Agent lenders are continually enhancing their collateral profiles in Singapore as non-cash becomes more acceptable, says Kirtes Bharti of Scotiabank
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Around the world lenders are back to pre-crisis levels of supply, but demand from hedge funds seems to be lacking. Is this the case in Singapore?
Singapore supply has outstripped demand recently. In general, we see hard-to-borrow demand associated more with corporate events and capital raise issuance. Our sense is that quantitative strategies are minimal and long/short strategies are well serviced via existing supply provided by agent lenders.
With Asia still developing in terms of securities lending, the region has a lot of potential lenders—is oversupply an issue?
We currently do not see oversupply as a concern.
Furthermore, we think oversupply can be considered positive, as new supply creates efficiencies and can, in some cases, mitigate short squeezes, although these are rare occurrences.
The diversification of supply is also equally important to help borrowers and lenders manage risk, including credit risk, concentration risk and many other types of risk driven by internal bespoke metrics.
How ready are lenders to accept different assets as collateral? Or is cash still the most attractive, given reinvestment strategies?
Agent lenders are continually enhancing collateral profiles. In Singapore, we have seen agent lenders accept equity and debt instruments as well as cash.
The potential attractiveness and benefits of alternative collateral types are, in essence, easy to understand.
However, we appreciate that there are challenges for beneficial owners, agent lenders and borrowers when implementing sustainable technology and risk metrics to manage collateral profiles efficiently.
Oversupply is positive as it leads to additional collateral profiles to suit different participants.
Are ETFs being lent in Singapore? Could this be on the rise?
Exchange-traded funds (ETFs) are available in Singapore. There are 20 to 25 options available to trade via the Singapore Stock Exchange. These ETFs are typically tracking global indices as well as country-specific indices.
Borrows are available although demand does not appear to be significant. This could be attributed to the liquidity of the Singapore-listed ETFs rather than investment linked decisions.
How far behind Singapore are markets such as South Korea and Indonesia?
Singapore is a sophisticated and mature market. It is neither behind nor ahead of any markets, it is just different.
As each jurisdiction has a different profile, right now, the Association of Southeast Asian Nations markets are experiencing a reduction in global balances as some flows move to more developed markets outside of Asia
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