To extend from previous article titled "Asset Management Opportunities in Asia". There are currently 3 investment schemes in the Asia region- CIS, ARFP and Hong Kong-China Mutual Recognition. Each with its own features and cross-border schemes involves risks and obstacles and all schemes must avoid overlooking areas that may deter investors. Below are a few potential risks and costs of cross border investment funds as well as concerns and uncertainties.
POTENTIAL RISKS AND COSTS
1. Common risks with cross border funds are shocks in one market will be transmitted to other markets. It will be further amplified if assets are interconnected.
2. Inadequate protection for investors due to regulation oversights on matters such as market efficiency and systemic vulnerability. An institution coordinating the work of different regulators would enhance the process.
3. Nationalism and protectionism are key country risks to some investors with local funds being dominant in markets such as South Korea and Malaysia.
4. Unlike Europe with the adoption of Euro, currency risks especially for volatile Asian currencies will cause investors to take a more conservative approach in investing abroad .
CONCERNS & UNCERTAINTIES
1. Tax arrangements across regions especially Australia's restrictions on offshore funds.
2. Data privacy of investor's information moving between countries with different data protection standards.
3. The demand for cross border investing are not fully quantified on top of competition from domestic players. Investor preferences, risk appetite and quality of investment advice would play a role in increasing the product's commercial feasibility and attractiveness.
4. Securing distribution channels to achieve exposure will be a great obstacle with banks and security houses play a large role in many ASEAN countries.
5. Political uncertainties on the support of the Asian passport affecting its long term strategic direction. High growth countries welcome the influx of FDIs wherelse less developed countries are vulnerable to treats to its domestic firms from international competitions.
COUNTRIES RIGHT NOW
1. Singapore should be well positioned due to its current position as a leading asset management hub with links in multiple programs.
2. Hong Kong should rely on mainland China's existing mutual agreement practices and tap its strategic regional benefits for better coordinations.
3. Other countries should start reviewing its legal structures and existing distribution channels.
4. Firms should identify its target markets, investor groups, and product domiciles and to improve its networks by engaging public opinions and consultants.
5. Asset managers should analyze the costs of adapting existing products to new areas.
