Higher for longer US rates ringing Asia alarm bells

The broadside Moody’s Investors Service just fired at the US dollar and interest rates dramatizes why the next few months could be uniquely chaotic for global markets.

It stands to reason that the one major credit rating company still holding Washington in AAA esteem is anxious to announce a downgrade.

Twelve years after S&P Global downgraded the US, Fitch Ratings last month followed suit. Fitch’s move was about more than America’s national debt careening toward US$33 trillion.

It was also a response to the “steady deterioration in standards of governance” as politicians play games with raising Washington’s statutory debt limit.

Now, Moody’s warns that the dysfunction surrounding a government shutdown on October 1, the latest manifestation of extreme polarization, may be the reason to cut Washington’s rating to Aa1.

Investors seem way ahead of credit rates as US yields move higher. Rates on 10-year Treasury bonds are at a 16-year high this week, a dubious milestone that’s slamming European and Asian markets. Benchmarks from Japan to South Korea to Australia plunged.

On Tuesday alone, MSCI’s gauge of global stocks plunged 1.24%, an outsized move for the benchmark. By Wednesday, the index was falling for a ninth day as it approaches its longest losing streak in more than a decade.

The Cboe Volatility Index, Wall Street’s so-called fear gauge, flashed its most intense warnings since May, when US inflation hit a 41-year high.

Adding to the disorientation is the dollar’s curious durability. The more investors fret about the state of global finance, the more the dollar rises. The yen’s move toward 150 to the dollar, a psychologically important level, has markets bracing for currency intervention by Japanese authorities.

The US Federal Reserve, meanwhile, is making it clear it’s not done hiking rates. When Minneapolis Fed President Neel Kashkari on Tuesday assigned 40% odds that rates will still go “meaningfully” higher, traders figure policymakers are telegraphing more austerity to come.

Already, 11 Fed tightening moves in 18 months are working their way through global markets. The specter of more hikes could wreak havoc in debt markets, equity bourses and property sectors everywhere.

Europe is uniquely poorly positioned to withstand the coming financial storm. Rising yields will hit real estate values from Tokyo to Seoul to Bangkok.

A major challenge for Asia is figuring out which financial shoes might drop next as well as how and where the tremors will be felt.

The US government shutdown for which Republican lawmakers are agitating would furlough hundreds of thousands of federal workers and suspend vast swaths of public services, crimping US economic growth.

US House Speaker Kevin McCarthy and his Republican party are angling for a government shutdown. Image: Twitter

“A shutdown would be credit negative for the US sovereign,” Moody’s analysts wrote in a note this week. They argue that “it would underscore the weakness of US institutional and governance strength relative to other AAA-rated sovereigns that we have highlighted in recent years.”

In particular, Moody’s adds, “it would demonstrate the significant constraints that intensifying political polarization put on fiscal policymaking at a time of declining fiscal strength, driven by widening fiscal deficits and deteriorating debt affordability.”

Economists at Wells Fargo write that “should a shutdown transpire, there could be a negative impact of the US dollar, albeit one that is likely to be modest and short-lived.”

Gita Gopinath, first deputy managing director at the International Monetary Fund, warns of “tougher global financial conditions.” As the “fight to bring inflation back to target continues,” Gopinath says, “we expect global interest rates to remain high for quite some time,”

Furthermore, she notes, “there are reasons to think that rates may never return to the era of ‘low for long.’ This possibility is reflected in US 10-year Treasury bond yields, which have surged” to the “highest level since the global financial crisis.” In this environment, Gopinath says, “financing conditions for emerging markets can be expected to remain challenging.”

Analyst Gennadiy Goldberg at TD Securities says “overall, we view the shutdown as one of the many headwinds the economy faces this fall.” Analyst Michael Pond at Barclays tells Bloomberg that a government shutdown “will likely lead to some heightened uncertainty,” given how vulnerable Asia’s export-led economies are to “hot money” flows.

Shutdown risks are coinciding with surging oil prices and a massive strike by Detroit auto workers, both of which are exacerbating inflation risks. As such odds are Fed Chairman Jerome Powell’s team will hit the monetary brakes even harder.

Count Jamie Dimon, CEO of JPMorgan Chase, among those who believe Fed rates – in the 5.25%-5.5% range now – could go significantly higher as inflation remains elevated.

“I am not sure if the world is prepared for 7%,” Dimon told the Times of India. “I ask people in business, ‘Are you prepared for something like 7%?’ The worst case is 7% with stagflation. If they are going to have lower volumes and higher rates, there will be stress in the system. We urge our clients to be prepared for that kind of stress.”

What’s more, Dimon referenced Warren Buffett’s famous observation that “only when the tide goes out do you discover who’s been swimming naked.” As Dimon notes of more assertive Fed tightening moves, “that will be the tide going out.”

“Investors,” says analyst Paul Nolte at Murphy & Sylvest Wealth Management, “are beginning to realize that a higher for longer interest rate environment is a likely outcome and are slowly adjusting to the new normal. Higher-for-longer has been the mantra of the Fed for a few months. It is only recently that the markets have been taking them at their word.”

The irony, of course, is that the worse things get for the US fiscal outlook, the more investors flock to the dollar. That’s luring capital away from China, Japan, South Korea and other top Asian economies at the worst possible moment for Beijing, Tokyo, Seoul and beyond. Counterintuitively, big losses in US sovereign securities are increasing the dollar’s appeal.

The dollar keeps getting stronger. Photo: Asia Times Files / AFP

Even before Moody’s stumbled onto the scene, global investors faced the specter of a third straight year of losses in the $25.5 trillion Treasury debt market. All the red ink reflects investor concerns about liquidity amid the most aggressive Fed tightening cycle since the mid-1990s and extreme volatility as inflation flares up across the globe.

Yet from an interest rate differential standpoint, says Nomura Inc strategist Andrew Ticehurst, the dollar’s legacy safe-haven status, America’s steady growth and high yields make for an “unusual and powerful combination” at a moment when the potential for sudden risk-off pivots abound in markets.

Another reason this appears to fly in the face of both political and financial reality: US President Joe Biden’s dismal approval ratings. As Congressional Republicans and Democrats lock horns, Biden’s low-40s support rate leaves the White House little hope of cajoling lawmakers not to shut down the government, gamble with Washington’s credit rating or pursue reforms to increase US innovation and productivity to tame inflation.

The same goes for Biden’s latitude to protect the roughly $3.2 trillion of US Treasury securities held by top Asian authorities. Those foreign exchange reserves could find themselves in harm’s way as Moody’s joins S&P and Fitch in closing the books on America’s AAA era.

Japan would be the biggest loser with its more than $1.1 trillion of US government debt. China holds $821 billion and Korea has $116 billion. Along with losses on state savings, surging US rates could devastate Asia’s biggest trade-reliant economies, each of which is navigating their own domestic debt troubles.

In China, it’s property markets and a titanically large shadow-banking sector. In Japan, it’s the most crushing debt load in the developed world made worse by a fast-aging population. In Korea, it’s record household debt undermining broader consumption dynamics.

Here, the dollar’s trajectory – and how its rally defies gravity as bonds sell off – is adding to Asia’s headaches.

Economist Jeongmin Seong at the McKinsey Global Institute says that “many Asian countries accumulated substantial foreign exchange reserves after the Asian financial crisis of the late 1990s.” In 2022, he notes, Asia accounted for 40% of global capital flows, four times the level in 2000.

“But there may be pockets of vulnerability to any sudden outflow of capital,” he explains. “In Indonesia and Vietnam, for instance, foreign direct investment accounts for 20% and 14% of total investment, respectively.”

Episodes of runaway dollar strength tend to end badly for Asia. Look no further than the region’s 1997-98 financial crisis, which was precipitated by the US Fed’s aggressive 1994-1995 rate hike cycle.

Episodes of yen volatility pose their own threat. Worries about surging Japanese government bond yields are rippling through global credit markets as the Bank of Japan hints at an exit from quantitative easing. That poses outsized risks because 24 years or zero-to-negative rates morphed Japan into the globe’s premier creditor nation.

These funds are then invested in higher-yielding assets from Brazil to South Africa to Indonesia. This giant “yen-carry trade” often explains why sharp yen moves often slam markets everywhere.

IMF economist Thomas Helbling says Asia is highly exposed on account of debt levels. “Asia’s increased borrowing in recent decades has augmented the region’s exposure to rising interest rates and heightened market volatility,” Helbling explains. “Borrowing by the region’s governments, companies, consumers and financial firms is well above levels prior to the global financial crisis.”

Trouble is, Helbling says, “highly leveraged companies face greater risk of default as monetary policies and financial conditions remain tight. Even with resilient economic growth, interest payments may exceed earnings as borrowing costs rise, reducing firms’ ability to service their debts.” Generally speaking, he adds, “corporate debt in Asia is concentrated in firms with low-interest coverage ratios.”

McKinsey economist Seong says that “some Asian economies, government, household, and corporate debt has risen by even more than the Organization for Economic Cooperation and Development average.”

Seong points out that nonfinancial corporate debt in China is 150% and in Japan, South Korea and Vietnam it is more than 120%. In 2021, Korea’s household debt reached 106% and Australia’s was 119%, against an OECD average of 60%. “Carrying this amount of leverage will be costly if interest rates continue to rise,” Seong notes.

A porter walks on a bridge in Chongqing, China with new residential buildings in the background.
Photo: CNBC Screengrab / Zhang Peng / LightRocket / Getty Images

On the property side, “there’s is a risk of a fall in asset prices, including real estate,” Seong says. Between 2015 and 2021, the average nominal housing price rose by 50% in China, 34% in Australia, and 17% in South Korea. Price inflation in cities is even higher. In Seoul, for example, the price-to-rent ratio increased 2.5 times in the 2015-2021 period.

At home, Biden also must ensure the stability of banks as Fed rate hikes continue. Mohamed El-Erian, advisor at Allianz, worries higher borrowing costs may cause havoc in real estate markets. “We’ve got to be really careful,” El-Erian warns. “The housing market is central to the economy.”

At the same time, the fallout from the collapse of Silicon Valley Bank in March “is casting doubt on America’s ability to maintain its leadership of the global monetary system,” notes economist Diana Choyleva at Enodo Economics. It’s up to Washington “to take decisive steps to shore up confidence, including extending dollar credit lines to a clutch of Asian countries.”

As Choyleva stresses, “it is in Asia that the United States’ global financial hegemony is being most keenly contested – by China.”

It’s hard not to think Washington’s shutdown showdown is doing Beijing’s work for it.

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Mazars in Singapore appoints new leaders | FinanceAsia

Paris-headquartered audit, tax and advisory firm, Mazars, announced earlier this month the appointment of new leaders across its capital markets, risk management, and outsourcing businesses in Singapore.

Chee Keong Ooi, Shireen Tan and Justin Lim have each been appointed as head of capital markets, head of risk management and head of outsourcing respectively, effective September 1.

“Effective leadership involves making timely strategic decisions that align with both the current macro challenges and our long-term vision,” Rick Chan, managing partner in Singapore and head of audit and assurance in Apac, told FinanceAsia.

The new leaders will provide regular updates on the progress and development of their respective teams to the Mazars’ executive committee, he added.

With over 20 years of experience in accounting, Ooi brings to his new role significant experience advising clients seeking initial public offerings (IPOs) and reverse takeovers via the Singapore and Hong Kong exchanges. Having been with Mazars for over 11 years, he most recently served as audit partner based in Singapore, according to his LinkedIn profile.

Chan explained that Ooi’s senior role is newly created. Among his priorities will be solidifying Mazar’s reputation and shaping the firm’s strategic direction in the capital markets sector.

“Ooi’s responsibilities span vital areas, including business development, client relationship management, team growth and development within Mazars’ capital market sector, and overseeing risk assessments for capital market projects,” Chan noted.

Mazars was the second most active firm in IPO audit services in Singapore last year, supporting two out of nine offerings and representing 36% of the S$17.9 million ($13.1 million) in funds raised in the market.

“Listing on the international market continues to hold strong appeal for investors and companies alike,” Ooi told FA, citing recent IPOs from Arm and Instacart in the US, both of which bolstered market sentiment and investor confidence.

Meanwhile, he identified market volatility and regulatory hurdles as some of the greatest challenges for Asia’s current IPO market.

“Factors like uncertainty, geopolitical tensions, and economic instability can affect market volatility,” he explained.

“Navigating regulations, compliance, and reporting standards can also be complex for companies seeking to go public.”

He added that concerns around valuation, liquidity, and exit strategies can also affect capital raising and share prices.

“For venture-backed companies, the ability to offer exit opportunities to early-stage investors and founders through IPOs is crucial,” he explained.

Risk awareness

Shireen Tan joins Mazars from PricewaterhouseCoopers (PwC), where her most recent role involved serving as senior manager, according to her LinkedIn profile.

In her new capacity, Tan will aim to foster a risk-aware culture, enhance risk identification, and implement robust risk mitigation strategies, Chan outlined.

“Effective risk management is not just about minimising potential risks or losses but also about seizing opportunities in an ever-evolving business landscape,” Tan shared in the press release.

“I’m committed to working closely with cross-functional teams to align risk management strategies with the firm’s objectives, enabling us to make informed decisions that drive sustainable growth.”

Also forming one of the key changes is Justin Lim’s appointment to lead Mazars Singapore’s outsourcing team. In his new role, Lim will be responsible for further strengthening the outsourcing capability, which is the firm’s third largest service line after audit and assurance services. Alongside his new remit, he will continue to lead the Asia-based Corporate Secretarial segment.

Additionally, Tan Shen Way and Victor Ouyang were promoted as local partner in audit and assurance, effective September 7.

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Indonesian PPP player secures syndicated sustainability-linked facility | FinanceAsia

PT Sarana Multi Infrastruktur (PT SMI), a dedicated infrastructure entity under the jurisdiction of Indonesia’s Ministry of Finance, announced recent success in obtaining a $700 million sustainability-linked syndicated term loan facility. The firm serves as a financing vehicle for the development of nationally significant infrastructure projects, through public-private partnerships (PPPs).

“This syndicated loan is intended to refinance existing projects as well as to fulfil new financing needs primarily for sustainable infrastructure projects in Indonesia,” the press release noted.

The new funds will be used to refinance a maturing $700 million offshore syndicated term loan that was first arranged in 2020. The sustainability-linked offering closed on September 13 with aggregate commitments of $1.8 billion and was 2.6 times oversubscribed.

Key performance indicators (KPIs) linked to the facility include growing the company’s sustainability financing portfolio, and increasing the number of employees undertaking environment, social, and governance (ESG) training.

Green opportunity

Speaking to FinanceAsia about the transaction, Colin Chen, head of ESG finance for Asia Pacific at MUFG Bank, which served as one of the transaction’s mandated lead arrangers and bookrunners (MLABs), highlighted the opportunities brought by sustainability-linked financing for companies active in “hard-to-abate sectors,” given no requirements around the use of proceeds.

Kunardy Lie, director of institutional banking at DBS Indonesia – also a MLAB – said his team sees “abundant opportunities” to push the sustainability agenda through green and transition financing solutions in the local market.

Although emerging economies like Indonesia are tasked with driving economic growth alongside a low carbon budget, environmental and socially-conscious funding initiatives can help advance sustainability agendas, Lie noted. He cited the market’s PPP scheme as a policy catalyst which convenes industry players, financial institutions and regulators to establish common practices to approach ESG issues.

First introduced in 2005, the state-backed PPP Project Book lists out a range of infrastructure projects that are open to private sector participation, with a view to bridging the existing infrastructure funding gap and driving Indonesia’s national economy. PT SMI is actively involved in the scheme and acts as a crucial financier in some of the key national infrastructure projects.

“We are excited to support PT SMI in their venture to finance ongoing projects including sustainable infrastructure projects,” Lie said, noting that DBS’s relationship with PT SMI started in February 2020 around the arrangement of the original working capital facility.

Renewables projects, as well as other forms of energy transition segments constitute growing sub-sectors within the domestic infrastructure market, Chen added.

He cited supportive policy initiatives, including the Just Energy Transition Partnership (JETP) which was signed off during last November’s G20 summit, and the country’s rich solar and wind resources as helping to drive Indonesia’s developing green economy.

“We will want work closely with policymakers and the private sector to leverage this important initiative in support of Indonesia’s net zero transition,” Chen said.

“This sustainability-linked syndicated term loan facility is a real example of innovative fundraising, by also implementing our commitment towards sustainability target,” Edwin Syahruzad, president director of PT SMI, commented in the press release.

In addition to DBS and MUFG, the MLABs for the transaction included Bank of China (Hong Kong), CTBC Bank Co., Ltd., Mizuho Bank, and United Overseas Bank (UOB). UOB also acted as the MLABs’ transaction and overall sustainability coordinator for the transaction.

PT SMI and the remaining MLABs did not respond to FA’s requests for comment.

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Mazars in Singapore appoints new Southeast Asian leaders | FinanceAsia

Paris-headquartered audit, tax and advisory firm, Mazars, announced earlier this month the appointment of new leaders across its regional capital markets, risk management, and outsourcing businesses.

Chee Keong Ooi, Shireen Tan and Justin Lim have each been appointed as head of capital markets, head of risk management and head of outsourcing respectively, effective September 1.

“Effective leadership involves making timely strategic decisions that align with both the current macro challenges and our long-term vision,” Rick Chan, managing partner in Singapore and head of audit and assurance in Apac, told FinanceAsia.

The new leaders will provide regular updates on the progress and development of their respective teams to the Mazars’ executive committee, he added.

With over 20 years of experience in accounting, Ooi brings to his new role significant experience advising clients seeking initial public offerings (IPOs) and reverse takeovers via the Singapore and Hong Kong exchanges. Having been with Mazars for over 11 years, he most recently served as audit partner based in Singapore, according to his LinkedIn profile.

Chan explained that Ooi’s senior role is newly created. Among his priorities will be solidifying Mazar’s regional reputation and shaping the firm’s strategic direction in the capital markets sector.

“Ooi’s responsibilities span vital areas, including business development, client relationship management, team growth and development within Mazars’ capital market sector, and overseeing risk assessments for capital market projects,” Chan noted.

Mazars was the second most active firm in IPO audit services in Singapore last year, supporting two out of nine offerings and representing 36% of the S$17.9 million ($13.1 million) in funds raised in the market.

“Listing on the international market continues to hold strong appeal for investors and companies alike,” Ooi told FA, citing recent IPOs from Arm and Instacart in the US, both of which bolstered market sentiment and investor confidence.

Meanwhile, he identified market volatility and regulatory hurdles as some of the greatest challenges for Asia’s current IPO market.

“Factors like uncertainty, geopolitical tensions, and economic instability can affect market volatility,” he explained.

“Navigating regulations, compliance, and reporting standards can also be complex for companies seeking to go public.”

He added that concerns around valuation, liquidity, and exit strategies can also affect capital raising and share prices.

“For venture-backed companies, the ability to offer exit opportunities to early-stage investors and founders through IPOs is crucial,” he explained.

Risk awareness

Shireen Tan joins Mazars from PricewaterhouseCoopers (PwC), where her most recent role involved serving as senior manager, according to her LinkedIn profile.

In her new capacity, Tan will aim to foster a risk-aware culture, enhance risk identification, and implement robust risk mitigation strategies, Chan outlined.

“Effective risk management is not just about minimising potential risks or losses but also about seizing opportunities in an ever-evolving business landscape,” Tan shared in the press release.

“I’m committed to working closely with cross-functional teams to align risk management strategies with the firm’s objectives, enabling us to make informed decisions that drive sustainable growth.”

Also forming one of the key changes is Justin Lim’s appointment to lead Mazars Singapore’s outsourcing team. In his new role, Lim will be responsible for further strengthening the outsourcing capability, which is the firm’s third largest service line after audit and assurance services. Alongside his new remit, he will continue to lead the Asia-based Corporate Secretarial segment.

Additionally, Tan Shen Way and Victor Ouyang were promoted as local partner in audit and assurance, effective September 7.

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HSF eyes emerging energy and tech opportunities | FinanceAsia

This month, London-headquartered law firm, Herbert Smith Freehills (HSF) announced the expansion of its Singapore-based capability with three partners, in support of opportunities in emerging sectors such as technology and energy transition, as well as the “high priority growth area” of private capital.

At the start of September, the company shared the recruitment of energy transition specialist, Peiwen Chen from the Singapore office of competitor, White & Case; and the relocation of HSF M&A partner, Malika Chandrasegaran, from Sydney. This was followed by news on Thursday (September 21) of the recruitment of Anthony Patten as M&A and energy expert, from King & Spalding.

The three partners report to Jamie McLaren, Singapore-based partner and Andrew Blacoe, head of Corporates.

Discussing opportunity in the private capital space, McLaren told FinanceAsia, “There is a huge amount of dry powder available to deploy in Asia; and as private equity (PE) houses look to rebalance portfolios and benefit from the anticipated upside in a maturing Asian economy, there are an increasing number of PE houses moving into Asia and setting up Asia-focussed funds.”

He underlined that, while opportunities in the tech sector might have tailed off in recent months, they are likely to pick up on the back of consolidation yet to come, coupled with developments across artificial intelligence (AI) that are set to offer new potential.

Meanwhile, traditional PE sectors such as healthcare, financial services and the consumer segment are continuing to provide strong deal flow. “Markets such as Indonesia, India, Philippines, Thailand and Vietnam continue to offer huge promise.”

Although deal activity has been fairly subdued in recent months, McLaren added that there are signs of this turning around, “with a number of recent high profile deals, including KKR’s investment in Singtel’s data centre business” and a busy few months in the pipeline.

With regard to the new recruits, the HSF team pointed to Chen’s experience advising financial sponsors, strategic corporates and sovereign wealth funds (SWFs) on cross-border transactions, including Copenhagen Infrastructure Partners (CIP) on the NT$90 billion ($3 billion) development and subsequent sale of a strategic stake in the Taiwanese 589 MW Changfang and Xidao offshore wind projects; as well as Thailand-headquartered Ratch Group on its $605 million acquisition of Nexif Energy.

Patten brings to the firm three decades of track record working across the energy space – spanning sub-sectors comprising renewables, hydrogen, ammonia and carbon capture, as well as traditional oil and gas. In terms of other law firms, his LinkedIn profile highlights his experience at Ashurst, Allens and Shearman and Sterling, as well as six years spent as legal counsel at Shell, in London and Dubai.

The team drew attention to Chandrasegaran’s adeptness advising TPG on its A$16.5 billion ($10.6 billion) merger with Vodafone Hutchison Australia; and the A$18.7 billion acquisition of Origin Energy by a consortium involving Brookfield Asset Management, GIC, Temasek and EIG Global Energy Partners.


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Asean exchanges formalise sustainability governance efforts | FinanceAsia

Six Asean-based exchanges released a list of ten governance objectives last week( September 12 ) that are included in the Common ESG Metrics of the regional bloc. The points make up the last item on a list of 27 thorough disclosure recommendations from regional market-listed companies that address plethora of environmental, social, and governance( ESG ) issues. The articles titled” E”( environment ) and” S “( social ) elements were released in March and December 2022, respectively.

According to Dr. Soraphol Tulayasathien, senior executive vice president and head of the Corporate Strategy and Sustainable Market Development Divisions at the Stock Exchange of Thailand( SET ), the complete list” serves as a common basis for member stock exchanges to build upon to drive sustainability among their listed companies.”

He told FinanceAsia that” each specific trade within Asean will defend the acceptance and importance of ESG metrics in the framework of their local market dynamics.”

In 2021, the ESG Working Group ( ESG WG ) was first established by the Asean Exchanges in six nations, including Bursa Malaysia, Hanoi Stock Exchange, Ho Chi Minh Securities Exchange ( HOSE ), Indonesia Stock Exchange ( IDX ), Philippine Stockex( PSE ), and SET. In response to the growing fame of ESG issues that have come to guide global funding decision-making as well as other owing application procedures, the members work together to lead local sustainability-themed initiatives.

” The Asean Exchanges have been working together to create a framework for collaboration across different areas to elevate the Assen capital market, and we are seeing encouraging progress ,” SGX’s spokesperson told FA. One is the creation of ESG measures. & nbsp,

Additionally, Tulayasathien exclusively disclosed to FA that IDX, SET, and Bura Malaysia had recently signed a Memorandum of Understanding( MoU) to work together on additional sustainability-related opportunities.

This deal” emphasizes the collective responsibility of these three exchanges to encourage the adoption of good ESG practices and to promote responsible progress within their particular markets.”

The MoU, according to him, aims to offer cross-border ESG investment opportunities throughout the Asean area. ” The official announcement of the MoU will be made to the public shortly. Please stay tuned ,” said & nbsp.

The announcement comes after various strategic initiatives that were just made in the area. The Hong Kong Exchanges and Clearing Limited( HKEX ) and IDX announced their collaboration in July to look into potential mutually advantageous opportunities.

At the time, experts told FA that the development would put both domestic and foreign investors operating in Hong Kong in a position to take advantage of opportunities related to Indonesia’s onshore energy transition story, particularly to access the market ‘ abundant nickel reserves and contribute to the country of Indonesia developing its domestic electronic vehicle ( EV ) supply chain.

In order to investigate opportunities in finance, ESG, and cross-listing, among other areas, the HKEX and Saudi Arabian share exchange operator signed a MoU earlier in February.

efforts for products

The Asean governance metrics were formalized at a meeting on September 8 that was also attended by representatives from the Lao Securities Exchange and Cambodia Stock Exchange( CSX ).

The leaders acknowledged the complementary nature of their exchanges and the potential for product improvement-based connectivity opportunities, such as depository receipts ( DR ) collaboration.

Tulayasathien stated that the Asean-based ESG WG had seen rising demand from local market participants for a wider range of investment opportunities when discussing the potential for new, cross-border product offerings.

With the addition of five fractional depositary receipts ( DRx ) on technology and growth stocks from the US and Hong Kong, the SET currently hosts a total of 13 DRs on its exchange platform, including foreign shares and exchange-traded funds ( ETFs ) from China and Vietnam.

The SET is prepared to launch a DR featuring Singaporean underlying stocks starting on September 19 as part of the strategic partnership known as the Thailand-Singapore Direct Relationship ( THR ) between Thailand and Singapore.

The SGX representative confirmed that the DR connection was started when it was first launched in May and involved four different companies.

The trading volume of DRs has grown significantly since its founding in 2018. To increase our global reach and offerings, we welcome the chance to expand collaborative initiatives with another exchanges, Tulayasathien said.

Along with the creation of the bank’s unique net-zero transition plan, the SGX is still looking into a wide range of tools to assist investors in incorporating climate considerations into their investment portfolios.

The spokesperson stated that in order to achieve this, we have expanded our selection of climate-themed goods and services, including the listing of the iShares MSCI Asia ex-Japan Climate Action ETF as well as our arrangements for electric vehicles metal.

This is on top of the Nikkei 225 Climate PAB future and our FTSE Blossom Japan derivatives, which were released in March of this year.

The Straits Times Index( STI ) constituents that had started concentrating on low-carbon solutions had outperformed the larger benchmark, according to the contact.

” Sembcorp Industries, Keppel Corporation, and Yangzijiang Shipbuilding have been actively growing their portfolios for renewable energy and cleaner or green solutions; the three stocks have averaged 46.8 % total returns in 2023 YTD, compared to 3.0 % total return for the STI.”

According to the International Sustainability Standards Board’s ( ISSB ) requirements, the Sustainability Reporting Advisory Committee ( Srac ) in Singapore opened a public consultation in July on the requirement of mandatory climate reporting for all publicly traded companies. According to the SGX director, the most recent period of conservation reporting among the listcos is expected to begin in Q4 2023.

Meanwhile, in Hong Kong, the Securities and Futures Commission ( SFC) released a thorough roadmap and nbsp last month for the implementation of ISSB standards in the market.

Governance improvements

The monthly performance evaluation of board directors and continued and constant professional education programs for such leaders are two of the ten Asean governance recommendations.

Directors of Singapore-registered listcos are required to take one of eight prescribed conservation courses in order to gain a fundamental understanding of sustainability issues, according to the SGX spokeswoman, who also shared progress to date.

” SGX mandated conservation instruction for all directors of listed companies in 2022 because we recognize the value of instruction.” Over 3, 200 people have so far attended the required courses.

The number of listed companies taking part in Thailand’s Sustainability Investment ( THIS ) assessment increased from 100 in 2015 to 221 in 2022, according to Tulayasathien.

The extraordinary advancement of Thai listed companies in the area of ESG practices, which has earned them world recognition, is one of our major accomplishments, he said.

The Dow Jones Sustainability Indices presently list 26 Thai-listed businesses, and the FTSE4Good and MSCI ESG index, both, list 42 and 41 listed companies. Thailand is currently ranked first in the ESG rankings for the ASEAN location thanks to this outstanding accomplishment.

He added that members of the Thai industry have access to a number of ESG education portals, such as the creative network known as SETESG Data Platform, which consists of two organizations: the Acadamy and the Pool.

The measures are meant to serve as a starting point for and to enhance ESG reporting practices by businesses throughout Asean, according to & nbsp.

According to Tulayasathien, the initiative emphasizes the significance of close, consistent, and pertinent ESG data, which investors are increasingly demanding both locally and globally.

Requests for comment were never answered by Bursa Malaysia, the Hanoi Stock Exchange, HOSE, IDX, or PSE. In addition, & nbsp,

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Exclusive interview with Paul Yang, BNP Paribas CEO for Asia Pacific | FinanceAsia

Paris-headquartered BNP Paribas boasts a history of over 160 years in Asia and today, it draws upon a 20,000-strong team that is active in thirteen markets across the continent.

The regional effort is led by Paul Yang, who ascended to role of CEO for Asia Pacific in December 2020, as the world succumbed to the full throes of the beginnings of a three-year pandemic. As society grappled with widespread affliction, Asia’s key economies responded to rapidly evolving government direction with fervour: leaving borders closed and markets shaken.

However, as you will discover through this exclusive interview, Yang was defiant in his refusal to be beset by external challenges. Proving himself an astute leader at the regional helm, he navigated the uncertain scenario deftly, and would go on to secure solid returns for both full-year 2021 and 2022; as well as robust revenue for the first quarter of 2023.

With a view to steering the bank’s business in support of the group’s Growth, Technology and Sustainability (GTS) strategy for 2025, FinanceAsia sought Yang’s take on Asia as a key international powerhouse, and learned about the milestones of his international career to date.

Entering Asia

BNP Paribas’ forerunner, the Comptoir National d’Escompte de Paris (CNEP), was set up by France’s finance minister following the hardships endured during the French Revolution; to curb mass bankruptcy in the financial markets; and to stimulate the economy. 

Following signature of a free trade agreement with the British, the Comptoir sought to develop an international strategy to source the raw materials required to support the flourishment of European industry. To do so, it extended beyond its French national borders for the first time; establishing offices in Calcutta and Shanghai in 1860, independent of foreign partnership.

Later, CNEP merged with the Banque Nationale pour le commerce et l’industrie (BNCI) to form the Banque Nationale de Paris (BNP). Capitalising on these regional capabilities, the bank made Hong Kong the centre of its Asian platform.

Q: Paul, you’ve been based in Asia Pacific for the majority of your career with BNP Paribas. Can you share what has defined BNP’s corporate journey in Asia so far?

A: Well, I wasn’t there in the 1860s, but it’s true that we have had a very long presence in the region. However, I consider “modern” BNP’s presence to be quite recent. It was really the bank’s merger in 2000 that created who we are today, elevating us as France – and then Europe’s – leading financial group and the most profitable bank in the eurozone.

But regarding Asia, we’re proud to be able to say that we’ve been here for a long time, which demonstrates our commitment to the region.

In Hong Kong, for instance, we often deal with multiple family generations of entrepreneurs and tycoons. The same is the case for some of our mid-cap clients – we have dealt with their fathers. We have built a sufficient network in the region to be able to play a key role in executing succession plans and building businesses for the future.  It really means something that we’ve been here for so long and to be profitable in all of the 13 markets where we operate.

These days, being relevant to your clients counts. You need a strong balance sheet, presence and scale to guide key them from their home markets into new areas. This is how we started, building our financial institutions group (FIG), then multinational and corporate (MNC) franchises,before further progressing to build scale, solutions, products and platforms.

We have developed a strong Asian presence and over the last three years, we’ve built on connectivity to improve the flows between the various corridors we participate in. We are relevant to key local participants and accompany international clients in reverse, also.

This goes for all facets of our business: whether in the corporate and institutional world, or in consumer finance. We are bigger than the sum of our parts and many things we do have relevant purpose for our clients.

Q: How does the bank’s business in Asia compare to that of the European markets (e.g. France, Italy, Belgium and Luxembourg)?

A: Understandably, our stronghold is Europe and we are significant as well in America. But overall, Asia represents a sizable portion of group business.

The bank’s longevity and strong heritage in Asia Pacific, coupled with our integrated business model places us in good stead to extend and reinforce our presence in this growth region.

In this regard, BNP Paribas’ Asia Pacific revenue contribution to the group’s corporate and institutional business is about 20%; and it will continue to grow.

Ultimately, the bank is emerging as a leading player in the region – and this brings us to a better position to aim for larger deals and more ambitious goals.

In this respect, we have grown our market share in our regions – for example, we hold dominance in markets such as Taiwan, Singapore and Hong Kong in the wealth management space, and we have recently launched an onshore wealth capability in Thailand. Asset management is developing; and our insurance business – Compagnie d’Assurance et d’Investissement de France (Cardif), has also been successful.

Where we do not have underlying domestic market strength, we choose to partner. We are humble enough to realise that sometimes it is better to do so. For example, in Asia, on the insurance side of the business we have partnered with local banking distributors. We started exploring this type of partnership around 25 years ago in markets such as Taiwan, Japan and Korea, and we are building up our strength in China, India and Southeast Asia.

The same goes for the retail side – personal finance. In 2005, we became a strategic shareholder of Bank of Nanjing in China and we are now their single largest shareholder with a 15.7% stake. 

We have built core business through partnerships, but where we think that we can control the entire business because it’s part of our DNA, is on the wealth management and corporate institutional banking (CIB) sides.

Q: What are the bank’s strategic priorities across Asia over the short and long term?

A: We are a bank that tries to deliver short-term results alongside long-term goals. Long-term relationships are part of our nature from a strategy perspective, and we are not in the business of pursuing rash opportunities when things look great and then making drastic cuts in a down cycle. We have a long-term vision and try to cultivate trust and relationships with this timeframe in mind.

From a short-term perspective, we have targets around our top line to maintain cost discipline and ensure that we invest for the future. We are intrinsically risk-aware and we insist on having a good mix of new blood and older experience, to move forward prudently.

Diversification is key. When you pursue disciplined growth, you avoid temptation, fashion and fad and consequentially, mistakes. Across all markets and products, we want to be positioned as the number one European bank for CIB, the preferred partner for wealth management, insurance and asset management – and we are not far from achieving this goal. 

Asia comprises a mix of developed and developing markets. Whether you look at the position we have in Japan, Australia, or Korea – or across more emerging business hubs such as Southeast Asia or China, we are well positioned there for our clients and we generate good returns.

Some of our peers will concentrate their presence at a particular local base, say in hubs. But we do not believe in guaranteeing strong, underlying growth simply by sitting in Hong Kong and Singapore and flying bankers all over the place.

The creation of local platforms is important. We have been building these in a considered manner across Southeast Asia, Taiwan, mainland China and elsewhere for the past decade and we are able to see the results. For example, we recently complemented our business mix with a securities licence in China. Once we have completed the takeover of several prime brokerage businesses from our competitors, we will see an increase in the equity cash portion of our business mix. Then there’s the joint venture (JV) we secured with the Agricultural Bank of China, which is the largest bank in the market by network and with whom we’ll be structuring investment products for retail clients.

Q: Diversification is a theme that has emerged from the pandemic to build business resilience. But are there any particular geographies or sectors that stand out as offering growth opportunity?

A: We’ve seen some volatility in the banking sector, but as a group, our corporate culture has focussed on development in a very diversified way. In terms of resilience, this sets us apart.

If you look at our group results, you will see that around 50% of our business is in the domestic retail and consumer finance market;

a third is in CIB; and over 15% is concentrated on activities such as asset gathering – from private banking to asset management and insurance. Within CIB, there’s also security services, which might not have a great cost income, but involves limited capital consumption and brings recurrent fees.

This percentage mix has been kept stable as we’ve grown across all areas and however you slice and dice our business, you will always see diversification. It’s the same for our client base – we not only serve financial institution clients but also corporates and high net worth individuals (HNWI). These three pillars are quite well balanced and offer us the means to build a sufficient product platform.

Capital market activities, including equity capital markets (ECM), debt capital markets (DCM), fundraising and advisory services can be volatile and event-driven; while another big portion of our business and effort is in transaction banking: following the flow of finance, supply chains, trade finance and cash management activities.

The interest rate surge of the last 12 -18 months has been very much beneficial to the cash management business, while monoliners who rely only on investment banking, have suffered. We have benefitted. Whatever way the world or region goes, we are naturally hedged.

Across the Asian region, our presence differentiates us from the rest. We are more than 2,500 in Hong Kong, have 2,200 in Singapore, plus a solid foothold in Japan where we’ve ranked consistently within the top five thanks to our leadership in the global macro environment, both in fixed income currencies and commodities (FICC) and across equity and credit.

In Australia, we have a dominant position in the custodian business that we started 20 years ago; we do well in China, and then we have strong ambition in India and Southeast Asia. I cannot see any market where there isn’t potential.

Q: How do you aim to grow the Asian business?

A: In the past, we have grown organically – even when we looked to secure Deutsche Bank’s prime brokerage business in 2019, it was not a typical acquisition. They were trying to expand in terms of platforms and wanted to lighten up their equity business. Meanwhile, in July 2021, we acquired another 51% of Exane, the top-rated equity research business, following a successful 17-year partnership where we had held 49%.

Both deals demonstrated ambition and keenness to complement the building blocks of our equity business.

So yes, our focus is organic over external growth. We feel it’s better to rely on organic opportunity.

Q: Which developments excite you across sustainability?

A: We’ve been involved in sustainability for over a decade, having started our sustainable finance forum (SFF) in Singapore seven years ago. I’m happy to see that what was a niche market is now very much mainstream.

I would say we have been dominating the ESG thematic, especially when it comes to corporate social responsibility (CSR). We’ve exited from carbon-heavy energy, have moved towards renewables, and we are working to lighten up our upstream exposure. It’s pleasing that every year we do more, whether green bonds, sustainable loans or other structures. We are among the top three banks in the space and even if we cannot manage to stay number one, our efforts make a positive impact across society.

Last year, we created a group of more than 150 bankers, the Low Carbon Transition Group (LCTG), to support our clients’ energy transitions. We’re experienced, so are not having to start from scratch and can support those corporates who might not know where to begin.

We recently held an electric vehicle (EV) conference where we gathered more than 300 clients, corporates and investors in Hong Kong. The topic sits well with what we want to do in the sector around mobility as an engine for growth and we think we can bring value-add to our clients.

EV adoption figures are impressive. In 2019, they accounted for 2.2% of the global total in cars sold, and rose to 13% last year. In China, the penetration figures are double. We’ve seen how this market can surprise everybody regarding adoption of new technologies. China did it with internet access, the smartphone, payments, and now EV. It’s exciting.

Q: You started in the IT department, held positions in Paris, Taipei and Hong Kong, before taking on Asia Pacific leadership at the height of the pandemic. What has shaped your career?

A: You’re right, I took the helm of the region in the middle of the pandemic. I was very fortunate to have been based in Asia for more than 20 years, so I knew the people, the teams, key clients and our platforms, which helped tremendously. During the pandemic, we adopted new technologies and forms of digital communication to stay close to our clients. We succeeded and the vast majority of our clients did also.

I think I’ve been lucky. I started in IT – I’m not sure I was good enough to stay in it, but my first business trip was to Hong Kong. I loved the place and dreamed of how amazing it would be to be based there. Thirty years later, here I am.

Like everybody, I’ve worked hard, but I was very fortunate, and at times, daring. When I wanted to switch from IT to credit, people said “No, Paul. We like you very much, but please don’t do something stupid. You already have a promising future.”

My response was to ask for a chance. I was curious to learn and probably would have gone elsewhere if I hadn’t been given opportunity. Fear around not succeeding makes you try harder and you don’t want to disappoint the people who see something in you.

A few years in, I moved from credit to corporate banking, where I was offered a great job in China – everybody wanted to be in China, but interestingly, it was a bit early – nobody was ready to do much there. So, I transferred to Taiwan to lead the corporate banking team and learned management on the ground. Doing quite well, I was later promoted to head of the territory and then after, moved to Hong Kong. That was 18 years ago!

For me, it’s been a combination of hard work, opportunity, luck and meeting the right senior people to support my development.

One memory that stands out was when the bank appointed a Hong Kong local to lead Greater China. It was a big move, as previously, the standard was someone French and male, but a Hong Kong woman took on the role and I worked for her for many years, learning from her insights. She believed in me and offered me the support to grow.

Q: What’s been the biggest highlight of your career to date?

A: This is difficult! But a key milestone was being given the opportunity to move from IT to banking. I’ve always liked a challenge – from coding, to implementing new tech systems and platforms, to what I do today.

I’ve seen many different things in my career and I have always been very curious. I’ve really cherished every opportunity I’ve had.

I’ve been very happy in the organisation and even today, it’s meaningful to partner with faces old and new. Back in 2004-2005, I had the opportunity to build a partnership in China. After much research, we invested in the Bank of Nanjing, which, two years later, was the first City Commercial Bank to list. There are many board members who I know well. It’s great for both them and me – it’s nice that our professional focus involves making core connections. It’s meaningful.

Q : If you weren’t in banking, what do you think you’d be doing?  

A : Very early on, I think we all wanted to be football players! For France or Argentina – the recent World Cup rivals!

Sometimes I reflect and think I would have been pretty good at teaching. But whatever alternate path I would have taken, it would have involved international opportunity.

I grew up first in Taiwan before moving to France and it was at that point that I knew that I wanted to see the world and find opportunity to do so.

Of course, these days, when I look at my daughter evolving, I can see that there is a lot of opportunity ahead for her, more so than when I was young.  

¬ Haymarket Media Limited. All rights reserved.

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Is the US banking crisis truly over?

Early in the year, concerns about the international banking system were sparked by the US banking crises. Silicon Valley Bank, Silvergate, and Signature, three mid-sized US businesses, all experienced sharp declines in rapid succession, lowering cant share prices all over the world.

The Federal Reserve, the nation’s central bank, made sizeable sums of money available to failed businesses and established a financing program for other struggling organizations. With only one more US local banks, First Republic, collapsing a few weeks later, buyers were calmed and an instant disease was avoided.

However, it’s not entirely clear if the issue is truly over. How are things likely to turn out as investors return from their summer vacations to a time typically associated with market revolution?

slender margins and decreasing debris

In recent months, central bankers have kept raising interest rates to combat persistent prices. The Fed increased its key interest rate in July to 5.5 %, the highest level in 20 years. As late as February 2022, the charge was close to zero.

Although the increases have slowed this year, a sudden change like this can be very bad for banks, especially in light of the U-shaped rate movement that has been present since the global financial crisis of 2007 – 2009.

US forecast interest rate from 2007 to 23

Graph showing US benchmark interest rates over the past 15 years
via The Conversation, St. Louis Federal Reserve

Raising interest rates lowers the value of banks’ assets, raises what they must pay to use, limits their profitability, and usually makes them more vulnerable to bad things happening. Lenders have struggled with minimal product development and high payment fees, which refer to the amount they must pay out in relation to customer deposits, particularly in the first half of 2023.

This increased price is partially due to the fact that many consumers have been withdrawing their cash and depositing them in money market funds, where they can earn more interest. In order to make sure they had enough money, it forced businesses to acquire more from the Fed at prices that were significantly higher than they used to be.

The banks falls in the flower, which destabilized them at a time when the value of the debt on their balance sheets had likewise sharply decreased, were caused in part by this. As a result, more customers at different banks stopped making deposits out of concern that their wealth wasn’t secure either.

In conclusion, US banks observed a nearly 4 % decline in deposits between June 2022 and July 2023. This is usually bad information for the banking industry, along with higher interest rates.

By examining overall net interest margins ( NIMs ), you can see how this affects banks’ profitability. These represent the interest money that businesses receive less than what they pay out to lenders and other donors.

Online interest margins(%) for US banks

Graph showing US banks' net interest margins
based on 641 businesses P Capital IQ, S & amp

Credit grade declines

The rating companies have put more strain on people. Fitch downgraded its assessment of US government debt from AAA to AA at the beginning of August. It mentioned a potential decline in the public finances over the following three years as well as constant lobbying regarding the loan ceiling, the highest amount the government can use.

Devaluations by sovereigns frequently reflect issues in the larger market. Lenders may become unstable as a result of appearing less legitimate, which may cause their credit ratings to decline as well.

They may find it more difficult as a result to use funds from the Fed or even the industry. This may then have a negative impact on banks’ ability to lend money, capital buffers for handling poor bills, overall profitability, and share prices.

Share prices for US businesses in 2023

Graph showing US banks' share prices in 2023
Bank of America is red, Citigroup is peach, Goldman Sachs is pale blue, JP Morgan is golden, Morgan Stanley is indigo, and Regional Banks are purple. View of buying

Sure enough, Moody’s downgraded the credit scores of ten US mid-sized banks a week after the Fitch news, citing mounting economic challenges and strains that might reduce their success. Additionally, it forewarned that bigger institutions, such as State Street and the Bank of New York Mellon, might experience a potential drop.

Since then, S & amp, P Global Ratings, another significant ratings agency, has done the same, and Fitch has threatened to follow suit. According to our research, bank downgrades are linked to making them riskier and more fragile, especially when they are accompanied by a royal downgrad.

Despite all of that, there are advantages for US businesses. In the upcoming months, it is at least anticipated that both interest rates and bank deposits will stabilize, which may benefit the sector.

Bigger bankers are reporting improved profits from charging higher interest on loans despite the overall reduction in banks’ revenue. Later in the year, some of these businesses anticipate a increase from things like increased deal-making. Such indicators might contribute to greater balance across the board.

Credit Suisse needed to be saved by other European banks UBS in March because banks in Europe have recently seen lower payments and net attention profits.

However, in the most recent couple of rooms, German payments and gain profits have been rising. Additionally, new stress tests conducted by the European Banking Authority revealed that huge EU banks are strong.

UK businesses seem to be in somewhat worse shape than businesses in the EU. Although their payments have not recovered to the same degree as in Europe, they are still tenacious on their stability plates. In anticipation of additional price increases by the Bank of England, they have also been reducing their revenue projections.

Governmental action

The regulators intend to further raise the minimum cash levels that must be held by big US banks( with assets for more than US$ 100 billion ) in order to strengthen the US field.

Although they will get more than four years to fully implement, these plans to improve banks’ ability to absorb costs are stimulating. Similar changes were made to the Basel II international banking regulations in 2004, but they were not put into effect in time to stop the world monetary problems.

For the time being, the US banking system is still open to both economic system surprises and more widespread disasters. Before we can say with certainty that the worst is around, it will still be a few months.

George Kladakis teaches financial services at Edinburgh Napier University, and Alexandros Skouralis works as a research associate at the University of London’s Bayes Business School.

Under a Creative Commons license, this essay has been republished from The Conversation. Read the article in its entirety.

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Setting sights on Southeast Asia | FinanceAsia

Global investors have always been drawn to Southeast Asia’s growth story, as one of the world’s fastest developing economies and home to a relatively youthful population of 600 million.

This year’s Asean Summit chair, Indonesia, pitched that the region would continue its role as an epicentre for expansion. Even amid the backdrop of a challenging external environment – from the Russia-Ukraine war, to rising inflation and interest rate escalation – there is still substance behind the Southeast Asian story.

East Ventures, a venture capital (VC) firm based in the region, raised a total of $835 million in the past year across various strategies, achieving in May the first and final close of its debut Growth Plus fund, at $250 million. The vehicle aims to support innovators within the company’s ecosystem of portfolio companies that demonstrate strong potential.

“The successful fundraise shows that with the right strategy, management team and mandate, capital is still available,” Roderick Purwana, managing partner at East Ventures, told FinanceAsia.

The East Ventures team is experiencing promising traction across its portfolio – 60% of its growth-stage start-ups have delivered a positive earnings before interest, taxes, depreciation and amortisation (Ebitda) or are in the process of doing so; and more than 40% have a secured a cash runway beyond 2025. At the end of May, the company had invested in more than 20 start-ups so far this year, across sectors ranging from waste management and mental health, to digital mortgages.

In total, the firm has $1.5 billion in assets under management (AUM) across 12 funds that are active across Japan and Southeast Asia. In the latter, it has invested in over 300 companies and was an early backer of Indonesian start-ups, Traveloka and Tokopedia, which merged with GoJek, in 2021.

The firm sees particular opportunity in Indonesia and is among the most active in the market, even though Purwana admits that pace of activity has slowed due to market sentiment.

Money continues to flow into Southeast Asia, as evidenced by the accumulation of $10.4 billion in the region’s start-up ecosystem, in 2022. According to Cento Ventures’ recent Tech Investment report, last year marked the strongest performance of the market for three years on record. In spite of a global slowdown, it finished up on par with pre-pandemic investment levels.

“Southeast Asia will face or is already facing a correction, but the ramifications of this are not as profound as those being experienced by other emerging regions like Latin America and India,” Dmitry Levit, partner at Cento Ventures, told FA from Singapore.

“It remains to be seen whether this contraction is justified by the return to a pre-2022 baseline, or overdone, as a result of investor panic; but as a firm, we take the view that when valuations are low enough, we should invest in such a market.”

Financing the future

Levit and his VC peers remain focussed on digital financial services. It is the fintech sector that they view as key for Southeast Asia, having accounted for 46% of overall liquidity in 2022, according to the firm’s report. 

The Cento Ventures team has capitalised on this opportunity through recent investment in Indonesia’s Finfra, which provides embedded finance solutions; and Philippine cross-border payments start-up, Aqwire.

In May, Singapore-based fintech start-up, Jenfi, secured one of the highest fundraising milestones across the region to date, raising $6.6 million in a pre-series B round led by Japan-headquartered Headline Asia. The round also saw participation from existing investors, such as Monk’s Hill Ventures.

“The opportunity in Southeast Asia – especially across traditional working capital and SME loans – is huge. Banks tend to deprioritise this segment as it is riskier, so participation opens up to technology companies like Jenfi, to act as alternative lenders and to offer something that is differentiated but also commercially viable,” said Susli Lie, partner at Monk’s Hill Ventures. She is also the co-founder of ErudiFi, a tech-enabled education financing company.

Jenfi co-founder and CEO, Jeffrey Liu, attributes the firm’s recent successful fundraise to experience. With a background in finance, he founded GuavaPass in 2015, before setting up Jenfi in 2019, alongside Justin Louie. His endeavours in the start-up segment have seen him replicate the process every one to two years.

“I always thought it was a numbers game, but as I’ve built track-record, I’ve realised that it’s more important to focus on quality conversations and connections,” Liu said.

“From start to finish, Jenfi’s pre-Series B capital raise took six months. We had a shortlist of funds that we wanted to talk to from day one, and the fact that investors were already aware of us supported entry into real deal conversations,” he added.

To date, Liu’s firm has raised $40.2 million, which includes $15.2 million in equity, but he thinks it is unlikely that the Jenfi team will fundraise again, before 2024. While he shared that the firm had managed to shield from some of the market challenges during this recent round, unfortunately, this is not the case for the majority of other start-up peers.

Jenfi’s business enables digital native companies – including e-commerce or software-as-a-service (Saas) firms – to scale their ambitions by funding their growth and marketing expansion plans. So far, they have deployed $30 million across 600-plus companies.

“We’ve noticed in the last six months that the VC-backed companies we aim to support are in more challenging positions, in the sense that they have less of a cash runway. We’re hearing that it’s a lot harder for them to secure capital and that there are delays in their overall fundraising processes,” he explained.

Going for growth or pursuing profitability?

This perspective is shared by Lie, whose Southeast Asian VC firm has invested in early-stage technology companies since its foundation in 2014. Reports indicate that Monk’s Hill Ventures has raised at least $380 million across three funds and it has invested in over 40 fast-growing technology companies in Southeast Asia, including Singapore logistics company, NinjaVan; and Indonesian rural e-commerce start-up, Dagangan.

“In this market environment, we see that later-stage deals are taking longer to complete, which means that there is even more of an imperative to ensure as long a cash runway as possible,” she shared.

Before the current cycle, Lie saw deals close in as little as a couple of weeks to a month, but she cautions that this is not the norm. In this environment, she believes that start-ups need cash on balance sheet to support funding for at least 12-months of activity.

“Where our portfolio companies are concerned, the collapse of Silicon Valley Bank (SVB) made indirect impact by way of sentiment. The bank had always been a pioneer in terms of its product offerings and for its activity to be curtailed without anyone else stepping in to take on the whole business, this will alter the flow of capital throughout the entire ecosystem,” said Lie.

“There are fewer investors that are actively deploying compared to the past. For those that are, they want to take a bit more time to conduct due diligence and get to know prospective investments better. Fewer months of runway translates to weaker negotiation power,” she added.

A clear path to profitability is also imperative in this part of a cycle. With it, access to capital remains open; without it, Cento Ventures’ Levit believes that start-ups are exposed to very steep valuation discounts.

Southeast Asia’s top tech companies, Grab and GoTo, which listed in 2021 and 2022 respectively, have yet to show investors that they can stem the red ink. However, this factor is not unique to the region.

“This isn’t a Southeast Asia-specific problem; we see it happening globally, as well. For high-growth tech companies, the path to profitability is a long one,” said Niklas Amundsson, partner at the Hong Kong office of placement agent, Monument Group.

Levit’s perspective indicates that by going for growth, a start-up downplays its push for profitability. However, Purwana believes that both elements are of equal importance and can progress in tandem.

“Sometimes, people think that it’s a question of deciding on growth or profitability, but it shouldn’t be either-or. Ultimately, any company must work to ensure profitability –  whether one year, five years or 10 years into existence. They have to be able to turn a profit eventually,” he shared.

Curiosity and caution

As investors seek exposure to start-ups that can sustain growth momentum and pursue profitability, they are keeping an eye on developments in the generative artificial intelligence (AI) space.

KPMG’s 1Q23 Venture Pulse report highlighted investor interest in AI as being relatively robust in Asia. In particular, the sector drew attention during the first quarter of 2023 on the back of the global buzz generated by ChatGPT.

“AI start-ups that can demonstrate potential at industrial scale or in terms of commercial application and adoption – especially in the areas of advanced manufacturing, transportation, energy management, health tech and process optimisation and productivity – will attract investment dollars,” said Irene Chu, partner and head of the New Economy and Life Sciences division at the Hong Kong base of KPMG China.

She underlined that in light of the current tech talent shortage across Asia, the use of AI to improve productivity is more relevant and encouraged, than ever. But with curiosity, comes caution.

“We are excited about the prospect of generative AI as a transformative technology, but we are also cautious around its capabilities and potential negative ramifications,” said Purwana.

East Ventures has been active in the AI space since August last year, when it invested in the seed round of Bahasa.ai, which aspires to build a natural language processing and understanding engine for the Indonesian language. Since ChatGPT has come onto the scene, it has not completed any new investments in the generative AI space, but the segment is one that remains closely watched.

Levit views the space as the “next wave” – an area of tech that every company will need to consider moving forwards: “I have a feeling we will have to fight long and hard against the false dichotomy around AI-based versus non-AI-based businesses, similar to what we first saw with mobile phones; the offline to online transition; and B2B and B2C. The narrative will be stronger than substance in the short-term, but substance will be stronger than narrative in the long-run.”

To unlock its full potential, the region’s tech industry will need to find a new route to innovation, Purwana suggested.

While some view Southeast Asia as a pioneer in the tech space, he feels that “Southeast Asia will have to grow beyond being a ‘copycat market’ for tech, which is a significant gap to address”. 

However, he shared that it is reassuring to look at China.

“In the early days of its developing tech sector, China turned to the US for inspiration and duplication. But today, this is no longer the case, especially in fintech sector. In this arena, China is probably more advanced than the US,” Purwana added.

Perhaps one of the best illustrations of this point, is China’s success in leapfrogging the use of credit and debit cards to drive a digital payments revolution, via digital wallets and QR codes. Alibaba (through Alipay) and Tencent (through WeChat Pay) are two of the first-movers to gain status in one of the world’s largest and truly digital economies.

Hong Kong’s offer of the missing puzzle piece

The prospects for Southeast Asia’s start-up scene remain bullish. However, the money being deployed into VC funds largely comes from high-net-worth individuals (HNWIs) and family offices. Asia’s deepest pockets – the institutional investor community – have yet to dip their toes in the start-up scene in a meaningful way, Amundsson noted.

For him, the vital, missing component is: the exit. Many of the region’s top tech companies prefer a US versus domestic listing, as the region lacks an obvious, successful IPO route for up-and-coming technology companies. However, Amundsson does see some opportunity in Hong Kong, which he considers to be further ahead of its Southeast Asian peers in this regard, and continues to advance the development of an attractive and liquid capital market.

On March 31st, new listing rules for specialist technology companies came into play in the special administrative region (SAR). The Chapter 18C regime extends to start-ups active in new economy industries such as AI, alternative energy and agritech. While this is set to attract more listings from outside the China region, analysts expect this only to materialise in the next three to five years.

“I am excited about the new 18C regime launched in Hong Kong because it covers sectors that are going to be transformative, with the potential to solve some of the most challenging problems we face, around climate change, food security and clean energy.  Despite the slowdown in IPO activity globally, the new regime offers an attractive platform for those innovative Southeast Asian start-ups that aspire to solve these global issues,” Chu said.

However, while the market capitalisation threshold remains high, it might be some time before these companies list. It also remains to be seen whether Hong Kong’s bourse provides a  realistic and viable route for Southeast Asia’s start-up community.

As Asean focusses on finding its next epicentre of growth, the region’s technology sector offers perhaps the greatest opportunity for investors, as it continues to navigate short-term challenges like the collapse of SVB and works to address concerns around the development of next-generation AI.

Reviewing the region’s potential, Lie concluded, “Most of emerging Southeast Asia is moving away from manufacturing towards the service industries, and this is where we’re going to see the adoption of technology that really drives growt

¬ Haymarket Media Limited. All rights reserved.

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Hong Kong and China interest in AI and regtech ‘palpable’ despite soft fintech funding: report | FinanceAsia

Fintech companies in Asia Pacific received $5.1 billion of funding in the first half of 2023, a further drop from $6.7 billion during the same period last year, a recent KPMG report has revealed.

The figure points to a “very soft” fintech funding landscape in the region, in contrast with $36.1 billion of funding in the Americas, and $11.2 billion in Europe, Middle East and Africa (EMEA), the study showed.

In terms of number of fintech funding deals, 432 were completed in the Apac region, compared with 1,011 in the Americas, and 702 in EMEA.

“The global fintech market has seen challenges, with a decline in both funding and deals,” Barnaby Robson, deal advisory partner at KPMG China told FinanceAsia.

“Public companies have changed materially, with entire industries trading at fractions of previous valuations. But founder expectations have not moved as fast, meaning private valuations are adjusting slowly as companies seek new funding,” he explained.

The report, Pulse of Fintech H1’23, aggregated data from global venture capital (VC), private equity (PE) and mergers and acquisitions (M&A) deals in 2023’s first half, and looked into various segments including payments, insurtech, regtech, cyber security, wealthtech and blockchain.

The largest fintech deal H1 2023 in the region was $1.5 billion raised by Chongqing Ant Consumer Finance, the consumer finance unit of China’s Ant Group, which faced Beijing’s pressure to restructure in compliance with regulatory limits.

“Fintech funding in China is very dry” outside of Chongqing Ant Consumer Finance’s deal, the report noted. Businesses and investors in China tend to prioritise post-pandemic recovery, waiting for outcomes from prior investments, it explained.

Other significant deals in Asia include $304 million raised by India-based Vistaar Finance, and $270 million raised by Kredivo Holdings in Singapore.

Rebound potential

Despite slowing deal activity and slashed valuation, the intrinsic value and potential of the fintech sector in Hong Kong, mainland China, and Asia in general, remained robust, Robson told FA.

Fintech firms in the area are increasingly looking at leveraging artificial intelligence-generated content (AIGC), the report identified.

“In mainland China, the focus on AI in insurtech, creditech and wealthtech is evident. Hong Kong, with its global connectivity, needs to navigate the growing challenges of dealing two different AI regimes and mainland China data onshoring rules. The diverse financial landscape and low productivity in emerging Asia, offers a fertile ground for AI-driven fintech innovations,” Robson detailed.

“AI’s potential to revolutionise fintech segments is undeniable.”

Despite the US and Europe being leaders in regtech, or regulatory technology, interest from Hong Kong and China is palpable, according to Robson.

“With the People’s Bank of China’s (PBOC) recent announcements and Hong Kong’s agile regulatory framework, it’s clear that the region is gearing up for a more transparent and efficient financial ecosystem,” he said.

China’s central bank released a set of draft administrative measures on data security management last month for public consultation, signalling the watchdog’s enhanced emphasis on data processing securities amid geopolitical tensions.

Many financial institutions are embracing regtech to improve the efficiency and effectiveness of addressing compliance and regulatory requirements, Robson noted.

In his view, the confluence of AI advancements, regulatory shifts, and a growing middle class could very likely help catalyse fintech funding in Hong Kong, mainland China as well as the broader Asia region.

But that would be possible only after “a more complete reset in multiples to get to where valuations reflect fundamentals, and market clearing prices exist”.

He pointed to late 2024 or 2025 as a likely timing for such a rebound, citing fintech being properly valued on a realistic discounted cash flow (DCF) or free cash flow (FCF) basis as a contributing element.

“It’s a matter of when, not if,”

¬ Haymarket Media Limited. All rights reserved.

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