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East Asia’s fragmented investor base can benefit from specialist capital markets support

Published on October 1, 2013 by Paul Alapat

I recently completed a week of meetings in Hong Kong and Singapore, where I met with several of our clients and prospects from the capital markets industry. Like financial institutions in the rest of the world, they too were being tossed around as markets and currencies wobbled with the changing expectations of when the Fed would start the ‘taper’ and over the timing of the widely anticipated US intervention in Syria.

The challenging market conditions are compounded by the fact that the cost environment in Asia, particularly Singapore, is no longer very competitive. The sustained appreciation of the Singapore dollar had now made the cost of living in the city state equal to or higher than in Hong Kong and Tokyo. Singapore’s steep cost of living is aggravated by high salaries and scarcity of specialist technical human capital in both Singapore and Hong Kong.Moreover, East Asia is a fragmented market that demands coverage of South Korea, China, Taiwan, Indonesia, Thailand, Malaysia and India at a minimum, apart from Hong Kong and Singapore, to be considered a credible regional player. None of these markets offer the critical mass required to justify cost-effective, specialist coverage. As such, the challenges of running a profitable operation in the Asian capital markets space should not be underestimated.

That said, the region lends itself well to support from a centralized shared team offshored to a competitively priced location such as South Asia, which has reaped economies of scale by clubbing the individual support needs of each country in one common team. The time zone and geographical location is close enough to allow real-time overlap and travel to onsite client locations at short notice, if needed.

During the trip, I had several fruitful conversations on outsourced support for index operations, structured products work, RFP support and commodity research, which testifies to the advantages of outsourcing specialist capital markets work from the regional financial centres of East Asia.


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About the Author

Senior MD, Quantitative Services and Fund Marketing Services

 

Paul manages the Quantitative Services division at Acuity Knowledge Partners. He has over 22 years of capital markets’ experience in both research and trading. Previously, Paul was Chief Economist Asia (ex-Japan) at Nomura, Regional Financial Economist at Lehman Brothers, and a visiting Professor of Finance at IIM, Bangalore.

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