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The rise and rise of Asian financial markets

The rise and rise of Asian financial markets

M&A, capital market and fund management activities migrate East
Product specialisation shifting as West digests setbacks

by David Marsh, OMFIF Chairman

Fri 27 Jul 2012

Everyone knows about the economic power shift between East and West. But we are only seeing the beginning of what this means for financial markets.

Already since the end of the 1990s, we have witnessed 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. 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.

A third phase is now dawning. The stage is set for Asian practices and principles gradually to come to the fore in global financial services, as part of sweeping changes in the make-up of assets and liabilities around the world.

There are several indications of what’s going on. Two of the top three stock market flotations this year - the $3bn listing of palm oil firm Felda Global Ventures and the $2bn initial public offering of state-backed IHH Healthcare Bhd, Asia's largest private hospital operator - have been carried out in Malaysia, a country 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 centres like Hong Kong.

Malaysia, too, has supplied the investors for a landmark property deal in London - the £400m Battersea Power Station transaction for property group SP Setia, palm oil group Sime Darby, and Employees Provident Fund, the country’s largest pension fund.

On a wider level, Asian fixed income markets have been recipients of large inflows this year as investors around the global 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 US 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 build-up 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 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 materialise.

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 the past used to measure itself by reference to Europe, in future Europe and the US are likely to register their own prowess with Asia as the yardstick.

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