FTSE Russell to rev up in Asia-Pacific

This article first appeared in The Edge Malaysia Weekly, on April 26, 2021 - May 02, 2021.
FTSE Russell to rev up in Asia-Pacific
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FTSE Russell will be stepping up its activities in Asia-Pacific, including Malaysia, having had its footprint and employee headcount enlarged significantly following the recent merger of its parent company London Stock Exchange Group plc (LSEG) with Refinitiv Holdings Ltd.

A global index leader that is wholly-owned by LSEG, FTSE Russell provides benchmarking, analytics and data solutions for investors. An estimated US$16 trillion (RM65.7 trillion) of funds is benchmarked to its indices.

“Before the merger, we [LSEG] had ­400-plus people across eight offices in Asia-Pacific. Now, with the combined LSEG-Refinitiv businesses since Feb 1, we have 14,000 employees. Hence, we expect our activities to increase now that we have grown in size and footprint,” Jessie Pak, managing director of FTSE Russell, tells The Edge in an online interview. Pak is also LSEG’s head of investment solutions for Asia-Pacific.

LSEG’s 14,000 employees are spread across six market groupings, namely Japan, North Asia, Asean, the Pacific, China and South Asia. Headcount is highest in India, Asean (the Philippines, Thailand, Singapore and Malaysia) and China.

“Our footprint in Asean is certainly much stronger now. LSEG as a group now has around 300 staff in Malaysia,” says Pak, who is based in Hong Kong.

LSEG completed its acquisition of Refinitiv, a global financial data and analytics provider, on Jan 29 in an all-share transaction for a total enterprise value of US$27 billion. Observers say the move gives it global scale as it looks to meet rising demand for data and analytics around the world, competing with the likes of Bloomberg LP.

Refinitiv shareholders, which include Thomson Reuters and a consortium of investment funds, currently have about 30% economic interest and 22% voting interest in LSEG, according to latest news reports.

LSEG, a leading global financial markets infrastructure and data provider, operates under three business units, namely data and analytics, capital markets and post trade.

“Within data and analytics, we serve customers across five businesses: these are the trading and banking solutions, investment solutions — under which FTSE Russell sits, the wealth solutions, the risk solutions, and the fifth is enterprise data solutions,” she explains.

“The investment solutions business is basically about providing investment solutions to our clients, covering portfolio management, investment research, data, analysis and also the indices.”

Pak says the two key areas of growth she sees for FTSE Russell in Asia-Pacific are in tailoring solutions for local markets based on its capabilities in multi-asset indices, and in tapping growing interest in sustainable investments. “These are the two things we are closely working on this year and probably going into 2022.”

In Malaysia, FTSE Russell is looking to work further with Bursa Malaysia Bhd, having already partnered the latter on the FTSE Bursa Malaysia Index series.

“Yes, we are actually working with Bursa Malaysia to look at some other offering, in line with the growing focus on climate change and green economy in Malaysia. However, we do not have a timeline for this because we’d really like to look at the way the whole ecosystem works, and not just how one would ‘weigh in the index’, and also how to get buy-in from institutional clients,” Pak shares.

Its existing indices with Bursa Malaysia include the benchmark FTSE Bursa Malaysia KLCI, the FTSE4Good Bursa Malaysia Index and a shariah-compliant suite of indices.

Malaysia’s removal from WGBI watchlist

On March 29, FTSE Russell announced that it would remove Malaysia from its watchlist of possible exclusion from the World Government Bond Index (WGBI) and retain the country in its widely followed index.

The removal came as it saw that Bank Negara Malaysia had progressively been taking steps to address foreign investors’ concerns on the accessibility of the Malaysian government bond market.

“A big aim of what we’re trying to do is make sure that there are no surprises in terms of any decisions we come out with. So, we try to make sure that there is proper engagement before, during and after [a decision is made]. We did that, obviously, with Malaysia,” says Tim Batho, FTSE Russell’s senior index policy strategist.

Engagements with Bank Negara had been “positive”, he adds.

The WGBI is a widely used benchmark that includes sovereign debt from over 20 countries. A member of the WGBI since 2007, Malaysia was placed on the watchlist on April 15, 2019. The country could have faced a multi-billion-ringgit outflow from the local bond market had it been excluded from the WGBI.

Batho estimates that between US$2.5 trillion and US$4 trillion of investment funds track the WGBI. Malaysia’s weighting in the WGBI, at 0.39% currently, will fall slightly upon China’s inclusion into the index in late October.

Asked if FTSE Russell had remaining concerns about Malaysia, he says: “Well, if we still had specific concerns, then we would have mentioned those and addressed them with the [regulator].”

“It was obvious from our interaction with Bank Negara that it was not just doing what was needed to fulfil our fixed-income country classification criteria … it had ambitions beyond that, to improve the accessibility of the Malaysian market. And the momentum of the initiatives that it was undertaking had further life in them.

“For example, the Debt Management Office [set up in May 2019] is at a relatively embryonic stage. The physical settlement of the Malaysian Government Securities (MGS) futures has now only been through two settlement cycles. There are things [for which] we could have stood back and said ‘well, we haven’t seen sufficient practical evidence’, but at some point in time, you have to make a decision. We reflected the progress back to our advisory committees, and they felt that the momentum and nature of the improvement programmes were very positive, so that’s why the decision [to remove Malaysia from the watchlist] was taken at the time it was taken,” he explains.

Malaysia seems to be moving in the right direction, based on its initiatives so far, Batho says. “It just needs to keep its foot on the accelerator and keep pushing on to ensure that it follows through on them.”

Bank Negara’s initiatives have included improving secondary-market bond liquidity through significantly more reopenings this year of MGS issuances; a commitment to switch, as needed, illiquid bonds out and replace them with more liquid bonds; making more MGS available via repo, thus facilitating a marked increase in trading volumes; and introducing physical settlement of MGS futures.

 

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