How Australian investors should navigate Asia's fintech race

It appears that the adoption of technology not only increases efficiencies, it also stokes competition. That’s what is being seen across Asia as the new arms race accelerates, in attempts to dominate digital, computer and financial trading systemic architectures.

Last week the Monetary Authority of Singapore (MAS) announced a subsidy package for British-domiciled XTX Markets Limited to set up and provide foreign exchange market-making services out of Singapore. This incentive is thought to be part of the $S225 million ($236 million) plan to fund technology and innovation in the financial industry based on the small south-east Asian island.

In efforts to attract big-volume players such as hedge funds and high-frequency traders, the Singaporean government needs to persuade companies to build their expensive systems and data centres in Singapore. Foreign exchange market making, such that XTX Markets facilitates, is imperative to such ambitions.

Even though increased competition in services often benefits investors, Australian ultra high net worth regional investors remain wary of this recent spate of incentivisations by regional competing markets – such as those found in Taiwan, Hong Kong, Tokyo and Shenzhen. This is because they got burned the last time technology arms races ramped up across regional Asian trading centres in late 2002 and until Christmas of 2004. Once realistic market conditions set in, it was the end clients (many of whom were domiciled in Australia, and specifically Sydney) who ultimately paid the largest costs of these expensive trading systems.

Australian financial services franchises that relied on the tech boom then withdrew, moving instead back to Europe, North America or Japan.

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Source: How Australian investors should navigate Asia’s fintech race