The rise and rise of Asian financial centers. As the West bogs down, opportunities go East

July 23, 2012, 12:01 a.m. EDT
The rise and rise of Asian financial centers 
As the West bogs down, opportunities go East

By David Marsh, MarketWatch

SINGAPORE (MarketWatch) — A lot has been said and written about the power shift between East and West engendered by worldwide economic changes of the past 10 years, especially the 2007-08 trans-Atlantic financial crisis. But as British newspaper headline writers like to say when a transition of gigantic proportions is upon us: “You ain’t seen nothin’ yet.”

Already since the end of the 1990s, we have seen two phases in Asia’s economic renaissance. First came a period of rapid reserve asset accumulation by non-Western economies, an expression of current account surpluses, high savings ratios and a refusal to let currency appreciation damp rising exports.

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Then, in the aftermath of the sub-prime imbroglio and then the collapse of Lehman Brothers, we saw stronger-than-ever signs of the Eastern economies’ resilience as the US and Europe remained bogged down in post-crisis doldrums.

We are about to witness a third phase: the powering ahead of Asian financial markets as a part of sweeping changes in the make-up of assets and liabilities around the world. The stage is set for Asian practices and principles gradually to come to the fore in global financial services.

There are several straws in the wind. Two of the top three stock market flotations this year — the $3 billion listing of palm-oil firm Felda Global Ventures and the $2 billion initial public offering of state-backed IHH Healthcare Bhd, Asia’s largest private hospital operator — have been carried out in Malaysia, a country that was hardly on the financial radar screen until a few years ago.

Malaysia’s cash-rich pension funds and fund management groups have allowed the country to buck the trend of scrapped IPOs that have brought setbacks this year not only in the West but also in Asian centers like Hong Kong.

Malaysia, too, has supplied the investors for a landmark property deal in London — the £400 million Battersea Power Station transaction for property group SP Setia, palm-oil group Sime Darby, and Employees Provident Fund, the country’s largest pension fund, which U.K. Prime Minister David Cameron intends to extol as a sign of a new investment partnership between Europe and Asia.

At a wider level, Asian fixed-income markets have been recipients of large inflows this year as investors around the globe pile into new asset classes free of the uncertainties overhanging the dollar and the euro. In M&A and private equity, investors and deal makers from Asia are assuming ever-more self-confident positions that make them less dependent on financial intermediaries and bankers from the West. In new product areas, watch out for a spate of offerings in Islamic finance that will mount a rising challenge to Western institutions, which are hardly in the best position to withstand competition.

Europe and the U.S. are reeling under the impact of a spate of financial industry setbacks — ranging from the sub-prime debacle and blatant disregards for investment-banking conflicts of interest through to the latest scandals over financial product mis-selling, Libor fixing and money laundering. Overshadowing everything has been the weakening of the banks, especially in Europe, as a result of the demise of the Western growth model and the buildup of debt owed by private and public-sector borrowers, part of which will plainly never be repaid.

Disparities have been exacerbated by Europe’s abject failure first to diagnose and then to repair the innate shortcomings of economic and monetary union (EMU), the single currency project that was supposed to promote growth, investment and employment but instead has turned into Europe’s melancholy union. The disappointments surrounding EMU have taken their toll on European investment banking as the hotly anticipated spate of M&A and capital-market opportunities induced by a single euro financial market has failed to materialize.

Differences between East and West have been enhanced, too, by America’s inability to put its public finances on to a sounder footing, which leaves the U.S. financial system at the mercy of adversarial political forces before and after the end-year presidential elections.

For bankers and product specialists, the message is clear. Growth, innovation and dynamism in financial services are likely to migrate beyond the West. Just as Asia in past centuries used to measure itself by reference to Europe (seen in the appellations “near East”,” far East” etc), in the future Europe and the U.S. are likely to register their own prowess by reference to Asia.

For financial practitioners who have grown up in the financial sector penumbra of the City or Manhattan (let alone Paris or Frankfurt), there can be only one conclusion. “Go East, young man! (or woman!).” Potential, responsibility and reward are on offer with ever-greater urgency in the centers of Shanghai, Hong Kong, Singapore and Kuala Lumpur.

If you work in financial services, ignore at your peril the implications of this sea change. The world is rapidly changing and if you want to capitalize on that, move to the places where things are happening. 

David Marsh is co-chairman of the Official Monetary and Financial Institutions Forum.
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