 
November 2011
Securities lending market update - Q3 2011  Loading ...
The central characteristics of our Q3 round-up are volatility in the global markets, the continuing uncertainty caused by the European debt crisis and concern with regard to the strength of the economic recovery. All major indexes in the US and across Europe declined as both continents were gripped with a new sense of crisis as they dealt with debt problems and the implementation of austerity programs. Concerns intensified that the eurozone debt crisis would spread beyond its periphery to Spain and Italy. The European Central Bank advised it would buy government bonds in an attempt to reduce borrowing costs while the G7 vowed it would find a solution to restore confidence in the currency. Market regulators placed temporary restrictions on short sales in Belgium, France, Italy and Spain. These combined uncertainties triggered a flight to quality in the securities lending markets. In Europe fixed income inventory increased alongside related demand to borrow government bonds from primary European Union countries such as Germany, France and the UK. While market uncertainty led to lower equity borrowing balancing and short covering, demand continued for directional plays or capital increases including rights or corporate bond issuance. In Canada, easy to borrow “general collateral” balances remained strong and the majority of the top Canadian revenue earners in the third quarter were Dividend Reinvestment opportunities. In Asia, South Korea imposed a three-month short selling ban, stock lending outstanding balances in Hong Kong hit a yearly high, and in Australia a fall in commodities and the dollar resulted in directional interest in the mining and resource sectors. We trust you find this information relevant to your business and, as always, we welcome your feedback. North American markets
Economic indicators & trends Canada: Although Canada has a relatively strong economy it could not escape concerns in the US or Europe. The TSX Composite index lost 13% and oil lost just over 16% during the third quarter. Gold gained almost 10% as a safe haven. The Bank of Canada announced on September 7 that it is maintaining its target for the overnight rate at 1%. It added language about the further deterioration of the global economic outlook and that the bank would continue to monitor economic and financial developments, setting monetary policy consistent with achieving the 2% inflation target. Securities lending insights In-demand securities:
* Does not constitute investment advice European markets
Economic indicators & trends In August the president of the European Commission commented that the sovereign debt crisis may spread beyond the periphery of the eurozone. Spanish and Italian government bond yields rose sharply and Germany’s fell to record lows as investors demanded larger returns to borrow. Consequently, the ECB advised it will buy Italian and Spanish government bonds in an attempt to reduce borrowing costs amid concerns that the debt crisis would spread to those economies. The G7 confirmed it was “determined to react in a co-ordinated manner” and hoped to reassure investors as global stock markets fell sharply. In September, Italy passed a €50bn austerity package to balance the budget by 2013. This was met with fierce public opposition and as a result several key measures were diluted. The European Commission predicted that economic growth in the eurozone would come “to a virtual standstill” in the second half of 2011, growing just 0.2% and putting more pressure on sovereign budgets. Securities lending insights On a positive note, France represented the highest earning market in July because of an opportunity with Carrefour. The French retail giant approved plans to ‘spin-off’ the Dia discount chain and list 25% of the company’s European property unit in a bid to streamline its operations. Under the plan, Dia would be spun off as a company in its critical Spanish market. Carrefour shareholders would then receive one share of the Spanish company for each Carrefour share they own. The ‘in-kind’ dividend in the form of Dia shares was approved at €3.40 per share and subject to the same tax treatment as the cash dividends usually paid by Carrefour to its shareholders. In-demand securities:
* Does not constitute investment advice Asia Pacific markets
Economic indicators & trends Securities lending insights In Australia, concerns about consumer confidence led to demand in the retail and banking sectors while the fall in commodities and the AUD resulted in directional interest in the mining and resource sectors. The ASX index dropped below 4000, its lowest level in two years. In-demand securities included Harvey Norman and David Jones as retail companies continued to trade special as the shares are expected to suffer as consumers spend less in the two-speed economy. Rio Tinto, BHP and Newcrest on the mining and resources-front all attracted direction interest as crude oil and commodities plummeted toward the end of the quarter. Stock lending outstanding balances in Hong Kong hit a yearly high this quarter and the utilization in this market is the highest of all Asian markets. In-demand securities included Real Gold which has been in trading halt on the HK exchange since the May 27. China Yurun Food Group is in demand due to direction interest because of a profit warning. There was limited supply therefore elevating rates higher. South Korea was the only market in the region to impose a short selling ban. The Financial Services Commission approved a short-selling ban on August 11 for a three-month period. This announcement came after news that South Korea’s financial regulator will strengthen monitoring of unfair trading and false rumours in the stock market. This restriction further limited the amount of lending business in this already illiquid market. The restriction is due to be lifted in November and will be monitored closely for further extension. In-demand securities:
* Does not constitute investment advice For additional information on RBC Dexia’s securities lending capabilities, please contact: Blair McPherson Mary Jane Schuessler Stephen Rudland Trevor Amoils
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