In a sign of the growing links between Asia ex Japan and Australia, CLSA and Macquarie yesterday announced a co-operation agreement covering equity research, equity sales and trading, and corporate advisory work. It will see the two firms work together but not take any equity stakes in each other.

The move comes as CLSA seeks to fill out its coverage of the whole of Asia having retreated from its Eastern European and Latin American operations earlier in the summer. For Macquarie, it is the latest in a series of JVs and co-operation agreements that the firm has under taken to expand its sphere of influence outside of Australia and New Zealand, where it dominates.

The specific terms of the agreement covering research will see the two firms co-operate but not merge their two houses' research departments. Indeed, Macquarie has a small Hong Kong based equity research team of five analysts which will remain intact. According to officials at both banks, the agreement seems to be limited to data sharing, for the moment.

It is in the executiion area that this move is perhaps the most significant. CLSA has agreed to transact Asian equity trades for Macquarie's clients in all the Asian markets where it has seats on exchanges, while Macquarie will do the same for CLSA clients in Australia and New Zealand. Key to this is the level to which institutional investors run their Asian portfolios as one rather than having separate funds and practices for Asia ex-Japan, and Australia/New Zealand.

"Some 50% of the Australian market is international money," says John Coultas, head of equities in Asia for Macquarie. "A big chunk of that comes from global accounts who manage their money on an Asia Pacific ex-Japan basis. They have a regional perspective covering Asia and Australia."

Commenting on the increasing ties between the two regions, Rob Morrison, CEO of CLSA notes that in 1998 and 1999 the Australian stock market did exceptionally well, due, in part, to an influx of money from global money managers, taking their money out of Asia. "We've realized that we are missing a lot of the potential market cap of Asia by not having Australian and New Zealand coverage," he comments.

This trend is particularly stark in the burgeoning regional hedge fund market, which CLSA has recently made a concerted effort to service. Funds with long short strategies, risk arbitrage or M&A arbitrage strategies are increasingly seeing an antipodean leg to their trades. In this light, the tie up looks like a sensible way to share the costs and the upside of serving both ends of the transactions. "We can get significant leverage from this deal without taking any equity stakes in each other," says Coultas.

Another key to the agreement is that Macquarie will be ousting JBWere from the Australian and New Zealand sponsorship of CLSA's legendary Investors' Forum which is run every year in Hong Kong and China. It will be interesting to see if any of the big name musical acts which CLSA regularly bring to town, will this year hail from down under.

The final leg to the agreement lies in the area of corporate advisory services. At present the terms of this are slighly nebulous and it looks as if the two will be co-operating on a case-by-case and deal-by-deal basis.