Rising opportunities in Asia

As of 2020, the collective capitalisation of its regional stock markets was more than USD30 trillion, while in 2021 Asia’s assets under management (AUM) reached USD17.2 trillion,¹ up from USD14.9 trillion a year earlier.²

Importantly, Asia’s growth trend is only set to accelerate as individual markets continue to broaden their appeal, deepen liquidity and implement reforms to open new asset classes to the global investment community.

These developments were discussed during HSBC’s Securities Services Leadership Festival, offering global investors and asset managers insight into the region’s opportunities across key markets.

Increasing market access and liquidity

Although Asia has received increased interest and funds from the global investment community in recent years, more is being done to increase access and create new opportunities. This can be seen in mainland China and other markets in Asia.

Sophia Chung, Managing Director, Head of Securities Services, China, HSBC, summarised the trajectory of mainland China’s opening up: “The Chinese regulators continue to open up the country’s capital markets, further streamlining the entry process, expanding the investment scope for foreign investors and enhancing connectivity to overseas markets.”

Another key focus area is facilitating mutual market access, as a way of incentivising two-way investment between markets with shared interests. Mainland China, for example, is actively working with other jurisdictions towards this goal, the opening of the China-Switzerland Stock Connect in July 2022 being a recent development in this regard.

Investors and asset managers should see these developments as opportunities to diversify their portfolios and capture the value they promise.

Liberalising market infrastructure and exchanges

Parallel to the activity described above are exchange and infrastructure developments aimed at making international investment into Asia easier and more attractive. Key to this is positioning Asian exchanges to be more globally-sensitive in areas such as disclosure, trading times and settlements, which have historically been barriers to international participation.

Responding to the rapidly rising demand for ESG investing, in June 2022 the Taiwan Stock Exchange (TWSE) introduced a new ESG reporting mandate requiring listed companies to annually disclose their ESG practices and developments.³ For investors and asset managers, this means more effective market research and greater assurance that they can align their investment activity with their ESG priorities.

In Korea, the operating hours of its onshore foreign exchange (FX) market are being extended, and the authorities are now permitting foreign financial institutions to participate directly in its domestic interbank market without an in-country presence. These moves are designed to attract more investment from abroad, boost liquidity in FX trading and hedge against volatility from inflationary pressures.⁴

Important market infrastructure changes are also underway - India’s recent shift to T+1, or next day equity trading in February 2022 being a case in point. By improving settlement speeds, India is creating the conditions for a more liquid market capable of offering global investors a more efficient trading experience, a win for both sides.

Tracking emerging opportunities

Beyond the reforms aimed at making Asian markets more globally connected, there are emerging investment opportunities that investors and asset managers need to be aware of. Identifying these opportunities means keeping a pulse on demographic changes and the technological trends around digital assets and blockchain.

In mainland China, the market for pension funds has been rapidly developing in response to the country’s aging population, and the government has established a new pension scheme system to support this. For mutual funds and global wealth managers, there are now incentives to increase the exposure of mainland China’s private pension market, which is currently underdeveloped.⁵

Chee Ping Yap, Global Head of Product, Securities Services, HSBC, highlighted the changes underway: “We have seen China increasingly open up their markets to foreign asset managers, creating new opportunities across a variety of sectors for international players.”

Meanwhile, emerging technologies such as digital assets and decentralised finance (DeFi) are continuing to gain momentum in Asia. Project Guardian, an initiative launched by the Monetary Authority of Singapore to test the feasibility of asset tokenisation via public blockchains, is piloting DeFi applications in wholesale funding markets.⁶

For global investors, DeFi is creating opportunities around open, interoperable networks, aimed at increasing liquidity and enhancing the accessibility of financial services – an area with great potential in this region.

Looking ahead, Rafael Moral Santiago, Regional Head of Asia-Pacific and MENAT Securities Services, HSBC, believes the future of securities services will be characterised by “continuous innovation, collaboration and partnerships, all aimed at driving positive change across the industry.” This can be seen in the reforms underway across Asia’s capital markets, which are creating unique opportunities for global investors and asset managers to deepen their investments in the region.