Until now, Mainland China has been fuelling the bond market established at the end of 2018. However, there is a need to diversify and attract new investors
Macau Business | April2024 | Special Report | Modern Finance
Let’s travel to 2019, the first year of full operation of Chongwa (Macao) Financial Asset Exchange Co (a.k.a, MOX): there were 17 bonds issued/listed on the new exchange platform, worth MOP.40 billion, but only 5 were locally issued (MOP5 billion).
Let’s journey back to 2019, the first full year of operations for Chongwa (Macao) Financial Asset Exchange Co (MOX): Back then, 17 bonds were issued/listed on the new exchange platform, amounting to MOP 40 billion, with only 5 being locally issued (MOP 5 billion).
Fast forward to the 2022 numbers (the latest available in the AMCM annual report), and the growth is nothing short of remarkable: a total of 156 outstanding bonds were issued or listed, boasting a global value of MOP 352.8 billion. The cumulative number of bonds issued or listed in Macau reached 178 (of which 22 have matured), equating to a total value of MOP 392.4 billion. Throughout 2022, 81 bonds were newly issued or listed, predominantly denominated in United States dollars (USD), renminbi (RMB), and Hong Kong dollars (HKD), with a total outstanding value of MOP 116.8 billion.
In January of this year, the Macao Central Securities Depository and Clearing Limited (MCSD), established in 2022, announced that the volume of securities it held in custody had reached almost MOP 95 billion (US$11.9 billion).
“Given the competition for financial investments and capital from nearby jurisdictions, it is up to the government to give enticing incentives to woo potential investments from proximate markets to that of Macau” – Emil Marques, USJ lecturer
What brought about the transformation in Macau after 2018, when bond issuances were not on the radar?
The explanation is straightforward: China progressed from mere discourse to concrete actions, decisively contributing to the establishment of a securities market in Macau. Given the formidable competition from Hong Kong and Shenzhen, creating a stock market was deemed unfeasible. Instead, the bond market emerged as a viable alternative, one that China, almost single-handedly, could propel forward. Whether at the central level (through various ministries), provincial level, or even involving state-owned enterprises, it is China that is spearheading the development of the bond sector, compensating for Macau’s limited capacity to attract investments from elsewhere.
“I believe companies would look at the reach of the bonds in terms of client base, liquidity of the market, and government policy. Since the financial bonds market is only considered a nascent industry within the context of Macau, it is likely to have the support of both local and regional governments,” states financial expert Emil Marques from the University of Saint Joseph (USJ) to Macau Business.
The Monetary Authority has already realised this and has made an internationalisation effort in recent years, in conjunction with the MOX operating company (from the state-owned Nam Kwong group). And while the first ‘Securities Law’ in Macau does not arrive, whose aim is ‘to establish a legal system that promotes efficient market operation, aligns with international standards, and increases investors’ confidence in the Macau bond market,’ according to the explanations of AMCM revealed to Macau Business, the Monetary Authority highlights the launch of the bond repurchase operations, as well as the Monetary Bills and Notes Trading System, ‘creating conditions for the revitalisation of the secondary market for monetary bills.’
The AMCM has also deployed a series of preparatory work for ‘linking up the Macau bond market with the international market.’ This included a joint visit with MCSD to two International Central Securities Depositories headquartered in Europe last April. ‘They are actively benchmarking international standards to optimize MCSD, with the expectation of attracting more foreign institutions to participate in the investment and financing business of the Macau bond market, thereby expanding the market scale.’
Macau’s bond market “is supported by China, making it an attractive destination for Chinese investors looking to diversify their portfolios” – António Tam and Jacinto Wong, MdME
“Therefore, I believe Macau has positioned the bond market in the right direction. Given the competition for financial investments and capital from nearby jurisdictions, it is up to the government to give enticing incentives to woo potential investments from proximate markets to that of Macau,” explained Emil Marques, who served for eight years in the Financial Services Bureau of Macau.”
Macau Business also spoke with two experts from the law firm MdME regarding this matter. António Tam and Jacinto Wong believe that issuing bonds in Macau can benefit companies worldwide. Firstly, because Macau’s bond market “is supported by China, making it an attractive destination for Chinese investors looking to diversify their portfolios,” which will allow it “to have access to this investor pool and attract capital from Chinese investors. This expands their potential funding sources and increases the visibility of their bond offerings.” On the other hand, Macau’s bond market allows issuers to denominate their bonds in different currencies, including the Chinese Yuan, which “provides an opportunity to diversify their currency exposure. It allows them to access the Chinese currency and manage their associated risk with fluctuations in their domestic currency.”
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