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Market compass for Australia
Market compass for Australia
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Market compass for Australia

23/03/2018

Australia, synonymous as the “land of opportunity”, is one of the world’s most multicultural countries and a global leader in agribusiness, education, tourism, mining and wealth management[1]. It is also one of the most desirable travel destinations in the world, with over seven million visitors each year.

The Australian financial market remains committed to ambitious reforms and, since the implementation of T+2 in 2016, has announced several changes. Furthermore, despite the size of its population, Australia is ranked the sixth largest investment management industry in the world and the largest in the Asia-Pacific region at USD 1.6 trillion

Catch the Australian dream

Despite its vast geographic territory (the sixth largest country in land area), its population stands at only 25.1 million, primarily located in coastal, urbanised areas in the south and east (Sydney, Melbourne, Adelaide and Brisbane) and south west (Perth).

Sustaining growth and rebalancing

Having escaped the global financial crisis, Australia has benefitted from more than 26 years of continuous growth, has low unemployment, contained inflation, low public debt, and a strong and stable financial system.

It has become a highly open and competitive economy with close economic links with emerging economies, particularly in Asia. Australia participates actively in various regional initiatives including the Asia Pacific Economic Cooperation (APEC) forum and the Association of Southeast Asian Nations (ASEAN), and has signed extensive free-trade agreements with its Asian and Pacific neighbours as well as the United States and European Union.

Australia’s abundant natural resources attract high levels of foreign investment. It includes extensive reserves of coal, iron, copper, gold, natural gas, uranium and renewable energy sources. Iron ore and coal account for nearly 40% of the country’s exports. The country is also a significant food exporter, benefitting from booming Asian demands. It has also developed a diversified services sector, accounting for about 70% of its gross domestic product and 75% of jobs.

However, the country is still relatively vulnerable to volatility in commodity markets and the Chinese economy, which absorbs one third of its exports. In recent years, Australia has faced a range of growth constraints, principally driven by the fall in global prices of key export commodities.

Australia’s challenge is to maintain development of the non-resource economy, and manage long-term concerns such as an aging population and environmental issues on the driest continent on earth. The federal government committed USD 57.4 billion in infrastructure funding from 2017 to 2027 for investments in rail, road and a second Sydney airport.

Evolution of the domestic market capitalisation and the number of listed companies between 2012 and 2017

Exploring new technologies in Australian financial markets

The Australian financial market remains committed to ambitious reforms and, since the implementation of T+2 in 2016, has announced several changes.

Australian market transformation

The most recent market reform was announced in December 2017 when the Australian Stock Exchange (ASX) announced it would replace its legacy Clearing House Electronic Sub-register System (CHESS) with a purpose-built blockchain-inspired distributed ledger technology (DLT). The ASX is working to develop the new platform with the US fintech company Digital Asset Holdings.

Meanwhile, as securities trading continues to internationalise and the volume of cross-border transactions increases, we are seeing a convergence around particular industry standards. The ASX is among the first exchanges in the world to support ISO 20022, the latest international securities messaging standard for corporate actions using SWIFT global messaging.

In November 2017 the ASX announced BNP Paribas as the first custodian to use the ASX’s new ReferencePoint ISO 20022 Corporate Action service. The new service allows straight-through delivery of corporate actions announcements to BNP Paribas clients within seconds of the announcement being made to the broader market. The ASX service is part of a number of major initiatives in the post-trade space and represents the first step towards a fully automated end-to-end solution, removing many of their inefficiencies that exist in the processing of corporate actions.

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When it rains, it pours ...

The six axes of change

The Australian dollar (AUD)

The Australian dollar is the fifth[2] most traded currency, accounting for 6.9% of the world’s daily trading in the forex markets behind the USD, EUR, Yen and GBP. It is popular due to comparatively high interest rates, and the relative freedom of the Australian foreign exchange market. The Australian dollar also offers portfolio diversification benefits, due to its exposure to Asian economies and the commodities cycle.

A leading investment management market in Australia

Despite the size of its population, Australia is ranked the sixth largest investment management industry in the world and the largest in the Asia-Pacific region at USD 1.6 trillion. It is expected to nearly double to USD 3 trillion in the next 10 years. Furthermore, Australia is the fourth largest market of alternative assets under management and the eight largest forex market.

The strength of Australia’s financial markets reflects the country’s continued economic growth. Furthermore, the importance of the finance industry has been driven by:

  • The mandatory superannuation scheme
  • A growing base of high-net-worth and retail investors
  • A sound investment framework with strong regulations and sophisticated investment products
  • And strong local and international insurers and banks

Recent market changes in Australia

New rules regarding disclosing fees and costs in Product Disclosure Statements (PDS) and periodic statements

The Australian Securities and Investments Commission (ASIC) seeks to increase transparency around investment costs with the implementation of enhanced fee and cost disclosure obligations under Regulatory Guide 97 (RG97). The revised RG97 came into force in November 2015, with the latest revision issued on 29 March 2017. Under RG97, issuers of superannuation products and managed investment products to retail clients must meet certain requirements for disclosing fees and costs in their product disclosure and periodic statements.

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An easier access to Luxembourg UCITS

Australian authorities have implemented various reforms to open and strengthen the local fund industry. In 2016, ASIC and the Luxembourg fund industry signed an agreement allowing Luxembourg managers to distribute UCITS funds into Australia without the need for an Australian financial services (AFS) licence. This change enables Australian institutional investors, including superannuation funds, easier access to Luxembourg UCITS.

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ARFP – the new cross-border funds passport

The Asia Region Funds Passport (ARFP) is due to be launched in 2018 with five countries participating in the scheme: Australia, Japan, New Zealand, South Korea and Thailand. The participating countries will open their mutual fund markets to each other, allowing an asset manager in one country to ‘passport’ its funds into the other participating economies. Research by BNP Paribas Securities Services indicates the ARFP has the potential to boost assets under management by up to 65% over a five year period in the participating countries (source: research by BNP Paribas Securities Services and Cerulli Associates).

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Broadening Asia’s investment horizons

ARFP regulatory memo

A fund passport scheme across the Asian Region

Corporate Collective Investment Vehicle (CCIV)

With the aim of reinforcing the country’s attractiveness to international fund managers, Australian regulators intend to launch a new fund structure, the Corporate Collective Investment Vehicle to coincide with the ARFP launch in 2018. The CCIV regime is expected to bring Australia’s regulatory framework closer to internationally recognisable investment products. It will also lower the barriers to entry for foreign fund managers seeking to operate in Australia and will likely encourage foreign investors looking to invest into Australia. Final legislation is pending following a consultation period ending in January 2018.

Attribution Managed Investment Trust (AMIT)

The AMIT regime was enacted by the Tax Laws Amendment (New Tax System for Managed Investment Trusts) Act 2016. Some of the key features of the AMIT regime include:

  • Introduction of the ability to attribute a non-cash distribution
  • Formal codification of overs and unders
  • Cost base adjustments for capital gains tax (CGT) purposes

BNP Paribas Securities Services in Australia

BNP Paribas provides financial solutions to local and global institutions, corporates and financial intermediaries. Our international network provides Australian clients access to the world, while our local presence supports global clients’ development in Australia and into the Asia Pacific region. BNP Paribas is the oldest foreign bank in the country (established in Australia in 1881) and today has three core businesses: corporate and institutional banking, securities services and asset management.

As a wholly-owned subsidiary of the BNP Paribas Group, BNP Paribas Securities Services is a leading global custodian and securities services provider. Backed by the strength of the BNP Paribas Group, we provide multi-asset post-trade and asset servicing solutions for buy- and sell-side market participants, corporates and issuers.

BNP Paribas Securities Services employs 430 people in Australia and has local offices in Sydney and Melbourne. With 27 proprietary markets, 90+ markets in our global custody network, and local expertise in 36 markets, our network is one of the most extensive in the industry, enabling clients to maximise their investment opportunities worldwide.

We offer a full range of custodial and investment supported services to asset owners, asset managers and financial intermediaries:

List of services provided by BNP Paribas in Australia for its clients: asset managers and asset owners, financial intermediaries and transversal services

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[1]www.austrade.gov.au - key figures

[2]source: Bank of International Settlements

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