Asean Exchange Link Lures Retail Investors to Boost Trade

The Malaysian and Singaporean stock exchanges are seeking to attract individual investors and bolster volumes by offering cross-border trading, the first step in creating a Southeast Asian platform.

The Malaysian and Singaporean stock exchanges are seeking to attract individual investors and bolster volumes by offering cross-border trading, the first step in creating a Southeast Asian platform.

Singapore Exchange Ltd. (SGX) and Bursa Malaysia Bhd. (BURSA) start offering the services today, while the Stock Exchange of Thailand is poised to join the link-up between the Association of Southeast Asian Nations members next month. The three account for 67 percent of the total market capitalization of the Asean Exchanges group, which includes Indonesia, the Philippines and Vietnam’s two bourses.

The trading platform is part of a push by Asean Exchanges to bolster regional capital markets and lure more investors to bourses whose companies had a combined market value of $1.98 trillion at the end of March, according to the group’s website. Japan and Hong Kong’s equity markets were valued at $3.79 trillion and $3.11 trillion at the time.

“We are now creating more investment opportunities across this region and it will spur liquidity,” Tajuddin Atan, chief executive officer of Bursa Malaysia, said in a Sept. 14 interview. “We will now embark on education, marketing and promotion at the Asean level. It will take a little bit of time for traction.”

The combined average daily value of stocks traded in Malaysia, Singapore and Thailand this year is $2.5 billion, or about a fifth of Tokyo’s $13.5 billion daily average, according to data compiled by Bloomberg.

Latin America

The Asean trading platform follows a similar initiative connecting Colombia, Chile and Peru that opened on May 30, 2011. Mila, as the Latin American market is known, handled $2.3 million of stocks in August, up from $854,000 a year earlier, according to data on the Santiago stock exchange’s website. Turnover on Chile’s IPSA Index alone was about $15.9 million last month, compared with the $78.46 billion that changed hands on Brazil’s exchange, data compiled by Bloomberg show.

The Southeast Asian link is “more political than it is practical, but it’s a good start and a good step in the right direction,” Lee Porter, Hong Kong-based head of Liquidnet Asia Ltd., which offers alternative trading platforms, said in a Sept. 6 interview. “I don’t think it’s going to change anyone’s world.”

Individual investors will be able to access stocks outside their home exchange through a local brokerage that is able to connect with a counterpart on the Asean bourse where they wish to trade. The broker-to-broker link is to ensure that the transaction follows local regulations, according to a Sept. 6 statement from the Singapore Exchange.

No Cost Savings

Stock trades through the new link will be cleared and settled in the country where they are listed, not in the one where they are purchased. That means there aren’t any cost savings for international firms that can already trade in the individual countries, according to Jessica Morrison, Deutsche Bank AG’s Hong Kong-based head of Asia Pacific market structure.

“The Asean link would get much more interesting for the international firms if the top regional hot stocks could be traded on a single platform with one process for clearing and settlement,” Morrison said in a Sept. 6 interview. “That is when the cost of capital, the ticket costs involved in settlement, and the currency risk could be reduced.”

A lack of knowledge of overseas companies may hamper individual investors’ ability to trade shares outside their home market, Kongkiat Opaswongkarn, chief executive officer at Asia Plus Securities Pcl, Thailand’s third-biggest stock brokerage by value, said on Sept. 3.

Bigger Markets

“It’s unlikely that we will see any large trading of companies in Southeast Asian countries through this facility by Thai investors,” Kongkiat said. “Thai retail investors have very little knowledge of companies in neighboring countries. I prefer to advise my clients to trade in the bigger markets especially the U.S. and other developed markets.”

Asean Exchanges will next work together to enhance the clearing, settlement and depository processes in order to lower costs, Singapore Exchange Chief Executive Officer Magnus Bocker told reporters in Kuala Lumpur today.

The Philippine Stock Exchange may need as long as two years before it’s ready to join the Asean link, Chairman Jose Pardo said in May. The bourse needs to boost trading volumes and expand the number of listed companies, Pardo said. The Philippines’ $212 billion stock market is Asia’s 12th largest.

In appealing to individual investors, the Asean exchanges are seeking to tap a class of investors that have benefited from Southeast Asia’s economic growth. Malaysian and Singaporean per-capita gross domestic product has climbed more than 90 percent in the past 20 years, according to World Bank data.

Educational Process

In Malaysia, retail investors accounted for 18.6 percent of the value of stock traded in August, exchange data show. While not directly comparable, some 9.4 percent of people in China, 41 percent in Australia and 18 percent in the U.K., invest in markets, Thomas Mathew, joint secretary to India’s President Pranab Mukherjee, said in a Sept. 5 interview.

The question is whether individual investors will participate, Soo Hai Lim, the Hong Kong-based manager of the Baring ASEAN Frontiers Fund, said by phone on Sept. 17. The exchanges “have to start educating the retail investors in their own markets about companies in other markets,” said Lim, whose fund had $451 million of assets, according to data compiled by Bloomberg.

Markets such as Indonesia, Vietnam and the Philippines “need to have the readiness” before joining the Asean link, Singapore Exchange’s Bocker said. There is no deadline for them to join, he said.

Thailand’s exchange is poised to join the trading link in October, after giving Singapore and Malaysia “two-to-three” weeks to resolve any early problems, President Charamporn Jotikasthira said in an Aug. 29 interview.

Asean Stars

The link may lead to further collaboration such as post-trade settlement and harmonization of policies, procedures and rules, Bursa’s Tajuddin said. The regional exchanges will be promoting so-called Asean Stars as an asset class, comprising the 30 most-traded names from the six participating countries, he said.

The Singapore Exchange, under pressure to expand since Australian regulators rejected its $8.7 billion bid for ASX Ltd. in April 2011, has added products to its derivatives business and has been tying up with data centers globally to offer better connectivity for investors. The bourse’s shares added 1 percent to S$7.19 as of 4:49 p.m. local time.

The Asean trading link “is the first step in the process of capital-markets integration and collaboration,” Nels Friets, senior vice president at Singapore Exchange, said on Sept. 11. “It offers stockbrokers more cross-border opportunities.”

To contact the reporters on this story: Eleni Himaras in Hong Kong at ehimaras@bloomberg.net; Gan Yen Kuan in Kuala Lumpur at ykgan@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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