London remains the first-choice portal for asset managers from Asia looking to tap the European market, but some suggest the city may see its dominance of the region's financial services industry eroded following Britain's vote last week to leave the European Union.
So argued some delegates and speakers yesterday at the London Stock Exchange Group (LSEG) Greater China Forum in Hong Kong.
No other European city can rival what London has to offer, said Miranda Carr, London-based head of China thematic research at Haitong Securities (UK). Speaking to AsianInvestor on the sidelines of the forum, she cited the UK capital’s openness to financial markets, regulatory framework and depth of institutional expertise and personnel.
French firm Axa Investment Managers now has two European trading centres – in Paris and London – and it is not considering closing the one in London or locating it elsewhere. There is no reason to change, said Mark Tinker, head of Framlington equities Asia at Axa IM.
There is currently no city that can replace London as a financial centre in Europe, agreed an Asia-based senior executive at a European clearing house on the sidelines of the forum, on condition of anonymity.
However, as a result of Brexit, Carr said different parts of the financial services industry could start to diversify across Europe rather than concentrating in London. For instance, some asset managers may move to Ireland or Scotland, and some foreign businesses could relocate to Frankfurt, she said.
Indeed, market participants haved argued that Brexit will lead to some foreign asset managers reviewing their strategy of domiciling funds in the UK, pointing to a likely rise in product distribution costs, as reported.
Another issue is whether Brexit would affect the talks between Beijing and London about setting up an equity-trading link similar to the Shanghai-Hong Kong Stock Connect.
LSEG’s head of equities, Brian Schwieger, told AsianInvestor sister publication FinanceAsia on the sidelines of the forum that there were questions over London’s future legal situation.
Still, LSEG has been in contact with the Shanghai bourse since last week’s vote and reconfirmed the schedule for a team from London to visit Shanghai next month, said Schweiger. “We’re a long way down the road,” he noted.
In addition to Brexit, there are other obstacles facing such a trading link, such as different trading holidays, restrictions on shorting stock in China, and the cap on capital repatriation from the mainland.
For more on this, see the article published today by FinanceAsia.
Meanwhile, many international investors, including those from Asia, see the recent market selloff as a good opportunity to buy European stocks, said Axa IM's Tinker. Asian investors are interested in European listed property companies in particular, given their income-generating features, he added.
Brexit offers a better opportunity for investors in European equities than the global financial crisis did in 2008, said Hermann Spellmann, Asia-Pacific head of global equity sales at Deutsche Bank, on the same panel.
In 2008 and 2009, corporate balance sheets were very fragile, but the situation now is different, he noted. So today there is a much bigger opportunity in the long term for patient equity investors, if they can sit tight and weather the storm, Spellmann said.
However, investors need clarity on three issues before taking the plunge, to ensure they don’t suffer a second shock as a result of government policies, said Tinker.
First, who will lead the next UK government?
Second, what will the policy response be both from the UK and the EU? “We know from markets that policy response can either exaggerate the problem or give us a completely different problem,” Tinker said. “I don't think any investor is going to jump in right now.”
Thirdly, the most important factor for most international investors is the currency, and they want to see some foreign exchange stability, he noted.