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Keynote Address by
Mr Kola Luu, Executive Director, MAS,
Structured Products Asia 2007 Shangri-La Singapore
Full Text of Speech
INTRODUCTION
1. Ladies and Gentlemen. Good morning and thank you for inviting me
to this Structured Products Asia 2007 conference. With increasing
interest in this rapidly growing area, it is important for market
participants to have a forum to discuss and understand the latest
developments in the structured products industry. I understand that
this is the third time this event is held but the first time that
the organizers have chosen Singapore as the preferred location. I
hope to see more of these in the coming years.
2. Structured products
have come a long way since their introduction where they were
utilized by companies wanting to issue debt at a lower cost. Today,
we see structured products of varying complexities, involving an
array of asset classes with an increasingly diversified group of
investors. Apart from corporates and financial institutions;
individual investors, in particular, High Net Worth Individuals (HNWIs),
are also using structured products as an avenue for portfolio
diversification. This phenomenon has helped propel the growth of the
structured products market with global issuance in 2006, estimated
at approximately US$ 3.8 trillion. While the United States and
Europe are the bigger markets for structured products, growth in
Asia has been encouraging. According to estimates by BIS, the gross
market value of global OTC equity-linked derivatives at end June
2007 is US$1.1 trillion with Asian equity-linked derivatives
accounting for about 17%. Structured finance or debt, too has grown
to a sizable market with Fitch estimating total issuances of
US$58.5 billion in 2006, while the issuance of commodity structured
products in Asia is estimated at US$15 billion annually. This trend
is expected to continue and it is not difficult to see why.
ASIA
GROWTH
3. Asia as a whole has been enjoying sustained economic growth over
the last few years with China and India leading the way. Middle
Eastern countries have also achieved average growth rates in excess
of 11% in 2006. While the current turbulence in the financial
markets does pose a threat to global economic growth; it does not
fundamentally alter the picture of a very resilient and dynamic
Asia.
4. HNWIs in Asia
continued to benefit from favorable market conditions. According to
the Merrill Lynch Capgemini Asia Pacific Wealth Report 2007, total
HNWI wealth in Asia grew by 10.5% in 2006 to US$8.4 trillion. This
number is expected to grow at an annual rate of 8.5% to reach
US$12.7 trillion by 2011. Many banks are expanding in the region to
take advantage of the growing Asian wealth.
SINGAPORE
MARKET
5. The Singapore fund management industry has done well in the last
few years, thanks to strong economic growth as well as the increase
in depth and breath of our financial markets. Singapore has
maintained its position as a major forex trading center in the
world, based on the latest BIS triennial survey on OTC FX volume.
The trading of OTC commodity derivatives has also flourished over
the years. Last year, total trading volume amounted to approximately
US$600 billion, accounting for almost 8% of global trades.
Singapore is also home to the largest REIT market in Asia ex-Japan
with a total market capitalization in the region of USD$20 billion.
6. The Merrill Lynch
report also noted an interesting investment trend for HNWIs in
Singapore. On the average, alternative investments (including
structured products) account for almost 10% of total portfolio
allocation for 2006. This is in line with global averages for
portfolio allocation and indicates the emergence of “new wealth”.
This represents a group of young and sophisticated entrepreneurs who
often prefer to play a more active role in the management and
investment of their wealth. To meet the needs of these investors,
banks provide structured products customized to clients’ investment
objectives. This trend is likely to catch on in other parts of Asia
as financial markets in the region matures and as transparency,
governance, disclosure as well as risk management improve over
time.
7. However, as
structured products may involve multiple risk components, proper
risk disclosure should be provided by relationship managers to the
clients. Investors looking to invest in relatively more complex
structure should also exercise extra caution before entering into
such financial transactions. Many governments in the region have
begun developing legislation and guidelines to provide investors
with the information necessary to understand the nature and risk
associated with complex investments. As an integrated financial
services sector regulator, MAS also continually reviews existing
regulations to ensure that they remain relevant to market
developments.
8. For example, MAS has
just completed a final phase of amendments to the Securities and
Futures Act (SFA) and the Financial Advisor Act (FAA) which are
aimed at
• enhancing MAS’ supervisory oversight of capital markets services
and financial advisers’ license holders;
• increasing the responsiveness of MAS’ regulatory framework to
market innovation.
9. MAS had also introduced a set of risk management guidelines
earlier, which highlighted the importance of senior management
oversight, strong risk management processes and operating procedures
and need for competent personnel in the risk management, control and
audit functions.
10. While growth in the financial industry has been robust, the need
for manpower and expertise continues to be a key factor for
continued success. In consultation with industry, MAS initiated the
Financial Sector Manpower Conversion Scheme in 2004 to help
re-channel manpower quickly to new growth areas in the financial
sector. This is done through customised conversion training
programmes in partnership with partners such as the Wealth
Management Institute (WMI) and ACI Singapore. Over the last few
years, WMI’s flagship Masters of Science in Wealth Management has
provided the industry with a pool of highly qualified and competent
wealth managers. Additionally, the programme has been crafted to
provide wealth managers with expertise on specific asset classes,
including a module on Structured Products, aimed at presenting
participants with a good understanding of the risk and return of
structured products, and their use in portfolio management.
CONCLUSION
11. Developments in Asian financial markets have been extremely
encouraging and as Asian economies continue to grow and expand over
the next decade, we can expect Asian wealth to increase in sync. The
desire for customized products amongst HNWIs to meet their specific
financial needs present an ideal environment for the structured
products market to take off. Furthermore, as product innovation,
market access and market conditions improve, the impetus for
increased portfolio allocation for structured products within Asia
would necessarily increase.
12. With that, I wish
all delegates a fruitful conference ahead.
Thank you.
Source:
www.mas.gov.sg News 6 Dec 2007
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Singapore fund management industry
has done well in last few years
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