KUALA LUMPUR: The collapse of MF Global Holdings Ltd sent repercussions throughout global markets yesterday causing the US dollar to spike sharply, driving up European sovereign bond yields, and forcing the Australian Stock Exchange (ASX) to suspend trading of agricultural futures.
The Malaysian stock market was relatively less scathed with the FBM KLCI falling by 1.08% or 16.25 points to 1,475.64 on the back of the news. On the other side of the world, the Dow Jones and S&P 500 indices fell 2.26% and 2.47% respectively on Monday, and European bourses were deep in the red yesterday.
When contacted by The Edge Financial Daily, Bursa Malaysia replied in a statement that “MF Global’s exposure in Malaysia is negligible and therefore, has no impact on the market.”
Channel checks by The Edge Financial Daily suggests that the local bourse has little direct exposure to MF Global, and most brokers have reacted quickly to close out their positions.
However, since MF Global’s assets have been frozen, some brokers may still have funds locked up in MF Global margin accounts.
Stephen Noel Kwong, executive director and head of AmFutures Sdn Bhd told The Edge Financial Daily, “We knew about MF Global filing for Chapter 11 bankruptcy since midday on Monday and we subsequently managed to close out all our positions with MF Global.”
“In fact, MF Global has been in the news for about six weeks and we have been steadily reducing our exposure accordingly,” said Kwong.
“As of today (yesterday), we managed to close out all of MF Global’s positions with us,” said Kwong who added that AmBank did not make losses when it closed its positions with MF Global.
Kwong, however, acknowledged that AmBank still had funds in MF Global margin accounts that have been frozen but pointed out, “MF Global has funds with AmBank as well. As a result, our overall net position is positive, so we are not too worried.”
On Oct 31, MF Global officially filed for bankruptcy after its US$6.3 billion (RM19.59 billion) wager on European government debt triggered its collapse.
The financial firm had been exposed to Italian, Spanish, Belgian, Portuguese and Irish debt .
When the firm filed for Chapter 11 bankruptcy at the US Bankruptcy Court in Manhattan on Monday, it listed debt of US$39.7 billion and assets worth US$41 billion and according to BankruptcyData.com is the fifth-largest financial-industry public company bankruptcy by assets behind the likes of Lehman Brothers Holdings and Washington Mutual Inc.
The financial firm has offices in seven countries including Singapore and Australia, and trades heavily in futures.
Given its size, global reach and counter-party dealings with other financial institutions, some have compared the extent of its collapse to that of Lehman Brothers in late 2008.
On a darker note, federal regulators in the US yesterday began investigating million of dollars in MF Global customer funds which have gone missing.
Australia’s bourse operator the ASX suspended trading of grain and wool futures options yesterday in response to MF Global’s collapse.
MF Global had been one of the largest players in Australia’s agricultural futures market, and there are concerns about its big open positions in the market.
Jupiter Securities’ head of research Pong Teng Siew told The Edge Financial Daily that while the direct effects of the collapse will be minimal, the local market could be affected indirectly.
“There is a clear feed through impact from bond yields into equity markets. We have observed that when European government bond yields rise, it has a depressing effect on our equities,” Pong said and highlighted the fact that Italian sovereign debt yields have crept past the 6.00% mark.
“Bond prices will tumble when MF Global is forced to sell down its assets, which will in turn drive bond yields up,” explained Pong.
“MF Global is relatively small and the contagion risk will be limited,” noted Pong, but he did not rule out the possibility of a domino effect arising from MF Global’s collapse.
“There will be a ripple effect and the sovereign bond market is vulnerable. A disorganised or unruly retreat will send yields climbing,” added Pong.
The greenback has since strengthened sharply against the ringgit by 1.89% from 3.0655 to 3.1233.
Pong pinned this on a flight to safety and said, “Cash is the safest asset and the US dollar will always be the safest form of cash. Even gold is not a riskless asset as many people might think. There is price and liquidity risk.”
Pong stressed the important role of the bond markets, saying, “The equity market is a poor predictor of prices. It is largely driven by emotion and market sentiment. Bond markets tend to be more down to earth, mathematical and unaffected by sentiment.”
“I’ve expected financial institutions to fail given the volatility in the market, especially those with exposure to sovereign bonds,” said Pong, “and I do not think MF Global will be the last to do so.”
This article appeared in The Edge Financial Daily, November 2, 2011.
The Malaysian stock market was relatively less scathed with the FBM KLCI falling by 1.08% or 16.25 points to 1,475.64 on the back of the news. On the other side of the world, the Dow Jones and S&P 500 indices fell 2.26% and 2.47% respectively on Monday, and European bourses were deep in the red yesterday.
When contacted by The Edge Financial Daily, Bursa Malaysia replied in a statement that “MF Global’s exposure in Malaysia is negligible and therefore, has no impact on the market.”
Channel checks by The Edge Financial Daily suggests that the local bourse has little direct exposure to MF Global, and most brokers have reacted quickly to close out their positions.
However, since MF Global’s assets have been frozen, some brokers may still have funds locked up in MF Global margin accounts.
Stephen Noel Kwong, executive director and head of AmFutures Sdn Bhd told The Edge Financial Daily, “We knew about MF Global filing for Chapter 11 bankruptcy since midday on Monday and we subsequently managed to close out all our positions with MF Global.”
“In fact, MF Global has been in the news for about six weeks and we have been steadily reducing our exposure accordingly,” said Kwong.
“As of today (yesterday), we managed to close out all of MF Global’s positions with us,” said Kwong who added that AmBank did not make losses when it closed its positions with MF Global.
Kwong, however, acknowledged that AmBank still had funds in MF Global margin accounts that have been frozen but pointed out, “MF Global has funds with AmBank as well. As a result, our overall net position is positive, so we are not too worried.”
On Oct 31, MF Global officially filed for bankruptcy after its US$6.3 billion (RM19.59 billion) wager on European government debt triggered its collapse.
The financial firm had been exposed to Italian, Spanish, Belgian, Portuguese and Irish debt .
When the firm filed for Chapter 11 bankruptcy at the US Bankruptcy Court in Manhattan on Monday, it listed debt of US$39.7 billion and assets worth US$41 billion and according to BankruptcyData.com is the fifth-largest financial-industry public company bankruptcy by assets behind the likes of Lehman Brothers Holdings and Washington Mutual Inc.
The financial firm has offices in seven countries including Singapore and Australia, and trades heavily in futures.
Given its size, global reach and counter-party dealings with other financial institutions, some have compared the extent of its collapse to that of Lehman Brothers in late 2008.
On a darker note, federal regulators in the US yesterday began investigating million of dollars in MF Global customer funds which have gone missing.
Australia’s bourse operator the ASX suspended trading of grain and wool futures options yesterday in response to MF Global’s collapse.
MF Global had been one of the largest players in Australia’s agricultural futures market, and there are concerns about its big open positions in the market.
Jupiter Securities’ head of research Pong Teng Siew told The Edge Financial Daily that while the direct effects of the collapse will be minimal, the local market could be affected indirectly.
“There is a clear feed through impact from bond yields into equity markets. We have observed that when European government bond yields rise, it has a depressing effect on our equities,” Pong said and highlighted the fact that Italian sovereign debt yields have crept past the 6.00% mark.
“Bond prices will tumble when MF Global is forced to sell down its assets, which will in turn drive bond yields up,” explained Pong.
“MF Global is relatively small and the contagion risk will be limited,” noted Pong, but he did not rule out the possibility of a domino effect arising from MF Global’s collapse.
“There will be a ripple effect and the sovereign bond market is vulnerable. A disorganised or unruly retreat will send yields climbing,” added Pong.
The greenback has since strengthened sharply against the ringgit by 1.89% from 3.0655 to 3.1233.
Pong pinned this on a flight to safety and said, “Cash is the safest asset and the US dollar will always be the safest form of cash. Even gold is not a riskless asset as many people might think. There is price and liquidity risk.”
Pong stressed the important role of the bond markets, saying, “The equity market is a poor predictor of prices. It is largely driven by emotion and market sentiment. Bond markets tend to be more down to earth, mathematical and unaffected by sentiment.”
“I’ve expected financial institutions to fail given the volatility in the market, especially those with exposure to sovereign bonds,” said Pong, “and I do not think MF Global will be the last to do so.”
This article appeared in The Edge Financial Daily, November 2, 2011.
