Institutional investors in the Asia-Pacific region are adapting to new market liquidity conditions by strengthening their focus on liquidity constraints, according to State Street.
New research conducted by the company found 52 per cent of APAC institutional investors “believe decreased market liquidity is a secular shift” in the market environment requiring a new strategic approach.
“Regulations stemming from the 2008 financial crisis, coupled with historically low interest rates and slow rates of growth in the global economy have constrained the ability of many US and European banks to perform their traditional roles as market makers, which has impacted broader market liquidity conditions,” State Street said.
While there is not presently a shortage of liquidity across Asia-Pacific, State Street Global Markets head of business for APAC Colin Zhong cautioned that “conditions in developed markets may result in a knock-on effect” in the region.
“Increased regulation and the pressure to manage costs has significantly changed market liquidity conditions,” he said.
“This is causing many players in the investment industry to think again about the fundamentals: what roles they play, where they invest, and how they transact their business.”
State Street said investors were “adapting to this new normal” by focusing their efforts on ways to better measure and report on liquidity risk, maintain exposure to liquid assets, embrace technology and remain vigilant on compliance.
“With liquidity likely to remain at the front of investors’ minds for years to come, now is the time to find the strategies, tools and solutions that will make a sustainable difference in the new investment climate,” said Mr Zhong.
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