Working towards promoting equitable and inclusive growth is necessary for the long-term sustainability of ASEAN. The industry should explore these less penetrated markets through new strategies and strengthened capabilities. Nonetheless, expecting markets to effectively provide for the needs of the underserved may be challenging. Markets, driven by financial motives have a tendency to end up instead widening the disparities in income, equality and socio-economic protection. Intervention or even redistribution becomes a necessary tool to correct this, rebalance societal fortunes to enable the economically worst off to benefit and be co-opted back into the mainstream, as part of an overall social agenda that promotes inclusion and cohesiveness. This goal, of inclusion and cohesiveness, may well be a prerequisite to truly maximising society’s economic potential. Consistent with this is another key initiative in Malaysia that targets the underserved. This is the new insurance scheme for the Bottom 40% households. Supported by pioneering contributions from foreign insurers, a fund will be set up to provide insurance cover for those eligible. They will receive income support if they are diagnosed with critical illnesses or hospitalised. This policy intervention attempts to resolve the market’s inability to provide such protection. Perception out there has been that this segment of the population is uninsurable, or from the perspective of insurers, too risky and likely unprofitable. We are taking a view that this is misplaced, and it will take proof to change this. Currently, we are still finalising the details and targeting the scheme to be fully operational in early 2019.
And from the end of March this year, the majority of new GBP Libor business should have ceased, further shifting demand to those increasingly deep and liquid risk-free rate markets. New sterling floating rate note issuance has almost exclusively referenced SONIA for some time. In the sterling swap market, the share of SONIA-referencing swaps has regularly dominated the Libor equivalent for 10 months now[1], with continued progress since the ‘SONIA-first’ interdealer quoting convention switch last year. [2] Indeed, the dealer to dealer market has completed a transformation in risk traded with SONIA in excess of 70% vs. Libor, with progress across all tenors. If we remove the direct market element and focus on pure inter dealer market, we estimate this is now in excess of 90% SONIA. [3] These positive developments in linear derivatives (e.g. interest rate swaps) have filtered through into more complex derivative markets, with SONIA swaptions, caps and floors widely available and infrastructure being put in place to support these products. Today is a further landmark, with another ‘SONIA first’ initiative as the interdealer market looks to shift liquidity in these more complex non-linear products from Libor to SONIA ahead of the upcoming end-Q2 milestone to cease new Libor linked issuance. [4] This is not to say there is an outright ban on trading Libor in nonlinear sterling markets after this milestone.