S&P Global Market Intelligence: “If you look up, there are no limits”

S&P Global Market Intelligence: “If you look up, there are no limits”

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“If you look up, there are no limits”

This Japanese proverb aptly describes the securities finance market’s optimism regarding the region’s potential which has recently been stifled by bans and regulations states Stewart Cowan Executive Director, Head of APAC Securities Finance Product S&P Global Market Intelligence.

This article is part of the 2023 Asia Pacific Securities Finance Guide, which can be accessed here.  


This year has already seen significant progress in Taiwan, South Korea, Indonesia Philippines, and Malaysia, suggesting that the region may be ready to finally realise its full capacity. Not that APAC has been on a bad run, activity has remained comparatively strong and surpassed European markets in terms of revenues. However, the advancement of new markets towards an open offshore securities lending facility offers a significant upside for future returns.

Between January and May 2023, $859mn (£676mn) in securities finance revenues were generated for market participants. Despite this being 2% lower than 2022 values, it does remain significantly higher than during the same period in 2021 ($695mn) and 2020 ($672mn). Utilisation remains solid across the region reflecting a robust level of demand.

Across Asian equities, the Jan – May average stood at 5.17% which compares favorably to the 5.08% that was seen during the same period during 2022. Average fees remain aligned with those seen during 2022 and currently stand at 93bps (Jan-May average).

Two of the best performing markets over the year have been Japan and Taiwan. Japan experienced one if its highest revenue generating months for many years during March, as a strong dividend season saw revenues top $90mn. Average fees across all months of 2023 (Jan – May) have exceeded those during 2022 and balances have been on average 6% higher. Japanese government bonds have been very popular amongst borrowers over the last few months as low inflation allows monitory policy to remain stimulatory.

Taiwan is often referred to as a barometer for the global economy given its strength in both semiconductor and microchip production. Global trade tensions have led to sanctions and subsidies, which have added volatility, creating numerous borrowing opportunities for investors.

Revenues have increased as restrictions have been lifted and both on loan balances ($22bn) and lendable assets ($151.7bn) hit a year high in May, to the benefit of lenders. Hong Kong remains one of the most important markets within the region.

The reopening effect of China has benefited Hong Kong and revenues generated in the market beat those of 2022 during all months of 2023 except for May. Over 30% of securities on loan are China H shares, (Mainland China incorporated securities listed in Hong Kong) which combined with a vibrant special market results in continued strong returns.

During 2022, Australia benefited from the BHP delisting from the London Stock Exchange. The market also experienced a continued demand for mining stocks linked to the manufacturing of batteries (e.g. Lithium). These factors made 2022 one of the best performing years for the market after generating $185mn in securities finance revenues. Average fees in this market surpassed 100bps during both Q2 and Q3. So far, during 2023, this market is off to a slower start. Revenues remain, on average, 21% lower than those seen during the same period of 2022 (Jan-May).

Despite this, Australia remains a hub for sophisticated investors and a home to some of the largest energy and mining companies in the world. As the electric vehicle sector remains popular amongst short sellers and demand for minerals to enable the production of electric vehicle batteries remains critical, Australia remains a market very much in focus.

Strong tailwinds are present within the Asia region from a securities lending perspective. South Korean government bonds have started to become more popular amongst borrowers. The country has a strong credit rating, and its bonds are increasingly considered as high-quality liquid assets.

In addition, the South Korean regulator has signaled a review of short selling restrictions and a reform of the investor identification processes which will drive improved market efficiency and higher revenues. Progress in new markets such as Indonesia will encourage other regional markets to capitalise on the benefits that securities lending can bring to financial markets, such as additional liquidity and fairer pricing. China and India will hold the key for the region’s long-term success if the regulators were to ever agree to offshore participation.

At S&P Global Market Intelligence Securities Finance, our aim is to enhance both transparency and understanding of the securities finance markets. Changes in the market landscape are closely monitored as the group continues to help clients navigate an ever-changing market. Local expertise and knowledge are paired with market leading solutions-based capabilities to provide clients with actionable content and insight through the combination of both data and analytics.

S&P Global Market Intelligence Securities Finance offers tools for performance benchmarking, collateral management, client onboarding and risk management. Several tools have also been developed that are specific to the beneficial owner community to assist them in improving program oversight and risk management processes as well.

These tools are currently proving very popular as volatility and geopolitical risk remain key features across all financial markets. Within the Asia Pacific region, S&P Global Market Intelligence provides coverage across all markets and have local representation in Australia, Hong Kong, Japan, and Singapore.

As we head towards the second half of 2023, we believe the region is on a precipice – it’s relatively unscathed by the global inflationary concerns, markets are still recovering from extended COVID lockdowns and regulators are seeking to resolve the bottlenecks and restrictions which will allow for greater liquidity.

We expect securities finance revenues to remain robust, if Japan’s interest rate policy continues, Japanese government bonds are expected to remain in demand. Hong Kong is likely to continue to lead the way in the region’s specials activity, as the reopening effect of the Chinese economy starts to fade, and Taiwan is expected to drive revenues higher given its liquidity profile and its strong links to the electric vehicle and artificial intelligence sectors.

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