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.
http://www.marketwatch.com/story/the-rise-and-rise-of-asian-financial-centers-2012-07-23?link=MW_story_investinginsight

A crisis as big as the subprime one is brewing in Asia

In 2009 and 2010, Asia was the apple of the investor's eye as countries in the region recovered strongly from the global financial crisis to post healthy growth rates. But loose monetary policies in the West and high inflation have posed its own set of problems for the Asian economies. The biggest problem that Asia has been witnessing in recent times is the surge in food prices. And this issue could end up being more chronic rather than cyclical in the years to come. For starters, weather patterns have become unpredictable which in turn has hampered agricultural production of late. Then there is the issue of population. Asia alone, for example, will have another 140 million mouths to feed over the next four years. That is in addition to the almost 3 billion people in the fast-growing region currently. This means that demand will remain high in the future and supply may not always catch up.

The other big fallout of soaring food prices for the Asian region is likely to be a significant rise in debt. So far, it was believed that bloated debt was a problem that only Europe and the US were facing on account of the global crisis. But Asia is also likely to join this bandwagon. Take India for instance. It still has one of the highest proportion of poor in the world. This obviously means that most will not be able to afford food at such high rates. As a result, the Indian government would most certainly increase subsidies sharply and cut import taxes, which would put an additional strain on its finances.

Indeed, the crisis in Egypt was a product of the inability of the Egyptian government to tackle the problem of high inflation. And though extreme, noted economist Nouriel Roubini believes that persistently high food prices and inflation could raise the risk of more governments getting toppled. Certainly, Asian governments including India will have to give serious thought to some long term reforms if such shocks are to be avoided in the future.

Do you think that rising food prices will lead to a bigger crisis in Asia in the future?


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World crisis deepens as downturn bites in Asia

World crisis deepens as downturn bites in Asia

Grim economic news from China and Japan showed the global crisis hitting ever harder Thursday, burning Asia's champion exporters while data from the United States signalled more pain to come.
China's powerhouse economy slowed dramatically at the end of 2008, dragging growth of the world's third-largest economy to a seven-year low, official data showed, in a striking sign of the current downturn's strength and reach.
Japan meanwhile warned it was facing a two-year recession and announced new measures to repair battered credit markets after announcing a 35-percent plunge in exports in December.
"Exports tumbled so much that you cannot believe your eyes," said Naoki Murakami, chief economist at Monex Securities in Japan.
After breathtaking economic growth in recent decades, China had been widely tipped to ride out the world economic storm that has driven the world's biggest economies into recession.
But with the Asian giant now gravely suffering too, reporting just 6.8 percent growth in the last quarter of 2008, signs emerged on Thursday of a knock-on effect, with Australia warning of the impact on its own prospects.
"The Chinese boom that supercharged Australia's economy over the past five to seven years is receding rapidly," Australia's Finance Minister Lindsay Tanner told reporters.
South Korea said its economy was in the worst shape since the East Asian financial crisis a decade ago while Singapore announced a 13-billion-dollar (10-billion-euro) stimulus package and said it would tap its vast financial reserves for the first time.
US data released Thursday showed unemployment claims hit a 26-year high and housing construction fell to half-century lows, highlighting the depths of the recession facing the new administration of Barack Obama.
"The underlying trend in (jobless) claims is still upwards and we have no hope that the peak is anywhere near," said Ian Shepherdson, chief US economist at High Frequency Economics.
"The corporate sector is rolling over and we probably have not yet seen many job losses stemming from the sudden collapse in international trade."
On the industrial front, US software giant Microsoft said on Thursday it was cutting up to 5,000 jobs over the next 18 months due to "the further deterioration of global economic conditions."
Italy's national auto champion, Fiat, slashed its 2009 forecasts due to slumping demand and said it would not pay shareholders a 2008 dividend.
And in Helsinki Nokia, the world's leading mobile phone maker, reported a near 70 percent drop in its fourth-quarter net profit.
In Europe, meanwhile there were fresh signs of upheaval in the financial sector, where shares in troubled banks faced more pressure.
Belgian authorities moved to bail out lender KBC, providing up to 3.5 billion euros, and Germany was working on a new rescue package for its banks as last year's 480-billion-euro effort failed to get them lending again.
The financial crisis showed it had further to run as Portugal on Wednesday followed Spain and Greece in having its sovereign debt downgraded by the ratings agency Standard and Poor's.
Some fear such downgrades could increase strains in the 16-nation eurozone where investors are discriminating between weaker and stronger debtors, with powerhouse Germany paying less interest on its bonds than the rest of Europe.
US stocks swung lower Thursday after the jobless and construction figures and amid persistent worries on company earnings. The Dow Jones Industrial Average lost 2.20 percent in early trade.
In Europe, London's FTSE 100 index closed down 0.19 percent. Paris fell 1.24 percent, while Frankfurt lost 0.98 percent.
Asian stocks rose Thursday in a technical bounce despite the miserable economic data.

http://news.my.msn.com/topstories/article.aspx?cp-documentid=2210110

Asia needs to fully wake up to the scale of the West's economic crisis

Asia needs to fully wake up to the scale of the West's economic crisis
Asia is not going to rescue the world economy.

By Ambrose Evans-Pritchard Last Updated: 10:06AM GMT 04 Jan 2009
Comments 28 Comment on this article

The news from Japan, China, and the Pacific tigers has moved from awful to calamitous since the global industrial system snapped in October.
A raw reality is being laid bare. The mercantilist export model of the East is proving dangerously geared to the debt-driven excesses of the West. As we go down, they go down too. Some are going down even harder.
Japan's industrial output contracted by 16.2pc in November, year-on-year. "For an economy which lives from the prowess of its industrial exports, this is simply earthquake," said Edward Hugh from Japan Economy Watch.
Japanese exports fell 26.7pc. Real wages fell by 3.1pc, the seventh monthly fall. Taken together, the figures are worse than anything during Japan's "Lost Decade". They have a ring of 1931.
The fall-out in Japan has already shattered the authority of premier Taro Aso. His approval rating has dropped to 21pc. The cabinet is in revolt. The world's second biggest economy no longer has a functioning government.
Credit Suisse warns that Japan could slide into deflation of minus 2pc by the autumn. Since interest rates are already near zero, which means that real rates will rise as the slump deepens – the surest path to a liquidity trap.
Kyohei Morita from Barclays Capital estimates that Japan's GDP shrank at an annual rate of 12.2pc in the fourth quarter. "It's shocking," he says. Singapore has already reported. Fourth-quarter GDP contracted at an 12.5pc annual rate.
Taiwan's exports fell 28pc in November. Shipments to China dropped 45pc. Korea's exports dropped 18pc in November and 17pc in December.
"We are looking right in the face of an unprecedented regional depression," said Frank Veneroso, the investment guru.
"If there is one part of the global disaster that is not reflected in today's massacred markets it is this Asian debacle. The source of the collapse appears to be above all a contraction in China."
One has to careful with Chinese figures. When I covered Latin America in the 1980s, veteran analysts watched electricity use to gauge economic growth since they could not trust official data. It is striking that China's power output fell 7pc in November.
Asia has clearly failed to use the fat years to break its dependency on the West. It has stuck doggedly to its export strategy – by holding down currencies, or by subtle policy bias against consumption.
In China's case it has let the wage share of GDP drop from 52pc to 40pc since 1999, according to the World Bank.
The defenders of this dead-end strategy are now coming up with astonishing proposals to put off the day of reckoning. Akio Mikuni, head of Japan's credit agency Mikuni, has called for a "Marshall Plan" to bail out America by cancelling $980bn of US Treasury bonds held by the Japanese state.
This debt jubilee does have the merit of creative thinking, but it is entirely designed to keep the old game going. "US households won't have access to credit they have enjoyed in the past. Their demand for all products, including imports, will suffer unless something is done," he said.
Let me be clear. I make no moral judgment on the "neo-Confucian" model, nor – heaven forbid – do I defend the debt depravity of the West.
A stale debate simmers over whether the Great Bubble was caused by Anglo-Saxon and Club Med hedonism, or by an Asian "Savings Glut" spilling into global bond markets and fuelling asset booms, as Washington claims. It was obviously a mix.
Two cultural systems interacted through globalisation, locking each other into a funeral dance.
The point is that this experiment has now blown up. Whether or not we slam straight into a global depression depends on how we – East, West, all of us – handle this.
The top sources of net global demand as measured by current account deficits over the last 12 months have been the US ($697bn), Spain ($166bn), Italy ($71bn), France ($57bn) Australia ($57bn), Greece (53bn), Turkey ($47bn), and Britain ($46bn).
Most are tightening their belts drastically, and in the case of Britain the shift has been so swift that the arch-sinner may soon be in surplus. If they are draining world demand, then world demand is going to collapse unless others step into the breach.
The surplus states – China ($378bn), Germany ($266bn) Japan ($176bn) – have not yet done so, which is why the global economy went off a cliff in October, November, and December. Beijing is planning a $600bn fiscal blitz.
But how much of it is an unfunded wish-list sent to local party bosses? It will not kick in until the middle of the year, an eternity away.
For now, China is dabbling with protectionism to gain time – a risky move for the top surplus country. It has let the yuan fall to the bottom of its band. Vietnam has devalued. Thailand and Taiwan are buying dollars.
Watching uneasily, the Asian Development Bank has warned against moves to "depreciate domestic currencies".
Anger is mounting in the West. Alstom chief Philippe Mellier has called for a boycott of Chinese trains.
"The Chinese market is gradually shutting down to let the Chinese companies prosper. There's no reciprocity any more," he told the Financial Times. Optimists say the collapse in oil prices will give Asia a shot in the arm. Governments are still flush, with ample scope for fiscal rescues. Asia's central banks are sitting on $4.1 trillion of reserves.
They have the means, perhaps, but do they have the will to act in time? Or do Beijing, Tokyo, Taipei, Kuala Lumpur, – and indeed Berlin – still cling to their assumption that others will spend for them?

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4093676/Asia-needs-to-fully-wake-up-to-the-scale-of-the-Wests-economic-crisis.html


Also read:
Decoupling dies as half the globe hits crunch
http://www.telegraph.co.uk/finance/markets/2820887/Decoupling-dies-as-half-the-globe-hits-crunch.html

Asia faces sharper slowdown next year: Morgan Stanley

Agence France-Presse - 11/11/2008 11:06 AM GMT
Asia faces sharper slowdown next year: Morgan Stanley

Asia is staring at a much sharper economic slowdown next year than earlier anticipated because of a deepening global recession, US bank Morgan Stanley said Tuesday.

The region is now expected to grow by 5.5 percent in 2009 instead of a previously forecast 6.4 percent, said Chetan Ahya, a Morgan Stanley economist for Southeast Asia and India.

Australia, South Korea, India and Indonesia will be vulnerable to financial contagion because of large current account deficits, while export-dependent countries will also suffer, he said at a news conference.

While downside risks could further drag the forecast growth rate to below 5.0 percent, it is unlikely to drop near the 2.4 percent expansion rate seen during the Asian financial crisis in 1997 and 1998, he said.

"The risk right now is it could dip below 5.0 percent," but not close to the levels of a decade ago, he said.

Ahya added that in 1997 and 1998 the gross domestic product (GDP) of five key Asian economies contracted between 4.0 and 13 percent, a situation which is unlikely during the current turmoil.

Ahya said the US economy is likely to shrink by 1.3 percent next year and the European economy should contract by 0.6 percent, more drastic than earlier projections.

Because of this, "Asia is unlikely to emerge unscathed in an environment where the global economy is likely to see a deeper recession," Morgan Stanley the bank said in a report.
It said the region's economies will start a "tepid" rebound in 2010.

The bank projects Asian economies outside Japan to grow by 6.9 percent in 2010, faster than the forecast global growth rate of 3.6 percent, but lower than the expected 7.6 percent expansion in 2008.

"We're not looking for the same kind of (high-growth) environment to come back soon. In that sense, we're looking for the duration of this global risk aversion to be longer than what we had all expected," Ahya said.

http://news.my.msn.com/regional/article.aspx?cp-documentid=1780901