Products to determine sec lending growth in emerging markets

Products and services will determine whether securities lending moves into emerging markets, according to one industry expert.

Speaking at the European Beneficial Owners’ Securities Lending and Collateral Management conference, panellists were asked if securities lending could move into markets such as Saudi Arabia and India

“New markets need to be discovered and you need to feel comfortable with them, and in terms of securities lending its not about how quickly you move its how comfortable you are with what you can offer,” said Joseph Molloy, head of passive equities and quantitative equity strategies at HSBC Global Asset Management.

“What opens up a greater opportunity is the change in product offerings, the growth of smart beta and multi-factor portfolios means there is more offerings available.

“New markets are there to be explored but it is really about how product lines change in relation to those markets,” said Molloy

Securities lending within emerging markets has been continuously discussed topic within the industry.

A recent JP Morgan paper on the subject suggested that significant revenue opportunities were available particularly for first movers.

In addition, the paper also suggested that engaging in securities lending within local markets leads to a positive perception from both beneficial owners and those within the local market.

Fellow panellist Foppe Zwikstra, securities lending manager at Achmea Investment Management expressed enthusiasm for securities lending in newer markets provided that there was a commercial benefit.

“What we see now is that we have more global mandates and strategies and you see countries like Mexico, China and Eastern European countries emerging in these strategies so we get more assets there and it is therefore becoming logical to look at securities lending.

“Like everything we do, everybody is risk adverse but if we can make a profit and extra basis points return at an acceptable level of risk then we will surely start lending.”

The panel also concluded that in spite of an increased level of excitement attached with moving securities lending into emerging markets, the potential increased level of risk associated with this must be taken into account.