TOKYO & SHANGHAI: Asia's Exchanges Compete

Oxford Analytica, 02.10.10, 6:00 AM ET

Rivalry in the contest to be recognized as Asia's premier financial center was focused for much of the postwar period on Tokyo, Hong Kong and Singapore. Taipei and Seoul were also contenders, if seen as more distant candidates. In recent years, Shanghai has emerged among the ranks of those seeking top-ranking status.

Competition

At the heart of this competition was the intention Asian stock exchanges had of rivaling one another through market capitalization and turnover. They sought, with limited success, to attract foreign listings by luring companies both within or from outside the region to seek a quotation on their market.

In practice the cost of acquiring and maintaining a listing on several exchanges, and the fact that in bank-centered financial systems such as those in Asia the requirement for equity financing can often be met from an issuer's domestic market, made for limited demand for intra-Asian cross-listings.

China's Rise

China's emergence as a major economic power and the substantial size of the initial public offerings Chinese entities have launched on Hong Kong and non-regional exchanges have tended to eclipse other Asian exchanges. Meanwhile, Tokyo's weight in total Asian stock market capitalization has diminished dramatically, from 4.3 times that of the Shanghai Stock Exchange three years ago, to only 1.3 by the end of 2009.

Change of Focus

Such developments have changed the basis for competition among Asian exchanges, which, instead of poaching in each other's markets, tend today to focus more on securing listings by global firms and on seeking alliances with leading non-regional exchanges such as New York, London and Europlace, in order to create international trading platforms.

Asian exchanges are also focusing on the need to acquire high-speed, automated trading systems, and on emulating the example of Western exchanges by de-mutualizing their ownership and converting into listed shareholding entities, thereby accessing capital for financing expansion.

Upgrading TSE

In January the TSE launched a new computerized trading system designed to increase its attractions as a global exchange. Installation of the so-called Arrowhead system, which reduces the time taken to process orders from two to three seconds to 0.005 of a second, is aimed in part at enabling the TSE to attract business from international hedge funds and other professional investors who need sophisticated trading systems.

Going Public

Now that trading system problems have been overcome, the TSE plans to implement long-delayed plans for listing its own stock in April. Others, including the Singapore Exchange (SGX) and the Hong Kong exchange, have already gone public, following others among the world's major stock exchanges.

By doing so Asian exchanges have established themselves as superior to many other longer-established exchanges in this regard. For example, the Hong Kong exchange has a market capitalization equivalent to some $26 billion, more than four times that of the NYSE at around $6.5 billion. At $8.6 billion, the capitalization of the SGX is approaching twice that of Nasdaq, the former president of which recently became chief executive of the Singapore exchange. A high capitalization is advantageous to exchanges contemplating acquisitions of other exchanges through exchanges of shares.

Outlook

The nature of competition among Asian stock exchanges is changing as new stock trading platforms emerge globally. Their future appears to lie in cooperation, or even mergers, with international exchanges rather than in the pursuit of organic expansion.

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