While fixed income trading activity in Europe and the US slowed in 2010 due to a lack of conviction among institutional investors about the strength of the global recovery, the Asian market retained its strength, with trading volumes equalling and even surpassing last year’s levels. This sustained strength and prospects of future growth are sparking intense competition among sell-side organisations – many of which are making significant investments to expand their Asian fixed income franchises.
“Fixed-income dealers that scaled back their activities in Asia during the crisis in 2008 and 2009 are coming back, firms that remained committed to Asia throughout are redoubling their efforts, and domestic Asian players are moving to step up their games to compete with global dealers,” said Greenwich Associates consultant Tim Sangston.
The increased competition among fixed income dealers is already chipping away at the market share gains achieved by a handful of the largest dealers in the Asian region during the global market crisis. As in other parts of the world, institutions looking to protect themselves during the crisis consolidated trading business with banks viewed as having the strongest balance sheets and posing the lowest levels of counterparty risk. As a result, the share of Asian fixed income trading volume held by the region’s top 10 dealers increased to a recent high of 58% in 2008-2009. Over the past 12 months, that share has fallen back to 56%.
At the same time, the standard deviation among the individual market shares of dealers ranked in the top 10 declined by 15% from year-to-year, indicating a reduction in market share concentration even within the ranks of the top 10 as trading volumes moved away from the top two or three dealers to the rest of the firms in this group.
“About a half dozen dealers achieved significant gains in market share from 2009 to 2010,” said Greenwich Associates consultant Abhi Shroff. “Two factors contributed to this success: the natural return of institutional allocation patterns to more normal levels as concerns about counterparty risk subsided; and the fact that these dealers were competing hard for business.”
Dealers are gaining spots on institutional trading lists and winning market share by competing aggressively for business. “Firms outside of the very top ranks are being extremely competitive in their pricing to ‘buy’ market share and dealers across the board are adding resources to better cover more clients and products,” said Sangston. “It’s the definition of a buyer’s market, and institutions should be taking full advantage to secure the best pricing, most intensive coverage and the highest quality service and product in research, e-trading, analytics and other areas.”
Domestic Products, Local Dealers
Asia’s domestic dealers are capitalising on the recent growth in local currency bond products to expand their own presence in regional fixed-income markets. Domestic currency bond products made up about 40% of total Asian fixed income trading volume from 2009-2010 – a slightly lower share than reported in the volatile period of 2008-2009, but one that still reflects the significant growth and maturity of these local markets over the past five years.
Over the past 12 months, Asia’s domestic fixed income dealers have captured a growing share of this business. From 2008-2009, local Asian dealers captured 40.4% of trading volume in domestic currency products. In 2009-2010 that share increased to 44.4%. Local players are particularly strong in the largest Asian country markets. In China, local dealers capture 87% of domestic currency product trading volume; in India local firms hold 48%.
Greenwich Leaders: Asian Fixed Income
Every year, Greenwich Associates names leaders in market share on an overall basis and in the major Asian fixed income product categories.
In 2010, Deutsche Bank achieved a market-leading share of 10.5% of overall Asian institutional trading volume in cash bonds and derivatives, followed by HSBC (8.4%), Citi (7.9%), Standard Chartered Bank (5.6%), Barclays Capital (5.1%), and JP Morgan (4.9%). These firms are the 2010 Greenwich share leaders in overall Asian fixed income.
HSBC is the 2010 Greenwich quality leader in Asian fixed income sales and Asian fixed income research, and the firm joins Standard Chartered Bank as Greenwich quality leader in Asian fixed income trading. Greenwich quality leaders are firms that have distinguished themselves by receiving quality ratings from institutional clients that exceed those awarded to competitors by a statistically significant margin.
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