Q. Tell us about this new Investment Platform proposed to connect AKD Securities Pakistan, LankaBangla Securities Bangladesh and Capital Alliance Sri Lanka? What is it all about, and how will it work?
A. The concept is to create a joint platform for South Asia. At the core, its objective is not only to anchor visibility amongst the foreign investors for these emerging/frontier markets as a thematic investment destination, but also amongst the respective domestic investors through new product offerings and market access. AKD Securities, LankaBangla Bangladesh and Capital Alliance Sri Lanka represent the largest equity financial services firms in their respective countries.
By integrating the strengths of each of these firms, including economic research and market leading corporate access, we intend to provide a new level in thought leadership and in-depth actionable investment ideas.
Q. Is it only a trading facility extended to your domestic clients if they want to take a position on a Bangladesh/Sri Lankan security, and vice-versa? Or will you also engage in closer marketing and research sharing?
A. Our first process is to simultaneously integrate our research platforms in order to add coverage, and at the same time enhancing the regions’ peer-group analysis allowing foreign and domestic investors tactical insight into actionable investment ideas. We will continue to collaborate on marketing South Asia focused corporate access.
After the successful South Asia Investment Conference in Colombo held in May of this year, we are scheduling the first-ever South Asia Corporate Access Roadshow in October 2018. This will be a week-long reverse roadshow across Bangladesh, Sri Lanka And Pakistan allowing investors to meet large/mid/small cap companies, business leaders, regulators, Government agencies and multilateral/bilateral institutions for a holistic view on the region and the investment opportunities in each respective country.
We are also putting in place the structures necessary and are completing the regulatory processes required to allow cross-border investment access. For domestic investors, we intend to collectively enhance our product availability by allowing domestic trading flow to go cross-border. This will be not only for domestic retail investors but also for domestic corporates who are looking to diversify and capitalize from emerging alpha possibilities.
Q. Most frontier market funds still allocate most of their AUM to Kuwait, Nigeria & Vietnam and are underweight to Bangladesh & Sri Lanka (Pakistan now has emerging market status). However, their solid growth stories justify a higher allocation. Do you think this platform will help increase the allocations to these markets?
A. This is one of our underlying objectives. South Asia region will provide the next growth leg for Asia, given its young population relative to overall Asian demographics, increasing political stability, expanding middle-class and growing per capita incomes leading to domestic demand-driven stories. That’s not to say that these markets do not have their respective macro and micro challenges. But the role of our combined platform will be to push through all that noise and showcase on-ground how consumption patterns are evolving leading to better lifestyles, and similar investment themes. These themes are creating strong forces of domestic demand, which translates into high profitability growth for the region’s companies relative to overall Asia.
You have some of the best managed companies in Asia operating in this region. Corporate governance standards are improving. Implementation of the full set of accounting standards is wide. Corporate access is also on the rise. All these get lost in the noise at times. This platform will provide an opportunity to communicate and make visible these top-down improvements.
Q. The three capital markets, i.e. Pakistan, Bangladesh and Sri Lanka, vary a lot amongst each other in terms of size, profitability, leverage, companies, securities, etc. In this backdrop, do you envisage this can constrain all the three markets from seeing an equal investor interest through the platform?
A. Understandably there will be a difference in the level of interest amongst the three markets, given the variation between their size and depth. That said, initially we are aiming to incrementally increase the interest. While we continue to see an increasing level of interest from conventional financial centres, we are also seeing new interest from unconventional financial centres for our markets, particularly from across Asia.
At the same time, this is in the backdrop of the increased interest from China in all these three markets. Going forward, we expect products to be rolled out that allow Chinese investors access to South Asian markets, starting with ETFs and Index Trackers. This platform will uniquely position us to service these products, going forward.
Q. This new platform was announced on the back of the South Asia Investment conference arranged by these three stockbrokers. In the past, the SAIC was conducted by the South Asian Federation of Exchanges. Do you see any synergies happening with the SAFE in future?
A. At the moment our Conference is a collaboration between AKD Securities Pakistan, LankaBangla Bangladesh and Capital Alliance Sri Lanka. Although at this stage there is no relation with SAFE, the possibility of working together is always there for any future course of action.
Q. Is there any specific technology or compliance requirements that the three stockbrokers have to harmonize before launching the platform? What sort of volumes do you expect on this?
A. At this stage we are working to integrate our services together, both at the front-end and back-end. All the partners are currently working to understand the compliance framework in each country as well as the regulations governing each area of our overall collaboration. At the same time, extreme caution and prerequisites will be followed to ensure full KYC and adherence to AML regulations at the client-level, ahead of any cross-border investments.
Regarding volumes, from a domestic perspective we expect critical mass over the long-term considering regulations and capital controls in some instances. As the integration process continues, we expect it to increase gradually over the longer term. But for foreign institutional investors, we expect not only the scale of investments to increase for South Asia but individually to translate into higher market share of foreign flows given that we will be putting together our strength in corporate access and research.
Q. ETFs and index futures have been common routes for Indian companies to be traded on foreign exchanges? Are you planning similar cross-listing of products between your three capital markets on this platform?
A. A key positive of our collaboration is that each institution also represents diversified financial services. As a result, there is scope in our products along those lines going forward. At the same time, the State Administration of Foreign Exchange has started to vet new applications for outbound Chinese investment. This is encouraging in that it opens the possibility of a potential quota in the future for markets with Chinese interest where you could see ETF and Index Tracker products. The platform and our collaboration can provide us with a first-mover advantage and a unique positioning to extend our services for such products ahead.
Q. What is the level of awareness your market has about the other two, and vice-versa. What do you plan to do to build further awareness of your economy/ companies amongst the investors of Bangladesh and Sri Lanka?
A. We remain focused to develop the awareness across our markets, not only domestically but globally. The SAIC franchise will aim to increase allocations of global and cross-border portfolio investment as well as develop a window towards foreign direct investment. We intend to develop the SAIC franchise with regular corporate showcase events every year to develop an understanding of the regional markets as well as investment opportunities by providing investors the opportunity to meet and discuss the outlook and receive guidance from business leaders in each country.
This includes putting together thematic conferences and non-deal roadshows in each country on a rotating basis annually. At the same time, we will also be integrating our research strength to thematic products as well as macro and equities research with wider distribution coverage. This would help drive awareness, and at the same time provide a top-down analysis to investors about the region.
Q. With Chinese exchanges now invested in both PSX and DSE, what is the collaboration you envisage from exchanges like Shanghai or Shenzhen towards this new platform?
A. One of the key objectives of the platform is to position ourselves with a first-mover advantage for the increasing level of Chinese interest in the region. Within this backdrop, we expect synergy for capital raising exercises as well as cross border advisory business over the longer term. At the same time when regulations permit, this platform will be uniquely positioned to provide investment opportunities to Chinese investors particularly for Chinese institutions exploring the possibility of launching mainland products for the region.
We have seen an increasing interest of Chinese financial institutions into this region’s landscape and future initiatives will likely be supported by the two Chinese exchanges. In June of 2017, a PSX delegation comprising of members from leading brokers and the management of the exchange were hosted by CFFEX and Shanghai Exchange, thus providing an opportunity to discuss the Pakistan capital market with Chinese investors as well as understand the roadmap the new strategic owners would have. We look forward to similar initiatives by the Chinese exchanges which would, at the same time, give our platform the opportunity to provide holistic access to Chinese investors.