Buoyed by outsized returns and driven by an influx of hedge funds, equity market trading volumes surged throughout Asia in 2006, and institutional investors remain bullish about the region’s prospects for the coming year, Greenwich Associates announces in its 2006 Asian Equity Investors Study.
The study reveals that the amount of equity commissions paid by institutions based in Asia to brokers on trades of Asian (ex-Japan) shares jumped to $1.2 billion last year from $900 million in 2005. At the same time, equity commission rates remained largely unchanged for the market as a whole, though the region’s largest and most active traders managed to squeeze their average commission rates lower.
“The fact that overall institutional commission payments rose so sharply while rates were flat or falling indicates that trading activity increased dramatically last year,” says John Feng, a consultant at Greenwich Associates. “Since our data shows that institutions expect robust market returns for 2007, there is widespread optimism that this growth will continue over the coming 12 months,” he adds.
Nearly one quarter of the brokerage commissions paid on cash equity trades of Asian shares last year were generated by hedge funds, a relative newcomer to the region’s stock markets. “As recently as 2004, hedge funds accounted for no more than 5% of the total institutional commission spend in Asia,” says Jay Bennett, a consultant at Greenwich Associates. “The increasing presence of hedge funds is influencing regional equity markets in several important ways. In addition to driving up overall trading volumes and commission payments, hedge funds are also affecting sell-side strategies in Asia through their preferences and spending patterns, and could help speed the spread of electronic trading throughout the Asian countries,” he continues.