LINES OF THOUGHT ACROSS SOUTHEAST ASIA

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Paving the financial ring road

As investors around the world strive to find a safe place to put their money, Asean stock exchanges are keen to offer them more opportunities to capitalise on the region’s growth

Southeast Asia Globe
November 7, 2012

As investors around the world strive to find a safe place to put their money, Asean stock exchanges are keen to offer them more opportunities to capitalise on the region’s growth

By Philippe Beco
The Asean Exchanges initiative is a collaboration of seven stock exchanges from Indonesia, Malaysia, Philippines, Singapore, Thailand and two from Vietnam. All together, these exchanges have a combined market capitalisation of approximately $2 trillion and more than 3,600 listed companies. Asean Exchanges aims to promote Asean as an asset class. The association’s objectives include streamlining access to Asean capital markets in the region, creating Asean-centric financial products and implementing promotional initiatives that provide more investment opportunities across the region.

Photo: Sam Jam
Photo: Sam Jam
Prior to joining the Stock Exchange of Thailand in 2009, Veerathai Santiprabhop worked for the International Monetary Fund and Siam Commercial Bank PLC.

Within this framework, a sub-group of four Asean exchanges, namely Bursa Malaysia, The Philippine Stock Exchange Inc, Singapore Exchange and the Stock Exchange of Thailand (SET) have launched the so-called Asean trading link project that will soon bring them closer together. Veerathai Santiprabhop, SET’s Executive Vice President and Chief Strategy Officer, discusses this pioneering project.
Can you explain the link-up in a few words?
This project should not be seen as a merger between stock exchanges, but rather as a ring road that will facilitate cross-border trading. Today, a Thai investor that wants to buy a Singaporean stock has to call a Thai broker, who will call a Singaporean broker to send the purchase order to the Singapore exchange. With this link-up, the Thai broker will be able to send the order directly to the Singapore exchange, reducing transaction costs and increasing liquidity. We will also hook up to the global highways that Western brokers send their orders to, reducing access costs to investors from other parts of the world.
When will the first stock exchanges be linked?
Singapore and Malaysia are expected to go live at the end of June this year. The stock exchange of Thailand is expected to join in late July or early August following the implementation of its new trading engine. The Philippines should join the initiative later, perhaps some time in 2013.
What has been the response from brokers so far?
The system is being implemented now, and we have a lot of participation from the local brokers in the initial three countries. In Thailand, more than 20 brokers have signed up, in Malaysia more than 15. In Singapore, we only have 5 brokers participating so far but this is because most of the Singaporean brokers do not have retail business. They are institutional brokers who already have infrastructure in the region. Most of the brokers in Singapore are also international – they already have an office in many other Asian countries.
What is the feedback from the companies currently listed on the exchanges that will link?
At this point very few companies are listed in more than one country, but in general the listed companies are enthusiastic because the linkage will expand their investors’ horizons. If you look at Thai listed companies, most of the foreign investors at the moment are European, American or Australian. Firms see the linkage as an opportunity to attract more investors from Asean countries.
Won’t the linkage generate increased competition for investors between companies coming from the same sector in different countries?
This is a potential concern for companies. But the reality is that firms listed on the various Asean exchanges are more complementary than competing. For example, if you look at the composition of Asean stars, a basket of 180 stocks representing 30 blue chip companies across the region, you realise that overlapping industries are very few. In Thailand, for instance, the outstanding industries would be oil, gas and power. Singapore is very good at banking and manufacturing, property and real estate, while Malaysia has very strong plantation companies.
How far is the linkage going in terms of integration?
Each country’s trading engine  will remain independent. We are not trying to consolidate a technology platform like what has been done with Euronext. That is not possible in an Asean context, where rules and stages in market development are very different from country to country. Each state is also keen to keep its own stock exchange.
Does the linkage project require participating countries to change their stock market regulations?
One of the reasons Thailand, Malaysia and Singapore will go ahead first with the project is that their regulations facilitate cross-border trading. There were no major obstacles in these three countries. Regulators just had to make slight adaptations, for instance regarding the cross-border distribution of research by stock analysts. Regulators have agreed that the information issued by an analyst who has a licence in only one country can be distributed in the two other countries through a correspondent stockbroker.
What about tax regulations?
They also needed slight adaptations. In Thailand, for instance, the law is being amended to make sure that trading stocks from the three countries will be treated similarly from a fiscal point of view. The government has agreed to waive capital gains tax for Thai individuals trading Asean stocks using the linkage. Until now, only the trade of Thai stocks could benefit from such a measure.
 



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