A MOVE BY THE MAIN GLOBAL INDEX providers, namely FTSE, Dow Jones and MSCI, to provide free-float weighting to stocks will lead to massive movement of portfolio funds between countries, with implications for global economies, investment banking giant ING Barings has warned.
Stocks with large market capitalisation and small free-floats (where few shares are available to institutional investors) will see their weighting reduced considerably within the free-float index, as the number of shares in some companies are reduced by up to 75%, the bank predicts.
ING Barings, in a recent statement, says funds will be required to alter their positions significantly at or near the index rebalance, leading to large price movements on markets as portfolio holdings are re-weighted to reflect the changes.
Thanks to the large number of stocks available to international investors, ING Barings forecasts that the United Kingdom will be one of the main beneficiaries of resultant cross-border portfolio flows with the potential influx of US$115 billion worth of funds.
The bank says this will have a bullish effect on the pound, which will help to lower inflation and thereby ease upward pressure on interest rates.
Due to very high levels of corporate cross-holdings, Japan will be the main loser from a move to free-float indices, with the outflow of US$122 billion of funds. This may depress the yen, easing one of the threats to Japan's economic recovery, ING Barings warns.
It says sector representation within global indices will also be affected, as some sectors hold a large proportion of over-weighted stocks.
The bank forecasts a reduction in telecom services stock weighting, while other sectors, such as oil and gas and pharmaceuticals will see their weightings revised upwards.
Treat For Taiwan Traders
TradeCard, an online network that enables buyers and sellers to conduct international trade transactions over the Internet, has signed an agreement with First Commercial Bank to provide Taiwan's TradeCard members access to export financing.
First Commercial Bank will offer TradeCard services to its customers as an alternative to current international trade payment mechanisms, such as the letter of credit or open account. The bank's customers will have access to online trade-financing solutions and transaction status and data accessibility, enabling the Taiwanese trading community to increase efficiencies, receive payment guarantees from overseas buyers, and expand the global reach of their business.
An alternative to traditional paper-based and labour-intensive trade settlement methods that require buyers and sellers to operate offline, the TradeCard system enables importers and exporters to complete their entire transactions online through a secure network. TradeCard's patented compliance engine checks that actual shipment data matches the original purchase contract data agreed upon by the buyer and seller. Once compliance is met, funds are electronically transferred from the buyer's account to the seller's account.
In order to use TradeCard's patented transaction system, buyers and sellers must first become approved TradeCard members. To begin a transaction, the buyer creates an electronic purchase order. TradeCard then notifies the seller that there is a purchase order pending for review. The buyer and seller can further negotiate the purchase order online. Once they agree to the terms, both buyer and seller authorise the purchase order with digital signatures. TradeCard stores the approved purchase order in its database. Once the goods are shipped and the required documents are electronically submitted, an assurance of payment is attached to the purchase order, ensuring that the seller will receive payment upon receipt of goods if terms are met. TradeCard then compares the data from the electronically submitted shipping documents to the original purchase order. Once compliance is met, payment is transferred electronically from the buyer's financial institution to the seller's.
A Pioneering Way To Raise Capital
CENTRE SOLUTIONS (BERMUDA) HAS entered into an innovative surety arrangement with Pioneer Export Funding involving US$125 million in secured floating rate notes.
Pioneer Export Funding is a special purpose vehicle established by Asia Pulp and Paper. Essentially, the deal involves APP securitising its present and future trade receivables to raise additional working capital. Centre's role is insuring the timely payment of scheduled interest and principal when due for the notes, which are issued by Pioneer Export Funding. The notes have a final maturity of five years and an average life of four and a half years. Standard & Poor's and Moody's have rated the Notes Aa3.
David Wasserman, CEO of the Centre Group, says: "This deal shows that Centre Solutions' customised structured credit-enhancement insurance can be used to protect investors even in difficult environments such as Indonesia."
Bryan Bowers, head of Centre's Asian operations adds: "Asia Pulp and Paper is a world-class pulp-and-paper company whose major operations are in a country beset with various economic and political problems. We at Centre Solutions specialise in helping companies in unfavourable positions access capital."
This is the second deal of this nature that Centre has struck with Asia Pulp and Paper. At the end of last year, Centre entered into a similar arrangement with APP involving financing of a similar size.
Centre Solutions Group, a member of the Zurich Financial Services Group, provides a full range of customised insurance, reinsurance, structured finance and risk-management programs. Centre has offices in Bermuda, Dublin, Hong Kong, London, New Jersey, New York, San Francisco, Sydney and Zurich. Centre reported US$1.1 billion of capital and surplus and US$4.6 billion of total assets as of year-end 1999.
Asian Success For Debtdomain Spurs European Launch
Asian success for debtdomain spurs European launch.
Following its launch in Asia in June this year, debtdomain (www.debtdomain.com), has introduced its online marketplace dedicated to the trading of secondary market loans in Europe. CEO Sean Tai says the site allows banks, funds and other financial institutions to buy and sell loans faster, more efficiently and at a lower cost.
The European market for secondary loan trading is estimated to be in the region of US$40 billion in 2000 and is projected to reach US$150 billion by 2005.
Since its Asian launch, debtdomain has signed up more than 70 registered members representing more than 25 financial institutions, and has loans posted for sale on its site.
Tai says: "We are launching at a time when the loan market is undergoing a period of fundamental change. Banks are being urged to actively manage their loan portfolios in order to increase shareholder and capital returns, and to better manage the credit-risk profile of their portfolios. Primary market deals in Europe have increased to more than US$400 billion (January to September 2000)."
Chris Chen, executive director of debtdomain's Hong Kong operation says the Asian and European secondary loan markets are similar in that both are dominated by banks. "In North America, however, around 50% of the secondary loan market volumes are due to the participation of non-bank financial institutions, such as institutional funds, which are very active."
Chen says both the Asian and European loan markets use English law-based documentation, while the US loan market uses New York law-based documentation. Finally, the Asian and European loan markets are more fragmented, less liquid and smaller than the North American loan market. Growth potential is much greater in Asia and Europe."
With debtdomain, buyers and sellers will be able to obtain detailed information on a large pool of loans on offer, plus access to historical prices 24 hours a day, seven days a week. Financial institutions must first register with debtdomain before using the site. Buyers can then use the data search and processing tools, review asset-specific information, or request information from sellers without revealing their identities.
Tim Skinner, executive director of debtdomain and head of the London operation, says: "We hope to encourage a level playing field for all institutions, be they large or small, since no additional investment or budget is required to use the site."