actually operate as members of the exchange.

Only in Japan is there a true alternative market, with 2% of all electronic trading executed on true off-exchange platforms, and crossing networks are popular.

Nonetheless the exchanges can’t be complacent, and are improving their products and their pricing. This includes upgrading their systems to be faster and accommodate more trades, and improving their market-data services. Singapore is working to attract more algorithmic traders, both through operational improvements and perhaps fee cuts. Korea Exchange’s introduction last year of KoreaCross, a VWAP anonymous electronic platform for local and international institutional investors, will also spur block trading. Taiwan is taking similar action.

Other important initiatives that are sweeping the region are the development of derivatives trading and cross-border initiatives.

With regulation likely to encourage the OTC derivatives market to move onto an exchange, exchanges are trying to develop products that are standardised and easy to use, but also provide the benefits of OTC trades. For example, Korea Exchange has begun a market-making scheme to provide liquidity to 10-year Korea treasury bond futures. It has also allowed Eurex to list, trade and clear daily futures on Kospi 200 options worldwide after Korean trading hours.

Southeast Asia has seen five nations form an Asean electronic trading link, which should allow investors in their markets to trade regional securities through local brokers. Other examples of international initiatives include the Tokyo Stock Exchange taking a 5% stake in SGX in 2007, as part of a plan to give Tokyo access to superior technology.

The next most active area for growth is in product development, with Islamic products at the forefront. The idea is to attract investment from the Middle East. Last year, SGX listed Singapore’s first sharia-compliant ETF covering 100 eligible Japanese companies. Carbon emission products are also expected to grow, with Japanese bourses at the forefront.

Taken together, these and other initiatives should be enough to keep Asia’s exchanges on the path to growth, thanks to the region’s strong economic fundamentals and GDP growth prospects.

Source:, 25.05.2009 by Jame DiBiasio

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Asia Trader & Investor Convention 2009 (ATIC) in Singapore!

First launched in 2006, ATIC has traveled to 7 Asian Cities, i.e., Singapore, Kuala Lumpur, Bangkok, Ho Chi Minh City, Mumbai, Shenzhen and Tokyo.  With participation by over 300 financial services companies, including securities exchanges, retail and consumer banks, securities brokerage firms, asset/fund management firms, listed companies and other financial services providers, ATIC events have attracted over 80,000 active traders and serious investors across Asia.

A Singapore Exchange, Bursa Malaysia, Ho Chi Minh Stock Exchange, Tokyo Stock Exchange supported event, ATIC Singapore will showcase local and international exhibitors and provide participants with high quality educational seminars covering a wide range of investment topics.

Featuring the relevant theme in today’s financial markets – Beating The Depression: Equities or Derivatives, ATIC Singapore will host famous international and local speakers such as

Source: TheNextView, 16.04.2009

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Asia aims to find its own economic solutions

Plans for a regional free-trade zone, existing currency-swap arrangements and moves towards closer economic cooperation indicate that East Asia is already building a new world structure.

Although the meeting of Asian leaders at Pattaya this past weekend turned into a farce and had to be aborted, it is impossible to ignore either its intentions or the portents.

The richest and fastest growing countries in Asia seem to have looked at the turmoil afflicting the rest of the world and decided that it’s not for them. Instead, they perhaps see this as an opportunity to shift the axis of the world, or rather confirm the centre of the global map to where China has always believed it to be.

A central part of the East Asia Summit, to be held in the Thai resort town of Pattaya at the weekend, was to be the development of plans to set up an East Asia free-trade zone. Leaders of the 10-member Association of Southeast Asian Nations (Asean), plus China, Japan and South Korea, were planning to further “explore ways and means to increase regional trade”, according to a draft statement released on Friday to AgenceFrance-Presse. They were to be joined by the prime ministers of Australia, India and New Zealand on Sunday.

Of course, the meeting was postponed after supporters of former Thai prime minister Thaksin Shinawatra invaded the conference venue in the latest stage of what some refer to as a simmering Thai civil war.

Nevertheless, the intention to establish a pan-Asia free-trade area, which would encompass nearly half of the world’s population, is intact, and a final report of the “second phase feasibility study” is due to be submitted by economic ministers at their next summit in October, said the leaked document. The region-wide zone would build on bilateral arrangements already forged within Asean.

Asia looks to be turning US and European criticisms for building up vast foreign exchange surpluses and maintaining large domestic savings on its head. At the Davos Summit in January, the no longer so great and good tried to shift blame for the West’s spending binge on the cheap money resulting from cash-rich Asian central banks purchasing US Treasury securities, which depressed interest rates and made it too easy for households (as well as investment banks, hedge funds and private equity firms) to borrow cash to buy Asian exports. The temptation was too great, it seems, but it is a tad desperate, even childish, for a spendthrift to blame a prudent saver for supplying the means for his profligacy.

But although most commentators agree that Asian savers need to pick up the slack of reduced US consumer demand, the unintended consequence (from a Western standpoint) might be an Asian block that chooses to go-it-alone. The region’s main concern, after all, is to find and consolidate markets for its exports.

An International Monetary Fund report in February 2008, said that the “importance of exports to the (Asian) region has reached an unprecedented level. While the share of exports in GDP was already high for emerging Asia in 1990, it increased further over the past decade, reaching almost 50% in 2006”. The IMF concluded that “this trend is key to understanding economic developments in the region”.

Asia’s growing share of world trade has resulted largely from increased regional trade integration. While trade flows in the rest of the world roughly tripled between 1990 and 2006, inter-regional trade involving emerging Asia rose by five times, and intra-regional trade within emerging Asia increased by eight-and-a-half times. As a result, trade between the economies in emerging Asia has risen steadily from about 30% of total exports by the region in 1990 to more than 40% in 2006, according to the report.

But the IMF warned that developed economies outside the region remain the main destination of final goods exported by emerging Asia. “Indeed, the exposure of Asian economies to inter-regional exports has actually increased over the past 15 years”, because trade within Asia largely reflects a chain of “vertical specialisation”.

And Michael Buchanan, Asia chief economist at Goldman Sachs, points out that the big drop in Chinese imports from other Asian countries in January this year shows that Chinese consumers have not replaced their US and European counterparts. Instead, he says, a lot of intra-Asian trade still “smells a lot of just supply-chain dynamics” feeding exports to other regions.

But although Asia’s most open countries — Japan, Korea, Taiwan, Hong Kong and Singapore — are set to see their economies contract this year, the rest of the world must look a bit of a mess to Asian eyes.

Eastern Europe is close to bankruptcy; Russia’s post-communist advance appears to have been nothing more than an oil-fuelled boom, and its leadership’s macho posturing has consequently been humbled; Western Europe is ridden alternately with conflict and paralysis as it wonders how best to tackle the recession and how to regulate the new financial order; Latin America is veering towards a recidivist socialism — even Peru’s Maoist Sendora Luminosa guerrillas reappeared last weekend; Africa still looks unstable and poor, but useful as a source of raw materials; while the US’s Armageddon-like crisis of confidence, as much as its financial and economic woes, has undermined its ideological credibility and its leadership credentials.

Amid the chaos, it’s tough to view China’s Delphic suggestions to replace the US dollar with an alternative reserve currency, as anything but mischief-making. The renminbi is hardly a viable replacement: it’s not yet fully convertible and isn’t even legal tender in Hong Kong SAR. Pointing to the IMF’s special drawing rights (SDRs) is surely disingenuous: SDRs are not a real currency, but an IMF accounting unit allocated to countries in proportion to their IMF quotas.

Even China’s insistence on a bigger voice in IMF decisions as a reward for greater financial contributions seems designed to irritate the West and ensure that China won’t have to contribute more cash to the fund. Besides, it’s doubtful whether Asia (at least its wealthier countries) either needs or wants the IMF. More than anything else, the 1997-98 crisis taught Asian countries an important and long-lasting lesson, namely to build up a war chest of foreign exchange reserves to prevent a repeat of the run on their currencies. It was the currency collapse that forced them to turn to the IMF, which then imposed its ruinous dogma of fiscal and monetary austerity, and enforced bank closures and corporate fire-sales to US predators.

Indeed, there is an evolving view in Asia that there are other sources of funding to draw from, given the region’s holding of around $3.5 trillion in foreign reserves. In response to rapidly weakening foreign exchange rates, Asian finance officials agreed in March to enlarge a foreign currency pool to $120 billion from $80 billion proposed last year, to help defend their currencies. The 10 members of Asean plus Japan, China and South Korea had previously pledged to pool bilateral currency swap arrangements under the so-called Chiang Mai Initiative within a multi-lateral fund that could be tapped in emergencies.

Increasingly, Asia is looking like a region set to find its own solutions — not just to the current crisis, but to the inherent structural weaknesses in its economic models. Of course, its success is by no means certain: it is a vast heterogeneous area made up of diverse interests, conflicting world-views and the traditional rivalry between China and Japan. But a free-trade zone, multi-lateral currency agreements and closer cooperation over investment decisions will make the region an even more formidable force than it is already. And it will be a power that doesn’t need to lobby for influence in established multi-lateral global forums or institutions, such as the IMF. Instead, it will acquire de facto dominance, while the rest of the world postures, and huffs-and-puffs like so many President Sarkozys.

Source:, 14.04.2009

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Crisis will bring new opportunities in Asia, Monetary Authority of Singapore

Wealth creation and the rise of Asia’s middle class will drive growth in personal financial services, says Monetary Authority of Singapore’s Heng Swee Keat.
The medium-term prospects for growth in Asia remain strong despite the global financial crisis, according to Heng Swee Keat, managing director of the Monetary Authority of Singapore.

“The secular trend in the growth of Asian enterprises and corporations, growing intra-regional trade, and the demands for infrastructure financing will generate new opportunities for corporate and institutional businesses,” says Heng, who gave the keynote address at the International Institute of Finance Asia Regional Economic Forum in Singapore. “Wealth creation and the rise of the Asian middle class, coupled with the low penetration of financial services will drive the growth of personal financial services.”

Heng went on to say that when the dust settles, global financial institutions which rebuild their resilience and stay engaged in the Asia region will increase the value of their franchises.

“Asia will continue to provide strong growth opportunities and geographical diversification benefits,” he says. “Some Asian financial institutions will also develop strong operations, brand names and a regional footprint. They will play their role in driving Asia’s continued growth.”

Singapore, he notes, is working to cushion the impact of the crisis while at the same time building capabilities in the economy and the financial sector for the upturn.

Like everywhere else, Singapore has experienced tightening credit conditions and it has taken action to address both the interbank money markets as well as the flow of credit from banks to corporations.

In the interbank money markets, the MAS remains focused on ensuring that both the Singapore dollar and the US dollar markets continue to function smoothly, Heng says. For the Singapore dollar market, the MAS will continue to ensure sufficient liquidity through its monetary operations and standing facility. For the US dollar market, it established a $30 billion swap line with the US Federal Reserve. This line is alongside other swap lines that the Fed has with 13 other central banks, including several in Europe and Asia.

“As a major funding centre, we took precautionary measures to ensure that global financial institutions operating here continue to have access to US dollar liquidity,” Heng says.

The MAS has not needed to use the swap line, “nor do we see any impending need”, Heng says, while adding that the precautionary measure has served it well.

With regards to the flow of credit from banks to corporations, Singapore believes this is best facilitated through government schemes to co-share some of the risks with banks. In February, the government announced the Special Risk-Sharing Initiative (SRI). Under this initiative, the government will absorb 75% of the risk for insurance covering working capital and trade-financing loan facilities. The government will also absorb 80% of the risk for bridging loans which go towards meeting firms’ working-capital needs. It also has schemes for SMEs and micro-loans.

Source: AsianInvestor, 06.03.2009

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Asean bourses pledge electronic trading link

So far Southeast Asia’s stock exchanges have been good at signing MOUs but not so good at actually harmonising markets. Will this time be different?

Five Southeast Asian stock exchanges have signed an agreement to establish a single electronic trading link for regional or global investors to access their markets on a uniform basis, and thereby establish Asean markets as an asset class.

The mechanism among the five countries — Indonesia, Malaysia, the Philippines, Singapore and Thailand — will enable their clearing houses to act as central counterparties that can clear and settle cross-border trades among them.

Brokers with seats in any of the five exchanges would not need to consider other participating exchanges as foreign, thereby reducing risk. Investors may come to see Asean as a trading bloc, with economies of scale helping to bring down transaction costs and improve liquidity. Creating a single market would spur liberalisation in other areas.

That, at least, is the theory, as announced after business hours yesterday. Executives at these bourses have been talking about building an electronic link for years. These markets are small, which drives up the cost of cross-border trades.

At a time when major bourses around the globe are tying up, alternative electronic trading venues are penetrating the region, and events are being driven by pan-European directives such as Mifid, Southeast Asia’s fragmented markets risk falling well behind. New technologies such as dark pools and direct-market access trading have marginalised them further, because of their illiquidity.

So exchange officials and politicians have long recognised the need to harmonise their systems in order to remain attractive to global investors, market Southeast Asia as an asset class, and enhance the pool of capital available locally.

But politics have gotten in the way: Singapore is the obvious hub for the region, a fact that Singaporean officials like to point out, which makes the other players jealous and unwilling to give up control over their little patches.

Nonetheless, there has been bilateral progress. SGX CEO Hsieh Fu-Hua first proposed such a multilateral link in 2006. The following year, SGX and Bursa Malaysia unveiled a cross-border electronic link for trading securities.

Now, along with this announcement of Asean-wide cooperation, SGX and the Stock Exchange of Thailand are also pledging to jointly promote market activities, as well as operational and regulatory information, and discuss the idea of cross-border trading of securities and derivatives.

SGX’s Hsieh says the e-trading link will be operational sometime in 2010. By putting a date on the project, he and his counterparts at other exchanges are taking a concrete step towards harmonising their markets for the first time.

Source: AsianInvestor, 24.02.2009

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