Brian Bollen analyses current market access to Asia and the continent’s approach to ESG reporting, as well as the wider effects of shortening settlement cycles for a number of its territories
It will surely come as little surprise to many Asia-focused readers that Beijing has the world’s highest concentration of dollar billionaires, according to analysis of the global ultra-rich distribution by MoneyTransfers. Home to 145 billionaires, the city retains its first position globally after swelling its 2020 ranks with another 35 such individuals.
“China continues to rip big from its optimisation of the investment market by liberalising and facilitating investments,” says MoneyTransfers’ CEO Jonathan Merry. He adds: “The trickle-down has seen certain regions emerge as investment hubs. One of these is Beijing. Its modernisation and dynamism provide the perfect scene for incubating business ideas, particularly in technology.”
The analysis shows China is the only country with over one thousand individuals whose net worths exceed $1 billion. It added 259 ultra-rich persons to bring its total to 1058, about 400 more than the US.
All change
Shifting back from the personal to the institutional, Franck Dubois, Hong Kong-based head of Securities Services, Asia Pacific (APAC) at BNP Paribas, identifies several points as being particularly worthy of current attention in the APAC region.
One, the investment outlook in general. Two, the shortening of settlement cycles in a number of territories. Three, the evolution of the regulatory environment, especially the accelerated focus on ESG issues. Four, the search for yield and diversification of investment by institutional investors.
“APAC is well known for being a very fast growing region and growth continues to be strong,” Dubois highlights. “Despite certain reservations, we remain optimistic about continued growth, although there is little doubt the pace is slowing. China is the most important country in the region in this context and growth has slowed.
“Inflation is suddenly very high globally and that presents a challenge for all the institutional actors, whether they are investors, brokers or custodians. Higher inflation places even more pressure on the industry to become more efficient. Secondly, the plans for the US to move to a T+1 settlement cycle in 2024 strongly suggests this will become the standard globally, moving mostly from T+2. India started its move to T+1 in February this year, while China, including the northbound Stock Connect, already has a T+0, or same-day settlement regime.
“Growth in investment in non-listed assets has been very fast in recent years and again this has clear implications for custodians. We are growing dedicated teams to support the asset class and we have heavily invested in new technology which is industry-leading.”
Margaret Harwood-Jones, managing director, global head of Securities Services at Standard Chartered, also identifies four main themes that are prevailing across its footprint and with clients in Asia. These are: market infrastructure enhancements and settlement cycle changes; simplification of foreign investor market access; ESG and sustainability – reporting, transparency and spurring green and sustainable finance growth; and digital assets – market developments and the opportunities for market players.
She outlines: “We see the next wave of capital market regulators and exchanges in Bangladesh, Sri Lanka and Vietnam taking reference from markets with a central counterparty (CCP) model and the benefits in mitigating credit and liquidity risks in the settlement process by establishing their own CCPs in their home markets. Standard Chartered, through our experience with other CCP setups and settlement processes, has been working closely with these local market infrastructures and regulators in sharing best practices and recommendations.”
Harwood-Jones adds that while this is happening, the Philippines, India, and Bangladesh are all looking at changing their settlement cycles this year. In India, the rapid introduction of a new T+1 settlement cycle raised concerns over operational deadlines and foreign exchange liquidity amongst international investors.
Market custodians including Standard Chartered have been in conversations with market regulators and infrastructure, to collectively voice client concerns and proposed an extension in the custodial confirmation deadline to allow for more settlement processing time.
A similar story is playing out in Bangladesh, where feedback is being shared with the Bangladesh Securities & Exchange Commission (BSEC) on the potential misalignment that the proposed shortening of the equities settlement cycle to T+1 and an extension of the bond settlement cycle to T+2 may create in the market and the need for an alignment of timeline with the proposed new CCP (Clearing Counterparty Bangladesh Limited) and the CCP model, to support a shortened settlement cycle.
Market access
As markets emerge from the shadow of the pandemic, Margaret Harwood- Jones of Standard Chartered says there is a concerted effort in the markets to simplify and encourage foreign investor market access
Foreign investors’ corporate documentation and account opening requirements were relaxed following a series of custodian advocacy to the Thai and Malaysian depositories.
Foreign investment limits were loosened when the Reserve Bank of India (RBI) changed investment limits applicable to foreign portfolio investors for investment in debt securities, and in the Philippines where the amended Foreign Investment Act now allows qualified foreign investors (QFI) to do business or invest in a domestic enterprise up to 100 per cent of its capital.
Harwood-Jones says: “On ESG reporting, transparency and sustainability, increasingly, post-trade service providers are receiving questions around our sustainability strategy and undertakings as part of our clients’ due diligence assessments.
“On digital assets, market infrastructures are recognising the importance that digital assets will play and are pushing ahead with initiatives that capture the growing investment interest or leverage on distributed ledger technology (DLT).”
Yen Leng Ong, country executive, south east Asia, Northern Trust, notes that Asia’s financial infrastructure is young in comparison to other continents, which presents both opportunities and challenges. Opportunities are arising from advanced technologies that create agile infrastructure to adapt to new solutions and services. However, the regulations to support the new advancement are not in line with the capabilities. For example, regulation on crypto assets versus the consumption of the cryptocurrencies.
Yen Leng also draws attention to increased ESG investment by large asset owners in Asia, pushing up demand for assessing the performance measurement approach on this asset class. The near-term asset servicing client expectations are to see automation for investment in unlisted assets.
Currently the majority of contracts are in paper form, shifting from one stakeholder to another, and making the data-capturing process challenging.
“Singapore remains as an attractive hub for many financial institutional investors who have an eye for South Asia investment, due to its strategic location and purposeful infrastructure presence, including a forward-thinking financial regulator and sound governance in security,” Leng Ong says.
Major players in the financial services industry are seldom modest about the contribution they make to ongoing development in Asia. At the start of this year, for instance, HSBC issued a bulletin to highlight that it had become the first international custodian to facilitate a qualified foreign trade on the Beijing Stock Exchange (BSE).
The trade was placed by Samsung Securities for its underlying product – Samsung RMB Qualified Foreign Institutional Investor Trust. Samsung Securities, for the benefit of those who might not know, is a top-tier broker dealer in South Korea, which has been actively investing in China.
BSE commenced trading on 15 November 2021, marking what HSBC describes as a “key step forward” in China’s efforts to spur innovation and to improve capital financing for small- and medium-sized enterprises. It is the third stock exchange in the mainland, in addition to two existing bourses in Shanghai and Shenzhen.
Suvir Loomba, global head of direct custody and clearing at HSBC, says: “This first trade emphasises our commitment to be the go-to bank for QFIs in China. Our swift response to BSE’s establishment allows our clients to access the new stock exchange in China once they wish to.”
HSBC adds that as of early December 2021, 663 offshore institutions had obtained QFI licenses, according to the China Securities Regulatory Commission, among which HSBC services 248 QFIs as an onshore custodian bank.
