Middle East to see biggest ever liquidity event through Saudi Arabia developments
Kapil Seth, head of HSBC Securities Services, Middle East and North Africa
The rapid development of the Middle East’s capital markets is reflected through wider participation of global investors and accelerated by inclusion in key Emerging Market indices. In 2018, Kuwait joined the FTSE Russell Emerging Market index while 2019 will see Saudi Arabia, the region’s largest and most liquid equity market, included in the Emerging Market indices of both MSCI and FTSE Russell. Our expectation is that this will trigger approximately $14 billion in passive inflows into the Saudi Stock Market. When you combine the passive flows with the broader capital market reforms, I expect we will see billions more of actively managed capital flow into Saudi Arabia, creating the region’s biggest ever liquidity event. Greater international capital flows will lay the groundwork for Saudi Arabia to establish itself as a truly global capital market, capable of hosting the world’s largest companies and accommodating the needs of the world’s largest investors.
Emerging markets will be up for review in 2019
Stewart Gladstone, director, sales and relationship management for emerging markets, Societe Generale
As we approach the end of 2018, engagement with partners and clients indicates that Brexit continues to draw attention away from strategic initiatives and anything other than mandatory changes within agent bank networks. Movement between providers in frontier markets and smaller emerging markets has been limited and this looks unlikely to change in the near term. This is largely due to the absence of a justifiable cost reduction versus the heightened cost to run an RFP and ultimately transition business. Exceptions have generally only been seen when a requirement to review an incumbent custodian is driven by risk, regulation or changes in ownership of providers, as has been seen recently in the Polish, Romanian and Russian markets. However, discussions in several meetings during SIBOS this year indicated that we should expect a number of emerging markets to be put up for review in the second half of 2019.
London can take the lead on tapping China’s institutional investor base
Stanislas Beneteau, UK head of financial intermediaries & corporates, BNP Paribas Securities Services
We have high hopes for this scheme, which will open up China’s locally listed companies, to a broader pool of international investors. We expect significant interest from mid-tier foreign investors in particular, who haven’t had access to A shares before. The scheme could give London a head and shoulders lead in the competition to tap China’s institutional investor base and vast equity market. And with Brexit around the corner, it could reinforce London’s status as a global financial centre. The scheme could also have “collateral benefits” for the securities lending and borrowing activity. The mismatch in settlement cycles and different time zones between London and China for example could leave brokers with a funding gap, opening up opportunities for liquidity providers. We expect to see a number of well-known companies listing GDRs in 2019 to gain access to the Chinese investor base.
Indian markets to flourish as developments continue
Viraj Kulkarni, founder and CEO, Pivot Management Consulting
The next year holds promise of continued political stability in India. There will be a focus on ease of doing business, greater efficiency due to the common application form for foreign portfolio investors (FPIs), while interoperability between the clearing houses also goes live.
Enabling omnibus structure and depository receipts at GIFT City exchanges will spur activity for custodians. Continuity of inflows from FDI, FPIs and the AIF segment will shift custodians key focus from operational efficiencies to business and client development. The custodian wish list for 2019 in India includes – development in the depository receipts and SBL space, along with advances in the bond market, improvements in the KYC process and regulators starting to reconnect with global investors.
Enabling custodians to outsource operations will significantly bring down the cost of doing business and improve the attractiveness of India. Implementation of the Khan Committee report holds greater harmonisation and efficacy for investors and custodians. Indian custodians service, rated amongst the highest worldwide in the Global Custodian Survey, will have to continue investing in technology, analytics and next gen fund accounting solutions.
Brexit will have long-lasting impact and expect M&A and tech developments
Cécile Nagel, CEO of EuroCCP
Brexit will continue to dominate the agenda. While market participants have already invested significant resources preparing for the UK’s departure from the EU, unknowns remain. Thus far the industry has focused on the official exit date. However, 29 March will only mark the beginning of fundamental changes that will affect financial services firms throughout 2019 and beyond.
I also expect regulatory change and M&A to continue to drive the agenda for market infrastructures, especially as firms look to build out their technology and broaden their products and services offering.
With regards to technology, I expect to see artificial intelligence (AI) and machine learning (ML) based analytics to gain ground. Data has long been at the centre of all technology innovation in the financial services space, with AI and ML making some of the great advances this year. As we move into 2019, these technologies will likely be the driving force behind increasingly intelligent trading decisions and increased operational efficiency in post-trade.
Regulatory scrutiny around beneficial ownership to increase in Brazil
Henrique Santos, head of securities services, Brazil, Deutsche Bank
From a regulatory perspective, we should expect an increase in the regulatory scrutiny around beneficial ownership during 2019. In the last couple years, the Brazilian Tax Authority has been increasing its requirements around the identification of the final beneficial owners for non-resident investors, and this is still a trend. From a securities services perspective, Brazil is aiming to change its settlement cycle to T+2 from T+3. The goal is to harmonize the Brazilian market with other markets around the globe and bring more efficiency to all investors. This will also require investors to become more efficient in their processes.
A year when politics will trump business
Peter Randall, president, SETL
2019 will be a year when politics will trump business. Instability between the two biggest trade blocs, China and the USA, uncertainty in the relationship between the UK and the EU, and troubling re-alignments in the near and Middle East, coupled with on-going background worries about global terrorism and cyber disruption present a difficult to navigate backdrop for markets in 2019. It is likely that most of this is already in the prices for most assets but central bank actions in response to the termination of the various quantitative easing programmes will likely reveal tighter than expected bond markets which may push up interest rates as well. Expect volatility, remember it is your friend. I expect to see markets creeping around looking for action, then bursts of frenetic adjustments followed by periods of ennui.