Country Profile: Singapore’s securities finance market
- Singapore is the sixth largest market in Asia Pacific
- Singapore stock lending revenues grew by 6% in 2016 to $33m
- Average fees fell by 8bps to 1.1% which was counteracted by a 12% jump in balances
- Noble and Semcorp Marine generated the most revenue for lenders
- Inventories grew by 8% to $38.5bn, a new all-time high
Market participants have witnessed Singapore’s capital market rules and infrastructure mature over time, aligning with international best practice. Political and economic stability have also attracted companies to the region. It remains, however, more of a back-office hub and struggles to match the lending and borrowing levels of its main rival Hong Kong – where most brokers choose to set up shop and do business.
Back
in 2014 the average value of lendable equity securities totalled $50bn (all
figures USD). This figure has reduced in recent years ($43bn in 2015, $37bn in
2016) although the value of equity securities on loan has remained relatively constant
around US$2.7bn and average fees have stayed just north of 1.1%.
Singapore
Exchange (SGX) is the preferred listing location for close to 800 companies,
including a large proportion of foreign listings.
The
Monetary Authority of Singapore (MAS) recently proposed new rules that would require
investors to report short sales of shares – a further sign authorities are
stepping up scrutiny of investors who take a negative view on listed companies
and aggressively sell their shares.
However,
MAS has said short selling “can enhance the price discovery process and
maintain market discipline”. Its proposals aim to enhance transparency by
requiring market participants to mark short-sell orders to the exchange and
report short positions above a certain threshold.
MAS
said the regulations would bring Singapore in line with international
short-selling guidelines. The rules would apply to the immediate legal owners
of the stocks, while designated market makers would be exempt. The regulator
intends to give the industry four months to implement the new rules, once they
are finally published. Reportable positions include those equivalent to or more
than 0.05% of eligible shares or S$1m ($700,000) in aggregate value.
Tri-party
collateral management is set to be being increasingly adopted by local banks,
which are facing increasing regulatory demands along with their global peers. “In
Singapore we are seeing some local players upgrading their systems in order to
become active,” says Davin Cheung, global funding and financing sales, APAC,
Clearstream Banking.
“They
are not active yet partly because system and relevant support capability is not
there to support tri-party, but some are willing to invest good amounts of
money to update and prepare for OTC derivatives margin rule implementations and
selection of third-party collateral agents. That is quite a significant
development over the past 12 to 24 months.”
Looking
ahead, the Singapore market’s defensive nature helps cushion against downside
risks in a risk-off environment. The dividend yield is one of the highest in the
region, while healthy balance sheets and free-cashflow generation are
supporting dividend payout ratios. There are tentative signs of earnings
bottoming.
“Calibrated
monetary easing and fiscal measures, such as tax and wage credits for
businesses and measures to ease corporate credit conditions and restore cost competitiveness,
provide a favourable backdrop to support supply-side reforms,” HSBC analysts
stated in an investment outlook in February.
“The
government has responded to the structural growth slowdown with a step-up in
inter-agency collaboration to help industries/companies and workers to cope
with structural challenges, identify and expand new growth sectors as well as
address frictional unemployment and shortfalls in social policies and
infrastructure etc.”
However,
Singapore’s economic growth outlook remains fragile, with external weakness
spilling into weak domestic demand and negative repercussions for the labour
market. There is a risk that rising trade protectionism and antiglobalisation negatively
impacts global trade and regional financial centres such as Singapore.
“The
country’s transition from a labour-driven growth model to a productivity-driven
one remains challenging and incurs short-term pains. Singapore faces the risk
from rising US interest rates,” HSBC’s analysts added.
“A
shifting manufacturing landscape, higher corporate and household debt servicing
burden amid worsening profitability and labour market, tighter financial
conditions, and a weak property market are headwinds.
“Concerns
about banks’ asset quality, particularly their exposure to the oil & gas
sector, linger, although lending to the sector accounts for a small portion of
the total loan book and the recent rebound in oil prices, if the trend
sustains, may help mitigate such risk.
ICBC
Standard Bank: Expert eye on repo
Singapore
is the main financial centre for South East Asia. There are no legal impediments
to conducting GMRA business and the local market is mature and well established.
There
is a great deal of activity in US dollar-denominated securities, with a preponderance
for high-grade papers. Singapore is regarded as an important centre for repo
trading of US Treasuries and US dollar-denominated bonds issued globally.
The
Singapore dollar (SGD) market is also developed and despite a number of participants
pulling out of the cross-currency space in the past 18 months, there is still a
degree of interest in financing paper against US dollar.
Wei-Shee
Chia from ICBC Standard Bank comments: “The bulk of the non-UST demand I see
derives from a cross-currency financing for SGD-denominated assets. The market
views these papers as high quality and the level of haircut we are able to
charge against US dollar makes it an attractive proposition for our customers
among local financial institutions.”
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