Double trouble: How political risk complicates securities lending amid economic uncertainty
13 May 2025
Nicole O’Donnell, product specialist, securities finance at S&P Global Market Intelligence, provides a review of the securities lending market following key movements in the political landscape
Image: Shutterstock
Political uncertainty has become a significant influence on market valuations, especially when combined with economic and geopolitical risks. This quarter, the dynamics of securities lending activity have mirrored investor sentiment in response to recent political shocks, creating notable market volatility and strategic repositioning.
The US government's recent implementation of tariffs on global imports triggered a sharp sell-off, with the S&P 500 and FTSE indices declining over 10 per cent and 6 per cent respectively, marking their worst trading days since the pandemic in 2020. Commodities also suffered, with oil prices hitting a four-year low. In April, short interest across the S&P 500 rose approximately 7 per cent, reflecting heightened caution among investors.
The political landscape is intricately tied to market dynamics. In Canada, Mark Carney’s Liberal Party retained power in parliamentary elections, resulting in a muted market reaction. The TSX rose slightly, as investors hoped for clarity on trade relations with the US. Voters sought reassurance from Carney’s international credibility and his commitment to addressing trade tensions, highlighting the connection between political stability and market performance. However, securities lending revenues from Canadian equities fell 19 per cent year-over-year (YoY) in April and 20 per cent month-over-month (MoM), as average fees declined by 7 basis points compared to March.
In Singapore, the general election occurred amid rising geopolitical tensions and economic uncertainty stemming from US trade policies. The ruling People's Action Party (PAP) secured a decisive victory, reinforcing investor confidence in political stability. Despite the government's introduction of targeted subsidies to support domestic businesses, short interest across Singaporean equity benchmarks remained steady, indicating that investors anticipated minimal shifts in market dynamics. Notably, while securities lending revenues from Singaporean equities increased by 23 per cent YoY, they declined by 6 per cent MoM, as average fees dropped to their lowest level since January 2024.
Figure 1: Value on loan SP500 vs R2K
Australia's Prime Minister, Anthony Albanese, faced similar challenges, opting for a non-retaliatory approach to US tariffs, emphasising policy continuity amid global uncertainty. The Labour Party's decisive electoral win reinforced Australia’s preference for cooperative trade relations over interventionist policies.
However, during April, securities lending revenues in Australia declined by 13 per cent YoY US$8 million, as average fees plummeted to their lowest level seen in over 15 months, at just 44bps. Although this stability has curbed broad-based volatility, the potential for increased regulatory scrutiny has prompted a slight rise in short positioning, with investor sentiment cautiously optimistic about a pro-growth agenda.
Political uncertainty often leads to fluctuating investor sentiment, significantly impacting stock prices and trading volumes. In these turbulent times, the role of data-driven decisions is paramount. Íø±¬³Ô¹Ï lenders must remain vigilant, as increased market activity creates both risks and opportunities for short selling strategies. By leveraging data insights, lenders can navigate these dynamic conditions, refining their strategies to capitalise on emerging opportunities while managing associated risks effectively.
In this context, prime brokers are experiencing heightened volatility and increased client demand for margin financing, driven by the surge in short selling. The demand for liquidity and leverage underscores the critical importance of timely data on rates and availability. By utilising these insights, lenders and prime brokers can better navigate the evolving market landscape, optimising their strategies to seize emerging opportunities while effectively managing risks.
Figure 2: Value on loan
As institutional investors tactically reposition and funds seek re-entry points following a brief economic recovery, markets will continue to assess the long-term implications of the tariff regime. The interplay of political shocks and market volatility further emphasises the necessity for data-driven decision-making.
With short interest fluctuating and securities lending revenues rising MoM compared to 2024, lenders and prime brokers turn to more data-driven approaches to fine-tune collateral strategies, manage counterparty exposures, and capitalise on yield opportunities in an active borrowing market.
In summary, the convergence of political, economic, and geopolitical uncertainties creates a complex environment for investors. By embracing data-driven strategies, securities lenders can turn challenges into profitable opportunities, demonstrating the resilience and adaptability required in today’s markets.
The US government's recent implementation of tariffs on global imports triggered a sharp sell-off, with the S&P 500 and FTSE indices declining over 10 per cent and 6 per cent respectively, marking their worst trading days since the pandemic in 2020. Commodities also suffered, with oil prices hitting a four-year low. In April, short interest across the S&P 500 rose approximately 7 per cent, reflecting heightened caution among investors.
The political landscape is intricately tied to market dynamics. In Canada, Mark Carney’s Liberal Party retained power in parliamentary elections, resulting in a muted market reaction. The TSX rose slightly, as investors hoped for clarity on trade relations with the US. Voters sought reassurance from Carney’s international credibility and his commitment to addressing trade tensions, highlighting the connection between political stability and market performance. However, securities lending revenues from Canadian equities fell 19 per cent year-over-year (YoY) in April and 20 per cent month-over-month (MoM), as average fees declined by 7 basis points compared to March.
In Singapore, the general election occurred amid rising geopolitical tensions and economic uncertainty stemming from US trade policies. The ruling People's Action Party (PAP) secured a decisive victory, reinforcing investor confidence in political stability. Despite the government's introduction of targeted subsidies to support domestic businesses, short interest across Singaporean equity benchmarks remained steady, indicating that investors anticipated minimal shifts in market dynamics. Notably, while securities lending revenues from Singaporean equities increased by 23 per cent YoY, they declined by 6 per cent MoM, as average fees dropped to their lowest level since January 2024.
Figure 1: Value on loan SP500 vs R2K
Australia's Prime Minister, Anthony Albanese, faced similar challenges, opting for a non-retaliatory approach to US tariffs, emphasising policy continuity amid global uncertainty. The Labour Party's decisive electoral win reinforced Australia’s preference for cooperative trade relations over interventionist policies.
However, during April, securities lending revenues in Australia declined by 13 per cent YoY US$8 million, as average fees plummeted to their lowest level seen in over 15 months, at just 44bps. Although this stability has curbed broad-based volatility, the potential for increased regulatory scrutiny has prompted a slight rise in short positioning, with investor sentiment cautiously optimistic about a pro-growth agenda.
Political uncertainty often leads to fluctuating investor sentiment, significantly impacting stock prices and trading volumes. In these turbulent times, the role of data-driven decisions is paramount. Íø±¬³Ô¹Ï lenders must remain vigilant, as increased market activity creates both risks and opportunities for short selling strategies. By leveraging data insights, lenders can navigate these dynamic conditions, refining their strategies to capitalise on emerging opportunities while managing associated risks effectively.
In this context, prime brokers are experiencing heightened volatility and increased client demand for margin financing, driven by the surge in short selling. The demand for liquidity and leverage underscores the critical importance of timely data on rates and availability. By utilising these insights, lenders and prime brokers can better navigate the evolving market landscape, optimising their strategies to seize emerging opportunities while effectively managing risks.
Figure 2: Value on loan
As institutional investors tactically reposition and funds seek re-entry points following a brief economic recovery, markets will continue to assess the long-term implications of the tariff regime. The interplay of political shocks and market volatility further emphasises the necessity for data-driven decision-making.
With short interest fluctuating and securities lending revenues rising MoM compared to 2024, lenders and prime brokers turn to more data-driven approaches to fine-tune collateral strategies, manage counterparty exposures, and capitalise on yield opportunities in an active borrowing market.
In summary, the convergence of political, economic, and geopolitical uncertainties creates a complex environment for investors. By embracing data-driven strategies, securities lenders can turn challenges into profitable opportunities, demonstrating the resilience and adaptability required in today’s markets.
Next data feature →
How stock market volatility fuels securities lending, but uncertainty stifles it
How stock market volatility fuels securities lending, but uncertainty stifles it
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