The new fashion of Asia stock connects

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With the Taiwan - Singapore now on track for year end, we are seeing a tremendous uptick in cross-border trading efforts, but instead of M&A, exchanges are focusing on trading links

With the exception of the Tokyo and Osaka stock exchange merger in 2013, there have been very few Asia Pacific exchange mergers or buyouts and no cross-border acquistions in the past decade. Every since the Australian government's fairly vocal rebuff of the Singapore Stock Exchange's attempted merger with the Australian Stock Exchange in 2011, M&A seems to have fallen out of fashion in Asia despite global exchange M&A activity.  

M&A has been replaced with Stock-connects. Why struggle with all the regulatory requirements when you can just make a simple (cough...) connection? The ASEAN link has already been up for a couple of years. The HK-Shanghai connect was launched to big fanfare at the end of last year. The HK-Shenzhen connect seems to be on the cards for later this year and now the announcement about the Taiwan-Singapore connect.

But is there value in these links?

The success of the links seems to be varied. The HK-Shanghai connect started off slowly with mainly speculators and hedgefunds coming across. Volume is increasing gradually, certainly spurred on by the continued run-up of the Shanghai market. The driver behind the mutual market access program (another name for the HK-SH connect), despite what anyone might say, was the mainland government's desire to re-invigorate the mainland market, which had been struggling. So certainly there is value at least for them and the mainland brokerages, which had another stellar year in 2014

Setup in 2012, the ASEAN trading link also appears to be getting rather ho-hum results. Indonesia and the Philippines both made comments that essentially indicated that they were in no rush to join the link. 

Still, the Singapore - Taiwan link illustrates how governments and regulators see trading links as a way forward. With differing laws, regulations, cultures and economic outlooks, maybe they are the right way to go. Watch this space, as 2015 should be replete with additional linkages. 

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