IMN: Asia and South America showcase emerging market opportunity
07 February 2025 US
Image: TenPixels/stock.adobe.com
Industry participants have praised South Korea, Taiwan, Thailand, and Brazil for their growth opportunities in relation to the securities lending market.
The IMN鈥檚 Beneficial Owners' International Securities 麻豆影视传媒 & Collateral Management Conference reviewed the key emerging markets catching the eye of market participants in the 鈥楴ew Markets & Growth Opportunities鈥� panel, which was moderated by Patrick Morrissey, head of product and strategy, securities lending, Vanguard.
Providing a rundown of key APAC markets, Michael Daly, vice president of client service and relationship management at Goldman Sachs Agency Lending, opened with a discussion on South Korea, which has become 鈥渁 largely significant market for many asset managers over the last couple of years from a lending return perspective鈥�.
At the end of 2023, short sell bans were implemented in this market which caused lending returns to fall off the cliff in 2024.
He explained: 鈥淲e鈥檙e all largely expecting those short sell bans to end in March this year. There are questions as to whether lending returns will come back drastically in any form or fashion after that. Political and economic uncertainty continues in the marketplace.鈥�
For Matthew Chessum, director of securities finance at S&P Global Market Intelligence, South Korea is going to hold several new and exciting opportunities for securities lending.
鈥淭he South Korean equity market is really known for its volatility. To be honest, it's quite sensitive to global economic conditions and geopolitical events. And some of the companies within South Korea have quite a unique corporate governance structure as well, which leads to further directional opportunities for lenders,鈥� Chessum confirmed.
Following a similar story to South Korea, Turkey faced short sell bans which were enacted in early 2023, leading demand to fall off precipitously at that point, said Daly.
鈥淭hose short sell bans for the top 50 securities in the marketplace had been lifted as of January, and we have already started to see a little uptick in demand in that marketplace which is certainly a good sign for most Lenders,鈥� he continued.
Moving the panel forward, Daly mentioned the potential changes that are 鈥渂eing kicked around鈥� by the Securities and Exchange Commission (SEC) in Thailand, where foreign investors that transact in the marketplace will need to follow the same rules and regulations as local investors. 鈥淭here are a lot of question marks in terms of whether that鈥檚 going to impact lending demand for the long term in that market.鈥�
Chessum added to the conversation by looking at Thailand鈥檚 potential going forward in 2025, where there are 鈥渞eal expectations鈥� for a rebound in Thailand for securities lending activity.
He explained: 鈥淟ots of analysts are predicting that the Thai economy is going to benefit from a synchronised global economic recovery, and some of the interest rate cuts that we've seen in the developed world as well, that's helping to focus attention on some of these emerging markets again.鈥�
With market volatility quite high in the Thai market, the Bank of Thailand has come out in support of securities lending activity.
Reviewing the performance of securities lending in APAC as a whole, Taiwan lending performance was strong over the past 12 to 16 months. Daly noted the significant lending returns seen in the market for asset managers and beneficial owners that are able to transact in that marketplace.
According to data from S&P Global Market Intelligence, Taiwan became the highest revenue-generating market in the APAC region throughout 2024, taking in US$768 million worth of revenues, a 38 per cent increase year-on-year (YoY). The revenues generated in Taiwan were equal to the six biggest revenue generating countries across the EMEA equities region.
Despite this promising market, Daly did warn of the 鈥渟ignificant barriers to entering the market from a lending perspective鈥�. Whether it be presale notification to an agent lender, he said there are certainly 鈥渟ignificant penalties for non-settlement in the marketplace that may prevent beneficial owners from entering the market鈥�.
Circling back to high performing equities markets, Chessum highlighted Malaysia as one of Southeast Asia's strongest performing equity markets in 2024 from a cash equity perspective. It was also one of the best performing APAC markets for IPOs. It surpassed Indonesia as the region's biggest equity listings venue.
Lastly, heading over to South America, Kyle Kolasingh, head of Markets Services Solutions at RBC Investor Services, noted Brazil has risen to the top of the list for many industry participants.
鈥淏razil has the potential to be a superlative market in the Americas today. It opened in 1996. Where they are today, the market has not yet been able to fulfil its liquidity goals and openness to foreign investors. The difference that we're hearing in the conversation presently versus 10 years ago is that we're seeing momentum coming out of the stock exchange,鈥� Kolasingh informed.
He continued to add that the Brazilian market 鈥渋s a great source of value鈥�. In terms of Americas equity figures for 2024, Kolasingh said it was the only market to have a positive YoY ending. The average fees tend to be anywhere between 150 and 200 basis points.
While Chessum noted a 15 per cent decline in the Brazilian stock market in 2024 鈥� one of the steepest declines across all emerging markets 鈥� there are opportunities in Brazil as 10 stocks generated 50 per cent of annual revenues for the marketplace. Ambipar Participacoes e Empreendimentos shares generated around 20 per cent of all revenues.
Chessum added: 鈥淚f you look at Brazil as a whole market, it did quite well in terms of securities lending revenues on a YoY basis last year. Market revenues were US$51.6 million, up 51 per cent YoY.鈥�
Concluding the roundup on Brazil, Kolasingh warned that the main barrier to the Brazilian market, from a foreign perspective, is the fact that it's CCP today, so it presents principal risk issues for certain types of asset owners and asset managers that cannot absorb that type of risk because of various regulatory structures.
The IMN鈥檚 Beneficial Owners' International Securities 麻豆影视传媒 & Collateral Management Conference reviewed the key emerging markets catching the eye of market participants in the 鈥楴ew Markets & Growth Opportunities鈥� panel, which was moderated by Patrick Morrissey, head of product and strategy, securities lending, Vanguard.
Providing a rundown of key APAC markets, Michael Daly, vice president of client service and relationship management at Goldman Sachs Agency Lending, opened with a discussion on South Korea, which has become 鈥渁 largely significant market for many asset managers over the last couple of years from a lending return perspective鈥�.
At the end of 2023, short sell bans were implemented in this market which caused lending returns to fall off the cliff in 2024.
He explained: 鈥淲e鈥檙e all largely expecting those short sell bans to end in March this year. There are questions as to whether lending returns will come back drastically in any form or fashion after that. Political and economic uncertainty continues in the marketplace.鈥�
For Matthew Chessum, director of securities finance at S&P Global Market Intelligence, South Korea is going to hold several new and exciting opportunities for securities lending.
鈥淭he South Korean equity market is really known for its volatility. To be honest, it's quite sensitive to global economic conditions and geopolitical events. And some of the companies within South Korea have quite a unique corporate governance structure as well, which leads to further directional opportunities for lenders,鈥� Chessum confirmed.
Following a similar story to South Korea, Turkey faced short sell bans which were enacted in early 2023, leading demand to fall off precipitously at that point, said Daly.
鈥淭hose short sell bans for the top 50 securities in the marketplace had been lifted as of January, and we have already started to see a little uptick in demand in that marketplace which is certainly a good sign for most Lenders,鈥� he continued.
Moving the panel forward, Daly mentioned the potential changes that are 鈥渂eing kicked around鈥� by the Securities and Exchange Commission (SEC) in Thailand, where foreign investors that transact in the marketplace will need to follow the same rules and regulations as local investors. 鈥淭here are a lot of question marks in terms of whether that鈥檚 going to impact lending demand for the long term in that market.鈥�
Chessum added to the conversation by looking at Thailand鈥檚 potential going forward in 2025, where there are 鈥渞eal expectations鈥� for a rebound in Thailand for securities lending activity.
He explained: 鈥淟ots of analysts are predicting that the Thai economy is going to benefit from a synchronised global economic recovery, and some of the interest rate cuts that we've seen in the developed world as well, that's helping to focus attention on some of these emerging markets again.鈥�
With market volatility quite high in the Thai market, the Bank of Thailand has come out in support of securities lending activity.
Reviewing the performance of securities lending in APAC as a whole, Taiwan lending performance was strong over the past 12 to 16 months. Daly noted the significant lending returns seen in the market for asset managers and beneficial owners that are able to transact in that marketplace.
According to data from S&P Global Market Intelligence, Taiwan became the highest revenue-generating market in the APAC region throughout 2024, taking in US$768 million worth of revenues, a 38 per cent increase year-on-year (YoY). The revenues generated in Taiwan were equal to the six biggest revenue generating countries across the EMEA equities region.
Despite this promising market, Daly did warn of the 鈥渟ignificant barriers to entering the market from a lending perspective鈥�. Whether it be presale notification to an agent lender, he said there are certainly 鈥渟ignificant penalties for non-settlement in the marketplace that may prevent beneficial owners from entering the market鈥�.
Circling back to high performing equities markets, Chessum highlighted Malaysia as one of Southeast Asia's strongest performing equity markets in 2024 from a cash equity perspective. It was also one of the best performing APAC markets for IPOs. It surpassed Indonesia as the region's biggest equity listings venue.
Lastly, heading over to South America, Kyle Kolasingh, head of Markets Services Solutions at RBC Investor Services, noted Brazil has risen to the top of the list for many industry participants.
鈥淏razil has the potential to be a superlative market in the Americas today. It opened in 1996. Where they are today, the market has not yet been able to fulfil its liquidity goals and openness to foreign investors. The difference that we're hearing in the conversation presently versus 10 years ago is that we're seeing momentum coming out of the stock exchange,鈥� Kolasingh informed.
He continued to add that the Brazilian market 鈥渋s a great source of value鈥�. In terms of Americas equity figures for 2024, Kolasingh said it was the only market to have a positive YoY ending. The average fees tend to be anywhere between 150 and 200 basis points.
While Chessum noted a 15 per cent decline in the Brazilian stock market in 2024 鈥� one of the steepest declines across all emerging markets 鈥� there are opportunities in Brazil as 10 stocks generated 50 per cent of annual revenues for the marketplace. Ambipar Participacoes e Empreendimentos shares generated around 20 per cent of all revenues.
Chessum added: 鈥淚f you look at Brazil as a whole market, it did quite well in terms of securities lending revenues on a YoY basis last year. Market revenues were US$51.6 million, up 51 per cent YoY.鈥�
Concluding the roundup on Brazil, Kolasingh warned that the main barrier to the Brazilian market, from a foreign perspective, is the fact that it's CCP today, so it presents principal risk issues for certain types of asset owners and asset managers that cannot absorb that type of risk because of various regulatory structures.
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