The initiative to link seven stock exchanges across the ASEAN (Association of Southeast Asian Nations) region took a step forward this month, but despite its high ambitions market participants say the project is still a long way from being able to generate the efficiencies and opportunities that can be offered by a truly pan-regional market.
A collaboration by seven ASEAN stock exchanges was formalised on 8 April with the launch of the ASEAN Brand Identity, ASEAN Exchanges website and ASEAN Stars. The project aims to promote the growth of the ASEAN capital markets with the intent of bringing more ASEAN investment opportunities to more people. The ASEAN Exchanges members are Bursa Malaysia, Hanoi Stock Exchange, Hochiminh Stock Exchange, Indonesia Stock Exchange, The Philippine Stock Exchange, Singapore Exchange and The Stock Exchange of Thailand.
To boost trading in the region, Greg Lee, head of Autobahn equity, Asia at Deutsche Bank, believes that Asia's emerging markets need to do “a lot more” in the areas of regulations, taxes and fees, as well as technology and access to trade. “Doing the technical things and creating easy access are very important steps, but there are a lot of other things that are needed to make the ASEAN market more attractive. For people to invest in your company, no matter where it's listed, they need to have faith in the trading environment and that there's a market for the companies listed. So it’s not that you change technology and suddenly trading happens overnight,” he said.
Lee is broadly supportive of the overall aims of the project, but says it will need to generate support from existing market participants and infrastructures. “The question will be as to what stocks end up trading on that board versus their own local boards. There will be additional work from a broker's point of view to connect to a new exchange and trade stocks there, as well as to clear and settle for customers. But it is something that we'll look to be a part of in terms of our goal to access liquidity everywhere,” he noted.
The ASEAN Brand Identity encompasses a logo that represents the spirit of cooperation between the ASEAN countries, by including common colors from each nation's flags. The ASEAN Exchanges website (www.aseanexchanges.org) features the ASEAN Stars and other ASEAN-centric products and initiatives, giving investors an integrated single-window view into the ASEAN capital market; a market that has a combined market capitalisation of approximately US$1.8 trillion and participation of more than 3,000 companies. The ASEAN Stars are a selection of the 30 top-ranked stocks from each exchange in terms of market capitalisation and liquidity.
Plans to connect stock exchanges in southeast Asia to reduce the cost of cross-border equities trading have moved forward via an agreement on the link's design and the announcement of a tender. Bursa Malaysia, the Philippine Stock Exchange, Singapore Exchange and the Stock Exchange of Thailand have been working with NYSE Technologies on the design of the ASEAN Trading Link since an initial letter of intent was signed at the tenth ASEAN Exchanges' CEO meeting in Manila in February 2010. A shortlist of vendors have now been invited to tender for the contract to supply the infrastructure.
“From an investment perspective, the local market is difficult to trade and if you can trade that easier and more efficiently by partnering, that's better for the investment professional. From our perspective, we think that's a great idea. It shows innovation and a willingness to adapt,” said Keith Ducker, Tora's chief investment officer.
The collaboration was seeded in Bali in 2003 when ASEAN leaders declared in the Bali Concord II that the ASEAN Economic Community shall be the goal of regional economic integration by 2015. The idea envisages an integrated market that is stronger and more efficient, where ASEAN products are viewed as an asset class, and where investors would be able to trade ASEAN capital market products freely on any ASEAN exchange.
But not every one is optimistic. One broker noted, “It's not going to change anything. ASEAN is trying to be a single economic unit but its not. In Asia, each country acts totally independently. They try to find areas of cooperation that are convenient and don't impact their sovereign concerns or selfish economic concerns.”
Yet, the participating exchanges believe that ASEAN's competitiveness lies in attracting greater fund flow outside ASEAN, as well as promoting ASEAN investment opportunities. They hope that sustained inflows of new investments and reinvestments will promote and ensure dynamic development of ASEAN economies as they grow alongside larger national economies such as India, China and Japan.
ASEAN's US$1.8 trillion economy is larger than India's and around 40% of China's. The ASEAN region's GDP grew 7.1 percent in 2010 and is expected to grow 4.6 percent and 5.1 percent respectively in 2011 and 2012.