New year cheer: UK financial services leaders upbeat for first quarter

Business leaders in the financial services sector are optimistic about moving into 2024, according to new research from KPMG UK. The survey of senior executives working in the sector found that 87% are “confident” in overall business growth in the first quarter of 2024, supported by a buoyant outlook on profitability for the quarter (83%).

Those working in banking, asset and wealth management are the most optimistic about business growth in Q1 of next year (89%), followed by insurance executives (79%), who continue to face challenges with reinsurance capacity and supply chain inflation.

While a majority (61%) have a broadly positive outlook for the UK economy going into 2024, more than half (56%) believe inflationary pressures will still pose the biggest challenge for their business in the first quarter. This is followed by 46% citing interest rates as the most pressing challenge. While more than a third (37%) believe cost pressures will be their biggest issue, 85% are confident they can manage business costs, such as rising energy bills, throughout the quarter.

Despite ongoing political uncertainty and ongoing conflicts worldwide, geopolitical risks were ranked lower than economic concerns, with just 21% believing this will pose the greatest challenge to their business in the first quarter.

While most leaders (73%) across financial services are confident that the UK can maintain its position as a global financial centre over the next three years, perspectives vary between different parts of the sector. 84% of banking executives are confident that the UK can maintain its position. Still, more than half (53%) of insurance executives are not, followed by more than a third (37%) working in asset and wealth management.

Executives point to reducing regulatory pressures, tackling inflation and interest rates, and overhauling the tax system as crucial areas to address to help the country maintain its position as a leading financial centre.

While most executives (79%) are confident that they can hire the skills they need in the first quarter of next year, recruiting and retaining talent and boosting skills are among the biggest workforce investment priorities in 2024. These are followed by improving employee mental health and wellbeing and accelerating diversity and inclusion programmes.

 

Scrutinising top market structure trends for 2024

In 2024, global financial markets will continue to be reshaped by powerful changes in market structure, according to a report released by Coalition Greenwich. The report examines 10 of the most significant market structure trends they will watch this year. Three notable inclusions on the list are:

- US regulations must speed up or die ahead of elections. The report notes that if Chairman Gensler believes his time in office is limited, he may be more inclined to swiftly push through aggressive reforms, understanding that his successor may be less likely to implement them. On the other hand, if he sees a longer runway after the presidential election, he may adopt a more measured and cautious approach to secure industry consensus or buy-in for his proposals.

- The exchange buying spree continues. Exchanges are having an identity crisis, according to the report, with every major global exchange increasingly shifting their revenue mix away from matching buyers and sellers and more toward - well - almost everything else. LSEG is now a global data powerhouse. ICE is modernising the US mortgage market. Nasdaq is in the risk management business. MarketAxess and Tradeweb both bought algo providers. This year will bring more mergers and acquisitions as the sector reshapes itself.

- Buy, build and integrate replaces buy versus build. The “buy, build and integrate” approach will continue to gain traction as both buy- and sell-side firms combine pre-built platforms with proprietary technology systems. Even larger firms that have often built fully proprietary systems are increasingly considering integrating specialised third-party platforms due to their cost-effectiveness and functionality. This approach will become increasingly popular in 2024 due to its ability to provide a middle ground, leveraging a pre-built foundation that can be expanded and tailored through additional development or integration with internal systems.

“There is no new normal,” said Kevin McPartland, Head of Research at Coalition Greenwich Market Structure & Technology. “Technology innovation, the roll-out of new regulations and the development of new trading solutions and business models will continue transforming the infrastructure that supports global financial markets in the year ahead.”

 

Securities lending revenue hit US$10.7bn in 2023

The global securities finance industry generated US$10.7bn in revenue for lenders in 2023, according to DataLend, the market data service of fintech EquiLend. This is a record high since DataLend began recording annual revenue a decade ago. The total represents an 8.6% increase from the US$9.89bn lenders made in 2022 and a 16% increase from 2021’s US$9.28bn.

Global broker-to-broker activity, where broker-dealers lend and borrow securities from each other, totalled an additional US$2.86bn in revenue for 2023, a 4.4% increase from 2022.

According to DataLend, the increase in lender-to-broker revenue was primarily driven by strong borrower demand for equities in North America and APAC, which saw a US$492m and a US$228m increase in revenue, respectively. A 9.6% increase in fees to borrow North American equities and an 11.3% increase in on-loan value for Asian equities drove global equity lending revenue up by 8.2% year-over-year. EMEA equity lending revenue fell by 8.1% as a 19.3% drop in loan value offset a 14.4% increase in average fees to borrow.

A 25.3% increase in fees to borrow corporate debt resulted in a breakout year for the asset class. Lending revenue rose 31% year-over-year to US$915m.

The five securities earning lenders with the most revenue in 2023 were AMC Entertainment (AMC), followed by Sirius XM (SIRI), Beyond Meat Inc. (BYND), Lucid Group (LCID) and Nikola Corporation (NKLA). The five securities generated US$1.1bn for lenders throughout 2023, a significant increase from the US$769m generated by 2022’s top five earners.

 

Hong Kong IPO market will gradually stabilise in 2024 - PwC

IPO fundraising in Hong Kong slowed significantly through 2023, according to research from PwC. Total fundraising in Hong Kong was HK$46.3bn, a year-on-year decrease of 56%. PwC predicts that capital markets will stabilise despite the adverse effects of global political and economic uncertainties due to reductions in bearish factors and a substantial demand for corporate development financing. In addition, with the end of the rate hike cycle and the possible beginning of interest rate reduction in the second quarter, capital from Europe, the US, and the Middle East is expected to return to Asia, increasing market liquidity and improving valuations. PwC expects that total funds raised for the full year of 2024 in Hong Kong will rebound and reach over HK$100bn.

There were 73 IPOs in 2023 – a year-over-year decrease of 19%. These mostly comprised retail, consumer goods and services (29%), followed by industrials and materials (22%), healthcare (16.5%) and information technology and telecommunications services (16.5%). Thirteen of these companies raised HK$1bn or more in funding. Two companies were listed by introduction on the Main Board, while three GEM Board listings switched to the Main Board without any funds being raised.

H-share companies listing for the first time on the Main Board decreased from 26 in 2022 to 25 in 2023. Companies listing on the Main Board for the first time rose from 29% in 2022 to 34% in 2023. H-share listings raised more than HK$16.9bn in 2023, accounting for 36% of total funds raised in Hong Kong, representing a year-over-year decrease of 41%.

PwC forecasts that 80 companies will be listed in Hong Kong in 2024, with total funds raised reaching over HK$100bn, and for Hong Kong to return to the top three global financing markets in 2024. The implementation of the new Chapter 18C listing regime will help connect specialist technology companies with international funds, bringing new opportunities to technology companies and the Hong Kong stock market, further promoting the long-term development of the entire technology industry. At the same time, the Stock Connect mechanism holds great potential, particularly with further anticipated expansion. This will strengthen the investor base of the Hong Kong and the Chinese mainland market and enhance liquidity and valuations. The Hong Kong government and other stakeholders are committed to reforming and improving listing regulations. Other reforms, including the GEM and FINI platform and active efforts to seek cooperation with the Middle East and ASEAN, will gradually yield results. These will contribute to a more diversified Hong Kong IPO market.

 

US common indicated dividend payments up US$13.7bn in Q4 2023 

S&P Dow Jones Indices has announced that the indicated dividend net changes (increases less decreases) for US domestic common stocks increased US$13.7bn during Q4 2023, compared to a US$8.8bn increase in Q3 2023 and a US$14.6bn increase in Q4 2022. Increases were US$17.5bn versus US$18.0bn for Q3 2023, and decreases were US$3.9bn compared to US$9.2bn in Q3 2023.

For 2023, the net dividend rate decreased by US$36.5bn, compared to the net US$68.2bn for 2022. Increases were US$65.1bn versus US$82.5bn, and decreases were US$28.6bn compared to US$14.3bn.

“The number of dividend increases slowed in the fourth quarter as companies appeared to be more cautious when committing to them,” said Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices. “As markets moved higher, and interest rates were seen near or at their peaks, dividend decreases significantly declined.”

Silverblatt continued: “Given the uncertainty surrounding the economy, interest rates potentially at or near their highs, and the belief that the Fed may start to reduce rates in the first half of 2023, the higher-for-longer approach from companies is expected to continue. This would result in a more cautious level of dividend commitments going forward. For 2024, the dollar aggregate of dividends is expected to increase once again. Absent an economic or geopolitical event, S&P 500 large caps appear to be weathering volatility better, as the index is expected to post its 15th consecutive year of dividend increases. In addition, the index is also expected to log its 13th consecutive record year, with a 4.5-5% increase in payments for 2024, compared to its 5.1% increase in 2023 and its 10.8% increase in 2022. Overall, companies will likely remain cautious in 2024, as they consider both consumer and government spending and also any impact to the political environment.”

 

Bosera USD MMF launches at ICBC (Asia)

Industrial and Commercial Bank of China (Asia), a licensed bank incorporated in Hong Kong, has onboarded the Bosera USD Money Market Fund (MMF).  The bank is one of the domestic systemically important banks (D-SIBs) in Hong Kong. In a statement, Bosera International said that combining ICBC (Asia)’s strength in customer base, risk management and control, asset management scale and structure, Bosera USD Money Market Fund focuses on capital liquidity.

The global market has been volatile, and investor demand for defensive assets has increased significantly. Bosera USD Money Market Fund aims to provide relatively stable returns by mainly investing in a portfolio of USD-denominated high-quality short-term deposits and money market instruments. 

Bosera USD Money Market Fund supports daily redemptions, providing investors additional flexibility when making asset allocation decisions. At the same time, the minimum investment is as low as US$13. It claims this fund is a relatively low-risk investment product compared with equity and bond funds. For investors who want to avoid market risks, this fund aims to achieve a return in USD in line with the prevailing money market rate, allowing investors to use funds more efficiently.

“Bosera USD Money Market Fund hopes to provide one more choice for customers with USD liquidity management needs,” commented Jonathan Wan, Deputy Head of Retail Banking & Wealth Management Department of ICBC (Asia). “Its flexible investment strategies and T+0 transaction settlement model will bring customers more diversified investment choices and experiences, and continue to provide better wealth management services.”