Saturday, December 5, 2009

The return of confidence in Asia

As major Asian economies continue to grow, build and hire, millions are climbing the economic ladder, giving the world cause for confidence

THE economic turmoil of the past couple of years has driven home a salient point - the world does look different from your business pad in Singapore, Shanghai or Mumbai than it does from New York or London. Indeed, one can go so far as to say that the strong economic data emerging from Asia in recent quarters does not do justice to the fundamental resilience and dynamism of the region's companies and financial institutions.

That is particularly so if your business is involved in large public works projects - subway lines, roads, seaports, airports, power plants and water treatment and desalination plants - where the governments, in partnership with private companies, are pouring hundreds of billions of dollars across the region in their quest to build world- class infrastructure.

Businesses catering to these sectors have hardly been affected by the downturn, except for one critical area - liquidity of capital. After the collapse of Lehman Brothers last year, money markets shut down and funding was no longer available on tap. Businesses with sufficient orders from customers had to cut back as a result of the capital shortage.

These businesses do not want to be in the same position again. So, as soon as the capital markets opened up again in March this year, they have started raising enough money to ride through the extended downturn. These companies are no longer talking about the challenges of the global economy; they are busy building things in China, India and Abu Dhabi. Their main worry is that they may not be able to meet the growing demand.

It is true that suppliers of goods and services to the West have taken a hard knock as demand collapsed since the first half of 2008. These companies have now passed the bottom of the cycle. Most of them have run down their inventories and are preparing to rebuild stocks as consumers in Europe and the US gradually return to the shops.

Many of these export-oriented companies are increasingly seeing a new source of demand - consumers in the large, domestic-driven economies of China, India and Indonesia.

As bankers to these companies and consumers, we get to see the origin of these new sources of demand every day. Millions of people in these economies are climbing the economic ladder. It is to cater to the financial needs of this growing population that our bank has been hiring private bankers, wealth managers and financial advisors across the region. Head hunters for the financial industry are back in business and are hiring themselves to meet the growing demand from clients.

There is a similar story emerging from the corporate and financial sectors across Asia. The sudden dislocation and volatility in the financial markets over the past couple of years has brought home to companies the need to hedge their revenue and expense streams.

More and more companies are looking for advice from banks on hedging their exposures to currency, interest rates and commodity risks. With interest rates set to rise, perhaps as early as in the second quarter of next year, companies are preparing for more volatility across the region. This is creating unprecedented demand for the banks' risk management products and services.

At the same time, the need for the companies to boost their cash balances and to fund new projects has brought loan, bond and equity markets back to life. This has helped propel the banking and financial sector since start of the second quarter. Banks are now well and truly open for business. Confidence has returned to the industry.
Much has been said about the departure of Western banks from Asia during the turmoil. The exits have left those local and foreign banks still in business in a much more competitive position. In fact, the local banks have hardly missed a heart beat even in the depths of the downturn. Now they are cranking up the gears.

The resurgence of liquidity, especially in China, has raised concerns in some quarters that some of it might leak into property, equities and other asset markets. Governments across the region are already on the case. Authorities in China, Hong Kong, Singapore, India and other economies have taken measures to ensure that these markets do not get ahead of themselves.

Indeed, much of the run up in asset prices is due to genuine demand. In Singapore, for instance, there has always been strong demand for property from investors in Indonesia. Now, a lot of the money is coming from China and India, with foreigners booking properties for delivery in 2012-2014. Given the attractive mortgage rates, they are making a leveraged bet into the future.

There are fundamental reasons behind their optimism - Singapore offers the wealthy expatriates a relatively easy place to settle in, put the children in school, or start a business. Healthcare is world-class. There are no estate duties to worry about when buying properties.

The main challenge for places such as Singapore would be to make sure that they remain cost-competitive and not become too expensive for expatriates and new businesses to locate. The government is releasing bigger parcels of land for property development. The aim is to moderate the rise in asset prices and reduce their volatility, rather than impose blanket restrictions.

On the positive side, the construction work on housing developments, subway lines and resort complexes has helped keep blue-collar workers in their jobs.
All in all, companies across the region are getting back on their feet and looking forward to the future with confidence. That is one, amongst many characteristics, that sets them apart from their counterparts in the West. Ray Ferguson Regional CEO, Singapore and South-east Asia, Standard Chartered Bank The Business Times (Singapore)

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