ASEAN: Slow Progress of Stock Exchanges Linkage

JAKARTA (TheInsiderStories) – As South East Asian Nations are marching toward integration of their economies through the ASEAN Economic Community (AEC) which officially kicked off early this year, the stock exchanges within the region have also followed the path by fostering linkages among them, although the move is not easy given the fragmentation of the size and development of stock exchanges in the region.

In April 2011, the seven ASEAN exchanges, namely, Bursa Malaysia Bhd, Hanoi Stock Exchange, Ho Chi Minh Stock Exchange, Indonesia Stock Exchange, Philippine Stock Exchange, the Stock Exchange of Thailand and Singapore Exchange, embarked on a new era of collaboration.

In the past six years or so, ASEAN Exchanges have taken a number of initiatives as a joint asset class for retail and global institutional investors. The other major initiative was the creation of an ASEAN Trading Link, an electronic gateway for stock brokers to provide their clients easy access to the stock exchanges within the region.

In terms of growth, the stock exchanges in ASEAN have shown positive movement in the period from Dec. 31, 2010 to Dec 31, 2016. ASEAN Exchange trade value growth reached 6.10 per cent in this period, while market capitalization grew 8.03 per cent. In addition, the top 10 equity players rose from 1 player in 2011 to 4 players in 2016.

ASEAN stock exchanges have been promoting integration of the financial markets, including encouraging capital to move freely within the region, allowing listed companies to raise capital anywhere in the region, cross-listing as well as allowing investors to invest anywhere within the region, through the three initiatives (ASEAN Invest, ASEAN Star, and ASEAN Exchange Linkage).

However, the pace of ASEAN financial integration has been slow.

Ideally, anyone would be able to trade in ASEAN capital market products freely in any ASEAN markets at a competitive fee from a single access point through its exchange trading linkage, an electronic gateway for brokers to offer clients easy access to the bourses in the region.

The system should be able to create an effective trading and settlement link that will reduce the cost of cross-border trading and settlement, enable brokers with inadequate technology and networks for cross-border trades, at reduced times to market and implementation costs. In turn, stock markets should benefit from greater liquidity.

However, after its initial thrust in 2012-2013, which began with the linkages of the stock exchanges of Singapore, Malaysia and Thailand, the progress of Asean Exchanges seems to be going nowhere. The original plan to link up to seven exchanges looks doubtful.

Tito Sulistio, Chairman of the Indonesia Stock Exchange, said that the country’s bourse would join the trading link only if several important issues were first addressed. These issues include how the system would handle disputes, as well as deal with the wide gaps between stock exchanges in the region.

“We are ready to join the trading link; our market is ready to be integrated. But we are still assessing whether or not this system is favorable for our stock exchange,” he said.

Yet, in terms of trading volume and liquidity, Tito admitted ASEAN Exchange collaboration has inspired trade value, market caps and trading interest, all on an upward trend in the past few years since the inception of the collaboration.

Product innovations were systematically introduced year-on-year in an effort to grow trade value and the quality of the ASEAN capital market product. Over the last 12 months, the ASEAN Exchanges collaboration ushered in the introduction of the ASEAN 5 FTSE4Good ESG Index and new MSCI ASEAN centric indices.

“Today, the growth of the seven exchanges of ASEAN and ASEAN based intermediaries has exceeded expectations by expanding from market centric, domestic institutions to large regional intermediaries with an ASEAN focus,” he said in event in Bali recently.

Compared with 2011, domestic-based investment banks and equity houses today have successfully transformed from country leaders into regional ASEAN leaders, able to compete head on with some large global players.

These institutions have defined efficient cross-border trade linkages within their own platforms and provided efficient inter-broker services to domestic focused entities looking to expand their investments to ASEAN, noted Tito.

“We will continue to introduce products and services, to catalyze new methods of streamlining access to and within ASEAN, and build greater cross-border harmonization. We will also continue to work with best-in-class partners from around the world to build greater liquidity amongst members in the region,” Sulistio added.

Similar to how the trade link service introduced in 2012 catalyzed new and efficient methods of trading amongst intermediaries, ASEAN Exchanges anticipate the recent move by MSCI to introduce new ASEAN tradable indices, a move that hopefully will spur new listed products across our exchanges.

Regulatory Frameworks

The focus on next ASEAN Exchanges’ agenda is harmonizing regulatory frameworks, facilitating the issuance of ASEAN products, cross-exchange listing of ASEAN products and mutual recognition of capital market professionals. These initiatives will be profiled through ASEAN Exchanges driven marketing platforms within ASEAN as well as outside.

ASEAN Exchange also will benefit its members to a varying extent, depending on each member’s regulations. From Indonesia’s perspective, Sulistio noted that Indonesia should loosen regulations to allow foreign companies to enter the Indonesia stock exchange, without pledging to become a limited company.

He cited examples such as the Singapore stock exchange market capitalization, which has reached US$600 billion, highest among its peers because many foreign companies, particularly ones from China, are listed there.

“More than 250 Chinese companies are listed there. At least 40 per cent of the companies that list on the Singapore Exchange are foreigners. We still require foreign companies to become a limited company to be able to list here. It is a complicated regulation to harmonize, including affecting capital markets and labor regulations,” he said.

He suggests government loosen regulations, for example by allowing foreign companies to use Indonesian Depositary Receipts certificates only, instead of a limited company requirement.

Industry players have also called on the authorities to pave ways for e-commerce global players to list their shares on the region’s stock exchanges, taking advantage of the booming e-commerce industry. This e-commerce listing is a golden opportunity, given the increasing activity of cross-border shopping activity, including within the ASEAN region.

Emme Dao, WeShop Global Group Founder & CEO, added that bourse authority should grab potency from cross-border shopping, as a booming trend in e-commerce nowadays. According to a recent report by DHL Express, cross-border retail volumes will increase at an annual average rate of 25 percent between 2015 and 2020, rising from $300 billion to $900 billion.

Southeast Asia is deemed as the next gold rush for e-commerce, thanks to the region’s large population of 600 million people, an expanding middle class and rising internet penetration. The e-commerce market size is small but growing fast, with compounded annual growth rate of the ASEAN six countries (Singapore, Malaysia, Thailand, Indonesia, Philippines and Vietnam) projected at 37.6 per cent from 2013 to 2018, up from $7 billion to $34.5 billion.

“Ecommerce is expected to grow two times faster than the total B2C market, and five times faster than global cross-border trade up until 2020, thanks to its nature of bridging merchandising availability between countries. However, logistics costs, complicated payment methods and risk concerns are among the barriers for online consumers,” she said.

Written by Yosi Winosa, Email: