"Continuous Innovation in Global Financial Markets"

Good morning, distinguished guests, ladies and gentlemen.  I am delighted and honoured to be at this forum, which is held for the second year in Singapore.

2   Last year's forum was a huge success, bringing leading foreign exchange players together to discuss issues pertinent to financial markets development.  I am confident that this year's forum will continue to build upon the success of last year's meeting.

3   At the last forum, I touched on two broad themes for Asian markets.  Firstly, the continuing large flows of FDI into Asia and secondly, the increasing attractiveness of Asian investments.  I would like to briefly review these broad themes against the backdrop of current global economic conditions, and investor preferences.  Globally, financial markets continue to innovate and respond to the changing economic environment and the needs of increasingly sophisticated investors.  We will look into some of these recent developments.  The panel of speakers will share with you further on some of these growing trends - one of which is the emergence of foreign exchange as an asset class. 

Inflows into Asia

4   Let me begin with a snapshot of the Asian economies.  Most Asian economies expanded at a faster pace of 6-8% in the first quarter of this year compared to around 4-6% in the fourth quarter of 2003, driven largely by export growth and rise in consumer spending.  Notwithstanding higher interest rates, oil prices, and a moderate slowdown of China's economy, the upturn in the global economy is expected to be sustained through the rest of this year, and continue to provide support for the regional economies, albeit at a more gradual pace.  For Singapore, we are on track to achieve GDP growth of 8-9% this year.  

5   In line with the general positive outlook for Asian economies, we expect to see continued FDI inflows into Asia.  According to the Institute of International Finance, net private capital flows to emerging markets are projected to increase 16% this year, from US$194 billion in 2003 to US$225 billion in 2004.  Asia is expected to receive close to 50% of these expected inflows, with significant portions from FDI and portfolio equity investment.

Opportunities in Asian Investments

6   The improving economic fundamentals in Asia are well documented and remain a key attraction for international investors.  Other key considerations for investing in Asia include the opportunities to obtain higher yields and further diversification benefits. 

7   Traditionally, interest in Asian portfolio investments has mostly been concentrated in equities.  However, good progress has been made in the development of local currency Asian fixed income.  A number of Asian governments have made significant efforts to develop their domestic fixed income markets over the years, since the Asian financial crisis.  Taking yet another step forward, Asian governments are currently working very closely through various regional initiatives, such as the Asian Bond Fund project, to further develop this asset class and address outstanding regulatory and withholding tax issues. We are very encouraged over the potential opportunities for investors and issuers.

Continuous Innovation in Global Financial Markets

8   In today's low yield environment, investors are hard pressed to find good risk-adjusted returns in many traditional asset classes. Global financial markets are continuously evolving and innovating to meet this rising need.  The phenomenal growth of hedge funds and other alternative asset classes is a reflection of this pursuit for higher yield and lower risk strategies. Another major development in the foreign exchange markets has been  the emergence of foreign exchange as an asset class, potentially generating returns that are relatively uncorrelated with other traditional asset classes. Over time, continued product innovation in the financial markets and greater demand for cost-effective hedging instruments, as well as other structured solutions will foster an increase in foreign exchange activity. 

9   Besides product innovation, technological innovation also plays a key role in evolving the financial markets, including  currencies market.  The influx of e-trading platforms have increased the volume, speed and transparency of foreign exchange activity and decreased transactions costs rapidly. These platforms give direct electronic access to a wider range of participants, including corporate treasury departments, hedge funds, independent foreign exchange traders, and even retail investors.  Already popular in North America and Europe, e-trading is becoming increasingly prevalent in Asia, with more and more users adopting the technology. 

MAS' Initiatives

10   MAS continues to ensure an environment that is conducive to the growth of financial activities.  A key aspect of this is to put in place measures to attract a diverse range of participants in the financial sector.  On this front, we have put in significant efforts to develop the buy-side, including the wealth management and corporate treasury industries. 

11   Total assets under management increased by 35% year-on-year to S$465.2 billion in 2003.  In the area of hedge funds, we are seeing significant growth.  There are currently more than 57 hedge fund players in Singapore, ranging from boutiques to established global names.

12   Today, Singapore is widely regarded as a key location for corporate treasury activities in Asia-Pacific, with a significant number of well-reputed companies from the US, Europe and the Asia-Pacific setting up their regional treasury operations here.  These companies are engaged in risk and liquidity management, investment management, funding, and financing activities.  Many of these companies are also active players in our capital markets. 

Overview of the Treasury Industry

13   Having described some of the broad positive trends we are seeing in the regional and global markets, and the initiatives undertaken to develop the financial sector in Singapore, we must invariably ask ourselves whether all these developments are being translated into tangible benefits for the treasury industry.  On this point, I am pleased to say that Singapore has continued to do well in treasury activities. 

14   You may have seen the release of the Bank for International Settlement's Triennial Survey results in the press this morning. Singapore remains the 4th largest foreign exchange centre globally and the largest in the Asia Pacific region outside Tokyo.  In addition, our OTC derivatives turnover has tripled in volume this year compared to 2001.  We are also seeing strong results based on the annual treasury survey conducted by MAS.  Let me now briefly share some highlights of the 2003 survey results.

15   For the fourth year in a row, average daily trading volumes of treasury activities have risen.   According to the the MAS treasury survey, daily trading volumes rose almost 21% from US$139 billion in 2002 to a high of US$168 billion in 2003.  This is the largest year-on-year increase over the past four years.  The MAS treasury survey also showed that average daily trading volumes for foreign exchange also enjoyed healthy growth, rising 24% from US$96.0 billion in 2002 to US$119.3 billion in 2003.  Total revenues in Singapore remained relatively stable last year, reaching a high of S$4.5 billion.

16   In line with the strong performance in the industry, the number of treasury professionals continued to rise by nearly 6%, to over 3,000 executives in 2003 according to the MAS treasury survey.  60% of these professionals were engaged in sales and trading with the rest specialising in risk management and middle-office functions. 

Financial Sector Professionals

17   As Singapore's financial markets continue to evolve and mature, and the number of market professionals rises, participants must constantly adapt and hone their skills to match the pace of financial innovations.  A dynamic pool of market participants is necessary to sustain the dynamism and competitiveness of the financial sector. 

18   MAS actively encourages institutions, industry associations and other major players to develop a training infrastructure that supports skill upgrading.  We work closely with industry players like the Singapore Foreign Exchange Market Committee and ACI Singapore to identify industry needs, trends and best practices, with the intent of improving market conduct and education. One of these initiatives is the Wealth Management Institute, set up last year with the aim of developing the wealth management industry talent pool.  Its inaugural program, a Masters of Science degree, has attracted 38 students from across the region.

Conclusion

19   In conclusion the global financial markets will continue to change rapidly.  We have to review our policies constantly to ensure that our operating environment remains conducive.  Platforms like the Asiamoney Forex Forum will not only go a long way to promote more industry interaction and it is also a good platform for central banks like MAS to better understand industry trends and needs.  On that note, I wish you all a fruitful discussion today.  

Link : 2003 Survey of Singapore Treasury Activities (168.4 KB)