Malaysia and Singapore became the first two Asean countries to link their stock markets yesterday as part of the Asean Exchanges initiative, a collaboration between seven Southeast Asian bourses that was formed last April.
Thailand is due to join them next month, it was announced at the launch in Kuala Lumpur yesterday, which will create a cross-border trading platform comprising nearly 2,300 listed companies with a market capitalisation of $1.4 trillion.
It is unclear when (or if) the exchanges in Indonesia, the Philippines and Vietnam will join. If they do, they will add roughly $500 billion of market cap.
“The participation of individual Asean markets through the Asean Trading Link will help the region compete with bigger markets and economies,” said Magnus Bocker, chief executive of Singapore Exchange. “As capital flows to and within this region increase, companies benefit from deeper liquidity pools to finance business expansion. Investors will also gain from access to more investment opportunities. In short, this is a win-win situation for all market participants.”
So far, 31 brokers from across Malaysia, Singapore and Thailand have already joined the platform, including CIMB and Maybank.
The initiative is part of an effort to develop the idea of Asean as an asset class — or at least as a single investable market. By removing the barriers to trading stocks across borders, the exchanges are hoping to improve liquidity and reduce transaction costs.
That is a tall order. Clearing and settlement of trading activity on the platform will take place in the country where orders are placed, which means that there will be no cost advantage for big investors with a regional portfolio. Indeed, the main focus of the plan is to target retail investors, as Tajuddin Atan, chief executive of Bursa Malaysia, reiterated yesterday.
“We believe the Asean Trading Link will benefit the retail marketplace,” he said. “Each of our markets have active retail investors that we would like to ensure continuity, to trade the Asean markets rather than go out to the other markets further from home.”
That sounds fine, but will retail investors in Thailand really sell their Apple stock or their H-shares just because it’s become slightly easier for them to buy shares in Malaysia? Time will tell.
“It’s a good concept, but local investors need research,” said Kongkiat Opaswongkarn, chief executive of Thailand’s Asia Plus Securities. “Very few local brokers can accommodate them, and the big foreign houses are not keen to do business with small investors here.”
Kongkiat added that Thai brokers have already tried offering cross-border trading facilities for local clients, without much luck. “The big markets Thai investors love are the US and Hong Kong. They are not keen on Asean now, but that may change.”
Interest from brokers in the Philippines seems to have waned as details of the plan have emerged, highlighting one of the problems of such a collaboration — lopsided incentives. Brokers in Malaysia, Thailand and Singapore have decent local retail customer bases that they sell Asean product to, but this is less of an attraction in the Philippines, where an influx of new foreign investors would be the real reward. However, brokers in Manila are concerned that the Trading Link will marginalise them, as their rivals in Malaysia, Singapore and Thailand will be able to sell Philippines stocks directly, bypassing the local players.
