Until now, mainland China supplied the bond market created at the end of 2018. However, it remains necessary to diversify and attract new investors.
Macau Business | April2024 | Special report | Modern finance
Let’s travel to 2019, the first year of full activity of Chongwa (Macau) Financial Asset Exchange Co (aka MOX): 17 bonds were issued/listed on the new exchange platform, worth MOP 40 billion, but only 5 were locally. issued (MOP 5 billion).
Let’s go back to 2019, the first full year of activity of Chongwa (Macau) Financial Asset Exchange Co (MOX): at the time, 17 bonds were issued/listed on the new exchange platform, for an amount of 40 billion MOP, of which only 5 were issued locally (5 billion MOP).
Fast forward to the 2022 figures (the latest available in the AMCM annual report), and the growth is nothing short of remarkable: a total of 156 outstanding bonds have been issued or listed, for an overall value of 352, 8 billion MOP. The cumulative number of bonds issued or listed in Macau reached 178 (of which 22 have matured), equivalent to a total value of P392.4 billion. Throughout 2022, 81 bonds were newly issued or listed, mainly denominated in US dollars (USD), renminbi (RMB) and Hong Kong dollars (HKD), with a total outstanding value of 116 .8 billion MOP.
In January this year, the Macau Central Securities Depository and Clearing Limited (MCSD), established in 2022, announced that the volume of securities it held in custody had reached nearly 95 billion patacas ($11.9 billion Americans).
“Given the competition for financial investments and capital from neighboring jurisdictions, it is up to the government to offer attractive incentives to attract potential investments from nearby markets to that of Macau” – Emil Marques, USJ lecturer
What caused the transformation in Macau after 2018, when bond issuance was not on the radar?
The explanation is simple: China has moved from mere rhetoric to concrete actions, contributing decisively to the establishment of a securities market in Macau. Given the formidable competition from Hong Kong and Shenzhen, the creation of a stock market was considered impractical. Instead, the bond market emerged as a viable alternative, which China, almost single-handedly, could advance. Whether at the central level (through different ministries), at the provincial level, or even involving state-owned enterprises, it is China that is spearheading the development of the bond sector, thus compensating for Macau’s limited capacity to attract foreign investment.
“I think companies would look at the scope of the obligations in terms of customer base, market liquidity and government policy. Given that the financial bond market is only considered a nascent industry in the context of Macau, it is likely to benefit from support from local and regional governments,” says financial expert Emil Marques of the University of Saint Joseph (USJ) at Macau Business.
The Monetary Authority has already become aware of this and has led an internationalization effort in recent years, in collaboration with the operating company MOX (of the public Nam Kwong group). And even if the first “securities law” does not arrive in Macau, the objective of which is “to establish a legal system that promotes efficient market functioning, aligns with international standards and increases confidence of investors in the Macau bond market”, according to the explanations of the AMCM revealed to Macau Business, the Monetary Authority highlights the launch of bond repurchase operations, as well as the exchange system of bonds and monetary notes , “creating conditions for the revitalization of the secondary market of monetary instruments.”
The AMCM also carried out a series of preparatory works to “connect the Macau bond market with the international market”. This included a joint visit with the MCSD to two international central securities depositories headquartered in Europe last April. “They are actively evaluating international standards to optimize the MCDD, hoping to attract more foreign institutions to participate in the investment and financing activities of the Macao bond market, thereby expanding the scale of the market.”
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 think Macau has positioned the bond market in the right direction. Given the competition for financial investments and capital from neighboring jurisdictions, it is up to the government to offer attractive incentives to attract potential investments from nearby markets to that of Macau,” explained Emil Marques, who worked for eight years at the Macau Financial Services Bureau.
Macau Business also spoke to two experts from law firm MdME on this subject. António Tam and Jacinto Wong believe that issuing bonds in Macau can benefit businesses around the world. First, 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 pool of investors and to attract capital from Chinese investors. This broadens 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 the opportunity to diversify their currency exposure.” This allows them to access Chinese currency and manage the risk associated with fluctuations in their national currency.
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