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OVERVIEW OF DEMAND FOR GOVERNMENT SECURITIES IN THE REGION

OVERVIEW OF DEMAND FOR GOVERNMENT SECURITIES IN THE REGION. WORLD BANK CONFERENCE 17 – 19 JUNE 2003. Introduction. Regional economies are adapting to developing financial market platforms Much of the demand for funds would have to be raised in respective capital markets

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OVERVIEW OF DEMAND FOR GOVERNMENT SECURITIES IN THE REGION

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  1. OVERVIEW OF DEMAND FOR GOVERNMENT SECURITIES IN THE REGION WORLD BANK CONFERENCE 17 – 19 JUNE 2003

  2. Introduction • Regional economies are adapting to developing financial market platforms • Much of the demand for funds would have to be raised in respective capital markets • Most countries are therefore grappling with task of developing institutions and policy frameworks that assist bond market development

  3. State of the markets • Financial deregulation and liberalisation • Markets dominated by primary issues • Secondary market illiquidity • Lack of diversity among investors • Lack of diversity among issuers • Interest rate volatility • Lack of appetite for long term investments

  4. Lack of sufficient data • Markets are blighted by lack of sufficient data for investors to make informed decisions. It is this lack of data that in most cases has dampened the appetite for fixed income debt instruments • Not enough information on trades as OTC trades can dominate

  5. Lack of sufficient data • No definitive yield curve • Difficult to price long term debt • Market remains shallow as risk management and hedging techniques remain rudimentary • Credit enhancement has little effect on pricing • limit exposure at primary market level

  6. Analysis of investor community • Banks • Pension and Insurance companies • National Insurance funds • Asset Managers (NBFI) • Foreign investors • Individuals

  7. Changing face of the markets • Growth of retail investor base – growing in prominence • Importance of distribution channels • Better regulation of financial markets • Recognition that capital market development will encourage and promote investor activity

  8. Motivations for Demand • Issuer and Investor diversity • Regulatory structure • Liquidity and statutory reserve requirements • Eliminate tax preference on equity holders • Grant preferential treatment to issuers

  9. Conclusions • Most countries are unlikely to respond adequately to demands of investors • Information on market trends/prices/benchmark rates • Full disclosure at primary issue • Continuing disclosure requirements • Formalised trading platform • Credible institutions • Sustainability • Positive rate of return • Pula or Rand based market for regional markets

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