Local knowledge and trust are vital in South East Asia, but what has changed since brokers began courting this important region? Well, pretty much everything!
The all important Asia Pacific region has been a priority for many retail FX brokerages and their respective software and market integration vendors for many years now.
Today, the importance of the highly populated region with a vast appetite for online trading is as vital as ever, however things are somewhat different to how they were even five years ago.
Today, live from the Finance Magnates Virtual Summit 2020, senior executives from across the spectrum discuss the methods of understanding how to operate in today’s Asia Pacific region.
Moderated by Lea Wang of PlugIt, the panel featured Tom Higgins, CEO of Gold-i, Gavin Mak of VP Business Solutions, Mario Singh of Fullerton Markets, and Avner Ziv of Zotapay.
“What 2020 brought to us has been a huge challenge” said Ms Wang. “Speaking of the impact to our work, going virtual is one of the main things that has happened, including working from home and going digital. Has the COVID situation affected online trading?
Mr Higgins said “I think it has enormously improved digital literacy. I was having a chat with my 95 year old mother over Zoom yesterday, so indeed people have got used to sitting in front of the screen in all walks of life and therefore accessing things such as online trading. I think that even next year when we can go out again, people have been conditioned to working from home, however some things cannot be done from home. It is very difficult to actually brainstorm and work with the team while at home, however the effect of more digital literacy has changed the industry.”
“I think it will be a long lasting change” he said.
Mr Singh said “I definitely agree. The acceleration of digital literacy has exploded over the last few months. Today if you go online and type the word Ferrari, you’ll see 500 million searches on Google but if you type online trading, you’ll get several billion searches so this has exploded over the last few months.”
“Over recent months, by enlarge everyone has had to stay at home and there are many countries facing second lockdowns, even across Asia. This has driven new clients into trading. The other reason is central bank liquidity. There are so many businesses shutting down, and they’re pumping unprecedented liquidity into the banks to prop up the economy that has been destroyed by the lockdowns, therefore the stay home measures plus the added central bank liquidity has driven people into trading” said Mr Singh.
“There have also been a deluge of online gurus – however I have to say that although these are good marketers, if we do not monitor their credibility, our industry could get a bad name from people trying to make a quick buck rather than help traders genuinely understand the market” warned Mr Singh.
Mr Mak said “Everyone in China has now learned how to use WeChat, and are all becoming far more online centric due to the lockdowns. However, we expected everyone to become immediately accustomed to being online. In Asia, people are still reliant on the IB business model and they have tried to move everything from online to offline, for example having IB seminars via webinar rather than in person. They have simply changed the way of meeting clients to virtual, but I don’t think their mindset is ready to transfer all of these relationships to digital.”
“Definitely the lockdown of the daily activity has made people start looking for things to do when they are confined from home, however, so the direct retail trading area has been boosted, but that is circumstantial rather than anything else” he said.
Mr Higgins said “We have seen a rise in mental health problems because of people being isolated. If people are starting to do more trading and they can’t really afford it or don;t have the experience, then there may well be issues relating to regulators looking at this closely. It does worry me that mental health problems are going unnoticed. In Shanghai, people were stuck in tiny apartments for weeks, which must have been really appalling.”
Ms Wang asked “Which trading tools have gained traction this year?”
Mr Singh said “Probably late February to early April when stock markets were crashing, many traders were going short in terms of the indexes. The Dow plunged 3000 points, so indexes and oil were very volatile. Oil futures were negative in April. Then moving toward the US election, there was a lot of trading on US crosses, FX was being traded very vigorously. Gold pipped above 2000 for the first time in August, too.”
Ms Wang then asked Mr Higgins what trend he saw analytically.
“We see across a lot of brokers so we get a high level picture” said Mr Higgins. “Gold was the largest instrument traded by notional volume since the beginning of this year. It is interesting, especially regarding Asia regarding the digitization of assets. What is happening in China with the digital currency that is being released. I do think we will see more of that in the coming years.”
Mr Mak added “From the brokerage side, that is where the greatest insight into what data has been collated this year, however we think many traders have really gone for gold this year.”
Mr Ziv expanded on the digital asset areas explored this year “What we have seen this year during the COVID lockdowns affecting the workforce, and money was not part of the game here. People did not go from assets into follies like crypto currency. This was predicted, but really it only applied to countries with issues with their own currencies such as Iran or Nicaragua. However you cannot go to the store and use Bitcoin, so this was not a factor for most people faced with the challenges of lockdown. We do, however see more vendors beginning to accept Bitcoin in the traditional mainstream merchant sector but still, it was not a large factor.”
Mr Higgins explained that 10% of Gold-i’s revenues are actually paid in Bitcoin, which is very much a surprising revelation.
Ms Wang then asked what the key regulatory aspects are currently?
Mr Ziv said “Concentrating on what is happening in China, the government is increasing and tightening restrictions and monitoring their citizens with a credit system, understanding that any financial action by citizens will result in credit scoring. This means that people with higher scores will be able to make higher limit transactions and have access to better education and housing. We can see that the Chinese government is trying to limit the use of cash, especially with the new digital currency. They are moving toward AliPay and other digital wallets. IF you go and get a taxi in China, it is becoming increasingly hard to pay with cash.”
“Eventually, I think China will begin to block websites and restrict users that do not go down this route, and therefore it may lead to the influx of digital currency” he said.
“I would never use the digital Yuan” said Mr Mak. “I really like this topic, and from my experience we saw a lot of regulation coming in, and Tom raised an interesting fact that 10% of his revenues are coming from crypto, and I am sure these are from Asia”. Mr Higgins confirmed that to be the case.
“As such we found that this year in China it has been much harder to work on payments, the payment cost is getting higher and higher, and people are trying to move away from keeping their account in RMB and are moving their accounts to digital currencies. This year, the internet sales are getting more serious in China. Payment solutions are changing and people who want to invest still need to find a way to invest despite the inability to meet face to face” said Mr Mak.
“At the end of the day, there are two keywords – capital control” said Mr Singh. “Alibaba and these huge companies are mind boggling. AliPay has 700 million customers and when you talk about the digital Yuan, it is about capital control.”
“It is the opposite of what digital currency was invented for, that being to circumvent the system” said Mr Higgins. “Instead, they’re using it to monitor people and of course some parts of the world don’t like that it is too easy.
“The Chinese government are cracking down on many internet activities including online brokerages. The movement of funds in and out of China by retail brokers is something the Chinese government wants to block. We have seen censorship in the banking transmission system by the Chinese government. The Chinese government can see which websites people are browsing on. What we had to do is to transmit all of our traffic via a license in China to bypass these issues, but for western companies to try with their current infrastructure to broadcast into China and gain Chinese users is very challenging indeed” said Mr Ziv.
“China UnionPay was a viable option for retail brokers but that was stopped a few years ago. Within banking, only the four big banks are allowed to conduct transactions” said Mr Ziv.
Ms Wang said “It’s not just a payment issue, its a technology issue too.”
“There are always constraints getting through the great firewall, and getting an ICP license is hard so many operate around that. We find that not so many brokers are opening in China. Something that will accelerate this is ASIC’s changes. Regulators like to follow other regulators so they don’t appear weak. ASIC has done exactly what ESMA did, so are we going to see many brokers leave Australia and go offshore? I expect so, and it will not go to Europe, it will go to other Asian countries, and I think Singapore will be a definite region for this” said Mr Higgins.
“Tom is absolutely right when he talks about the reduction of leverage. Singapore’s regulations for leverage is 1:20. This is where it juxtaposes the scenario. The regulators are all coming together to drop the leverage, however retail brokers want to be able to market to clients who actually want high leverage. There are clients in Asia which want to run their EAs on high leverage. Therefore if you want to operate in that space, you have to offer lower leverage, but the retail brokers are facing clients that want a higher rate of leverage” said Mr Singh.
“When push comes to shove, the clients don’t want to open up in these regulated areas because they are being hampered by the leverage rules. They want credit bonuses, contests, higher leverage and this is really the kind of mandate for clients in South East Asia” he said.
Mr Mak said “I totally agree. There is a huge difference between client expectations and regulatory actions. From what I see in the Asian market, the regulator will need to come in and see the actual situation in the market and are these rules actually helping traders or making it impssible?”
Mr Higgins said “When the NFA came in with all the strict rules in the US a few years ago, they didn’t really make it better for traders, instead they just ended up pushing it all offshore and then traders in the US had no option of where to trade.”
“Areas of increased activity are places such as Vietnam and Malaysia” said Mr Mak. “Many of the big companies in China have begun leaving, and are rushing into South East Asia. The volume is getting higher all the time.”
“I’ll give that a resounding yes” said Mr Singh. “Looking at South East Asia, the ten countries there have around 600 million people. Four countries account for half of that population, those being Malaysia, Philippines, Vietnam and Thailand. The way to win the game and increase market share in Asia relies on trust and local knowledge. The reason why Uber did not succeed and a local firm did was down to local knowledge.”
“Countries like Vietnam and Thailand like to trade Gold, whereas in Cambodia, US indexes are popular. This type of local knowledge is important. In terms of trust, South East Asia relies on trust. If a broker loses trust, all of the years of what a broker has tried to do has been in vain. Vietnam, for example, has 95 million people and our finding is that Vietnamese traders don’t like the online gatherings. They prefer offline gatherings, therefore when the COVID lockdown happened, Vietnam was a bit quiet. It is an absolute given that market share will grow, but we need to have local knowledge and build trust with people on the ground” concluded Mr Singh.
“We do indeed see many brokers coming out of China and moving into South East Asia” said Mr Ziv. “We do find local brokers with men on the ground in China shutting down their offices and moving to other regions. In South East Asia we can see many well known brokers from not only China but from Europe entering these markets so now it will be a different ball game bceause the markets will begin to experience a different set of challenges in these regions. We see more involvement of the regulators in these regions and we see the increase in Laos, Cambodia and Myanmar and toward some of the smaller regions in the country which have now good internet access, and the point of sale is very small – many do not have a credit card and if they do, they don’t use them, so bank transfer is very much part of the landscape there” said Mr Ziv.
Indeed, the Asia Pacific region continues to be a focus for most brokers, however with these insights we can see the difference between its standing now, and just a short time ago.