Asia seeks 2024 redemption for IPOs | FinanceAsia

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After a relatively poor 2022, while some Asian stock markets performed well in 2023, such as India and Japan, others including China, Hong Kong, Singapore and Australia languished as geopolitical tensions, rising interest rates and poor performing domestic economies knocked investor confidence.

There was also a downturn in mergers and acquisitions (M&A) in Asia Pacific (Apac), with 155 deals completed in 2023 with volumes down 23% compared to 200 deals in 2022, according to WTW.

Broadly, investors were spooked by a combination of higher for longer interest rates from the US Federal Reserve, a lacklustre economic performance in China post-pandemic with the property sector dragging confidence, and wider geopolitical tensions.

Will Cai, partner and head of Asia capital markets practice and co-chair of China corporate practice at law firm Cooley, told FinanceAsia: “2023 was a very challenging year for all major capital markets in Asia, with Japan as the only exception. There were several contributing factors: the slower-than-expected post-Covid-19 economic recovery in China, the current regional and global geopolitical tensions, as well as the high interest rates.”

He added: “High interest rates have a significant negative impact on capital market deals. The logic is very simple: if treasury bonds can provide 5% annual return, risk free, investors will expect a much higher return on high-risk equity deals – which unfortunately is not what many companies can deliver in a tough market. We probably need to see a moderate reduction on interest rates before equity investors return to the market.”

Amid the gloom, other avenues in the equity space beyond IPOs, performed relatively well, with banks needing to respond to changing client needs.

Kenneth Chow, co-head of Asia equity capital markets, Citi, said: “These are challenging market conditions and as a bank you need to be nimble and flexible. However, there are always opportunities in Asia, such as convertible bonds and block trades.”

Japan and India rising

There were arguably two Asian ‘star’ performers in 2023: Japan and India.

Despite a weak yen, Japan saw a breakout from years of deflation, corporate governance reform and a solid domestic economy, while India saw strong GDP growth of around 7% and a continuation of reforms.

Udhay Furtado, co-head of Asia equity capital markets, Citi, told FA: “Japan and India have recently emerged as IPO hotspots, while Indonesia has also seen positive momentum. There is an increasing interest in the energy transition story, including the makers of electric vehicles and batteries.” 

Japan, with IPO proceeds up 82% compared with 2022, was the standout Asian market last year.

Peter Guenthardt, head of Asia Pacific investment banking at Bank of America, said: “There are many opportunities in Japan with the fee pool increasing 20% in 2023, while overall fees were down by the same figure across Apac. The fee pool was twice the size of China this year. Japan could remain the largest fee pool in Apac in 2024.”

Guenthardt added: “In Japan, there has been an increase of IPOs, block trades and convertible bonds, with that trend set to continue. There has also been a rise in activist investors – for which it is the second most active market in the world.”

He continued: “Japanese companies are also looking to expand abroad for M&A opportunities, with the US being the most popular market and where sectors such as technology are particularly attractive.”  

In India, the market saw a big improvement in the second half of the year. While many companies conducted IPOs outside of India, the local stock markets saw the number of issuers increase by over 50% to 239, according to data from the London Stock Exchange Group (LSEG). With the second half of the year doing particularly well, this bodes well for 2024, with some experts tipping the world’s fifth largest economy to lead the way in IPOs globally this year. 

Citi’s Furtado said in a media release: “We hope to see a turn in the IPO markets, as we have been seeing in India in late 2023 and we also expect to see [a] continued pick up in convertible bond activity (given refinancing efficiencies), alongside a robust follow-on/ block calendar.”

2024 Hong Kong bounceback?

One of the big questions for Asia in 2024 is can Hong Kong, one of the pre-eminent financing hubs, return to something resembling its former glory after years of protest and pandemic turmoil. Any turnaround in Hong Kong should also indicate improved confidence in Chinese equities given that the majority of companies listed on the Hong Kong Stock Exchange (HKEX) are Chinese.

PwC is predicting HK$100 billion ($12.8 billion) of deals in 2024 with around 80 deals in the pipeline, and KPMG is expecting Hong Kong to return to the top five of the IPO global rankings.

While the fundamentals are still strong in the Special Administrative Region (SAR), a recent reliance on Chinese companies, which have been buffeted by domestic headwinds and rising US interest rates, has damaged the market. In addition, the potential implications of the SAR’s new national security law have rattled global investor appetite.

However, in a sign of optimism, already in 2024, two Chinese bubble tea firms have applied for listings on the HKEX suggesting that market appetite could be rebounding in China – especially for companies supplying consumer staples.

Although stock markets in mainland China are providing stiff competition to Hong Kong, foreign investors and Chinese firms are still attracted to Hong Kong’s greater flexibility. In addition, geopolitical tensions mean that Chinese and Hong Kong firms are becoming more cautious about listing in the US.

Stephen Chan, Hong Kong-based partner at Dechert, told FA: “2023 was relatively challenging for the Hong Kong IPO market, with the number of deals and proceeds raised having declined year on year. We have seen a number of potential listing applicants choose to delay their listing timetable in view of the underperforming stock price of recent new listings.”

A sluggish stock market performance, low valuations for newly listed companies and the macroeconomic environment contributed to potential listing applicants opting for the wait-and-see approach, with the SAR facing strong headwinds.

Chan added: “The US interest rates hikes saw investors opt for products with high interest rates and fixed income.” This dampened the demand for IPOs, and in turn affected the valuation of potential IPOs and hence weakened the urge for potential listing applicants, explained Chan. 

He said: “Increased borrowing costs and lower consumer spending in general – due to the high interest rate cycle – have also affected the operational and financial performance of the potential listing applicants. Improvements to both investor sentiment towards the equity market and companies’ operating and financial performance would be essential before companies could reconsider fundraising through IPO.”

Certain sectors have been performing better than others, including technology, media and telecom (TMT) and biotech and healthcare companies. These are likely to continue to lead the IPO market in terms of the deal count and deal size in Hong Kong, especially with January 1, 2024’s HKEX regulatory reform for the new Chapter 18C (known as the GEM reforms) for specialist technology companies, and an expanding market for biotech and healthcare under Chapter 18A which was launched in 2018.

Chan added: “The HKEX has taken the opportunity to introduce a number of modifications to improve the fundraising process including the new settlement platform, FINI, which will shorten the time gap between IPO pricing and trading and hence reduce the market risk and modernise and digitalise the entire IPO process.”

“The GEM listing reform aiming to enhance attractiveness for SMEs to seek listings. . . will also boost the number of deal counts for the Hong Kong IPO market and provide SMEs with development potential a viable pathway for pursuing listing in the main board in the future.”

A continuation of the return of visitors to around 65% of pre-pandemic levels to the SAR in 2023 should also help build momentum in the local economy. In addition, the SAR has been reaching out to the Middle East for investment and is increasing its trade cooperation with Asean countries.

Asia outlook

While China appears to still be struggling to turn its economy around, Asia will continue its overall growth trajectory as the middle class grows, technology evolves and connectivity improves. The relatively young populations of Asean countries such as Indonesia, Vietnam and Thailand will also continue to provide a boon for investors.

Cooley’s Cai said: “In terms of deal counts, there were still relatively more biotech deals in 2023. Part of the reason is that biotech companies must raise capital regardless of market conditions (and therefore, the price). We also see companies from the ‘new consumer’ sectors looking to IPO. We believe these two sectors likely can do well in 2024.”

He continued: “We hope 2024 will be better than 2023, but we may need to wait a bit longer for a booming market.”

There is certainly a long way to go before seeing the region’s previous robust IPO levels.

“2024 is going to be a volatile year with the upcoming elections in the likes of the US and India, but there is a strong pipeline of deals if risk appetite returns, which will partly depend on the pace of monetary loosening,” said Citi’s Furtado.

Alongside a host of elections, there are ongoing conflicts in the Middle East and Ukraine, meaning there is much uncertainty over global supply chains, oil prices and the inflation trajectory.

While investors will be hoping that inflation can be kept under control so the US Fed can start cutting rates sooner rather than later, solid economic fundamentals and growth in many large countries in the region should provide confidence in Asia’s equity markets moving forward.

This article first appeared in Volume One 2024 of the FinanceAsia print magazine which is available online here. 


¬ Haymarket Media Limited. All rights reserved.

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Moody's warns US, China it's time to change their ways

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Moody’s Investors Service is actively and innocently prodding the two largest bears in the world economy.

Experts at the agency threatened to remove Washington’s final AAA credit score next month. The increase in US 10 time bond yields to 17-year peaks was exacerbated by that volley.

Beijing was the next city to speak Moody growl this week. As Asia’s largest economy struggles with an economic slowdown and a worsening real estate crisis, Moody’S changed its outlook on the Chinese government of debt from” stable” to “negative” on Tuesday ( December 5 ).

A day later, Moody’s went even further by telegraphing potential rating steps against state-owned bank tycoons, numerous Foreign government-backed organizations funding system assignments, and even Hong Kong and Macau.

Threatening downgrades for the Industrial and Commercial Bank of China Ltd., China Development Bank, and another behemoths will undoubtedly work if Moody’s is attempting to capture the attention of Chinese leader Xi Jinping. It will also affect international investors who are concerned that Beijing is n’t moving quickly enough to contain contagion risks.

In general, the urge is to respond violently to these instructions. The group of US President Joe Biden carried out that action.

Treasury Secretary Janet Yellen responded to Moody’s risk to drop by saying,” This is a choice I disagree with. Treasury securities continue to be the world’s top safe and liquid asset, and the American market is ultimately strong.

China is also pushing up. Issues of Moody about the aspirations of China’s economic development and fiscal sustainability are unnecessary, the Ministry of Finance of Xi stated on Tuesday, expressing its “dissatisfaction.”

Beijing added that the fallout from financial and property issues is” stable” and that it is working to “deepen measures to tackle risks and challenges.” However, it’s important to take into account the potential benefits of rating agencies like Moody making a timely call for stronger action against the two economical powers.

Janet Yellen, the US Treasury Secretary, disagrees that the country merits a upgrade. Asia Times files / AFP picture

The rules of economic gravity however apply, as Moody’s served as a helpful warning to Biden, Yellen, and Jerome Powell, chairman of the Federal Reserve, in the case of America.

Faith in the money is rapidly eroding as the US federal loan surpasses$ 33 trillion, Biden’s White House raises spending, and the Fed tightens its restrictions with the most vehemence in years.

The price increases in gold and cryptocurrencies are merely the most recent example of how traditional Bretton-Woods economic realities are clashing with contemporary disregard for the ways in which markets you influence perhaps the largest economies.

China, as well. The 24 members of the Communist Party’s Politburo will soon meet to discuss policy priorities and determine rise objectives for the upcoming year. Following that, a course may be charted by the annual Central Economic Work Conference, which will bring up municipal and central government leaders.

A development goal of around 5 % is anticipated for 2024, according to economists at JPMorgan, Standard Chartered, and other major investment bankers.

An optimistic growth target, according to Goldman Sachs economist Maggie Wei,” may help lessen the risk of China falling into a self-fulfilling cycle of melancholy expectations, more depressing growth, and reinforcing negative expectations.”

However, Moody’s is reminding group leaders that economic gravity is more difficult than that.

According to Moody’s, the government and larger public sector may help financially strapped regional and local governments and state-owned enterprises in China, according to its reasoning.

When Moody’s warns of “increased dangers related to functionally and consistently lower medium-term economic growth and the continued reduction of the property sector,” it also speaks for many.

However, it is implied in bold font between the lines that many international investors are n’t buying Xi’s promises to carry out audacious structural reforms. And how new stimulus increases are then “posing wide downside risks to China’s macroeconomic, economic, and institutional strength,” according to Moody.

Chinese President Xi Jinping claims that he now favors more expansion driven by the private sector. Online Screengrab image

China’s finance minister responded by saying that mainland growth is improving in the October–December quarter and that the Chinese economy will account for more than 30 % of global GDP in 2023. That would be consistent with predictions made by the International Monetary Fund ( IMF).

However, there is no timeline for taking action to grow&nbsp, better, rather than just faster, in China’s new rhetoric. According to scholar Lee Lu at Nomura Holdings, more stimulus may become necessary in the short term. We also think it’s too early to say the bottom, he says, “despite the numerous trigger actions announced recently.”

The good news is that Premier Li Qiang is thought to have received Xi’s approval to speed up efforts to reinvigorate the private sector. Li’s team unveiled a 25-point plan package next month to level playing fields and increase funding for private companies.

Eight economic officials and firm tanks are involved in the program, including the All-China Federation of Industry and Commerce, the People’s Bank of China, National Administration of Financial Regulation, China Securities Regulatory Commission, &nbsp, and National Development and Reform Commission.

The goal is to significantly raise the loan to private enterprise ratio in order to increase innovation and productivity and support more powerful supply chains. According to Li’s group, the goal is to guarantee” ongoing revenue solutions” for private businesses that refrain from “blindly stopping, suppressing, withdrawing or cutting off money.”

The NDRC stated this week that China “is comfortable and more capable of achieving long-term robust growth, and constantly bringing new impetus and options to the earth through China’s accelerated advancement.”

According to scholar Diana Choyleva of Enodo Economics,” Beijing is serious about getting funds flowing to the healthier components of the home field, whether it be personal or state-owned.” &nbsp, They are not satisfied with entrusting the choice to the businesses, which have discriminated against the private market for a number of factors.

Jumpstarting the creation of a high-yield bond market to expand China’s money markets universe is an essential component of the business. Theoretically, a lively and varied range of debt offerings would boost options for private sector financing and boost China’s appeal to investors.

These, Xi’s efforts to make the yuan more popular on international businesses are advantageous. As concerns about the US dollar rise, the battle is gaining momentum. Nothing could hasten that progress more quickly than swiftly and openly putting in place significant reforms.

Here is where Xi and his team needed to win back the confidence of international investors. It is important to note that The Moody’s news did n’t destroy Chinese assets.

The most significant lesson from the Moody’s statement, according to economists at advisory organization China Beige Book, is that their team takes years longer than the majority of China viewers to reach an obvious conclusion. Little brand-new around. Continue.

However, analysts at Citigroup Global Markets predict that in 2024, China’s investment-grade payment issues will be more alluring than those of US counterparts. Following the Moody’s information, Citi experts wrote,” The market has now priced this in to some extent, and China investment-grade has some price.”

In Chongqing, China, a butler is seen strolling along dingy bridges with brand-new residential properties in the distance. Photo: Zhang Peng, LightRocket, CNBC Screengrab, and Getty Images

As Beijing works to regulate real estate markets, Citi experts also cited China’s” stronger, but still fragile micro story.” Chinese money bonds with an investment class are currently up about 5.4 % in 2023.

According to Citi researchers,” China risks are primarily in the price.” The Chinese offshore credit market, which is regarded as an asset and money diversifier for regional investors, tends to do well in times of inland equity-market volatility.

Analysts ‘ concern that China’s time of raising GDP rates solely through stimulus and funding is over, however, is where Moody makes a point.

For starters, “remaining plan room may be limited, as we believe central authorities needs to balance moral liability problems when supporting local governments with substantial debt burdens,” according to scientist Samuel Kwok at Fitch Ratings.

Another is that the quality of mainland growth can only be improved by strong financial retooling that unlocks China’s longer-term growth potential. This trend toward trigger over reform explains why S&amp, P Global Ratings predicts that China will grow below 5 % into 2026.

According to S&amp and P record analyst Eunice Tan, China’s real estate market is still under stress despite stimulus. The cash patterns of property developers and heavily indebted regional government borrowing vehicles are being dented by limited access to credit assistance and higher corporate debt utilize.

As a result, S&amp, P’s Tan claims that the rise website for the Asia-Pacific is moving from China to South and Southeast Asia. Tan notes that this change may limit China’s lenders ‘ medium-term face while enhancing those of India, Vietnam, the Philippines, and Indonesia.

China’s imports decreased by 0.6 %, despite data released on Thursday showing a 0.5 % increase in exports in November year over year. More policy supports are required to promote demand, according to a word from UBS analysts, and the data more dashed hopes of regaining China’s consumption-led economy.

According to OANDA researcher Kelvin Wong, “domestic need has remained weak in China despite continued revival efforts by policymakers via intended monetary and fiscal stimulus steps.”

Therefore, according to Wong,” It seems that the previous one-month treatment of transfer growth recorded in October is probably a “blip” and November’s bad year-on-year growth rate suggests the rolling twelve months of bad growth trend in imports remains intact.”

At the Horgos Port in the autonomous region of north China’s Xinjiang Uighur, business containers can be seen. Image: Xinhua

Global traders are anxiously anticipating the Politburo’s next chamber event as difficulties mount. This once-every-five-year program typically takes place in early December.

The fact that it has n’t been scheduled yet has led to rumors that Xi wants to address a number of pressing issues, such as rising local government debt, deflationary pressures, and real estate to record youth unemployment.

As a madly polarizing 2024 presidential election draws near, the US even faces significant obstacles. The US government’s estimated annualized loan interest payments have increased to the$ 1&nbsp, trillion level, among other things.

Shareholders are free to disregard the financial paths in Washington and Beijing that Moody’s, S&amp, P, and Fitch have to say. However, as payment prospects deteriorate, it is important to keep in mind that some observers, analysts, and investors are n’t buying the party line, despite Biden and Xi’s insistence that they are on top of their individual debt problems.

Following William Pesek on X, previously Twitter, at @WilliamPess

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Emerging digital technology, alternative data and financial inclusion in Cambodia - Southeast Asia Globe

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Securing a loan can be a life-changing event, allowing people to access the capital necessary to start a business, buy a home, and invest in their future. But for Cambodia’s large underbanked and unbanked population, difficulty in accessing financial services, and an absence of the financial data used to assess creditworthiness, can make getting a loan challenging. According to the National Bank of Cambodia, only 59 percent of the adult population have access to formal financial services, leaving 41 percent either accessing informal financial services or no financial services at all.

However, developments in Cambodia’s lending landscape offer cause for optimism. The explosion in Cambodia’s fintech ecosystem, paired with the growing potential of alternative-data credit frameworks, could provide a path towards financial inclusion for those previously left out of the conversation.

Acccording to Ms. Phal-Chalm Theany, Secretary General of the Association of Banks in Cambodia, “Alternative data has tremendous potential for contributing to financial inclusion by complementing traditional financial data that banks have. They range from information on mobile wallet transactions to information on user behavior on digital platforms that can be utilized for risk assessment of individuals and MSMEs.” 

Most financial institutions use debt repayment history and bank and credit files to determine the creditworthiness of potential borrowers. Driven by digitalisation and developments in technologies such as data analytics and machine learning, alternative credit scoring is based on any form of non-traditional information that can provide insights into the ability and propensity of borrowers to pay back loans. Telecom and utility payment histories, as well as digital footprints and mobile data, can all be utilised to assess creditworthiness within these frameworks.

Banks in Cambodia are increasingly looking to tap alternative data for serving the unbanked and underbanked.

“Data in Cambodia is still very much fragmented and held across multiple organizations and institutions,” said Mr. Mach Chan, CEO of Phillip Bank in Cambodia. “Many people do not have formal loans from financial institutions. This makes it challenging to predict their repayment capacities. If Phillip Bank can easily assess aggregated alternative data, we can better assess a borrower’s creditworthiness based on their social and behavioral indicators, and spending patterns and habits. This allows us to form a more complete picture of the borrower’s risk profile, with opportunities to offer cheaper loans to less risky customers, regardless of whether they are banked. Additionally, many SMEs are not formally registered making lending a challenge. If banks can access the payments data of these MSMEs, the financial Industry will be more confident to support the needs of these businesses.”

Across Southeast Asia, governments, banks and key stakeholders are becoming increasingly interested in the potential of alternative data as a tool to expand the scope and accessibility of financial services.

A Southeast Asia-focused report published by the World Bank Group in 2021 highlights four new data types that have emerged as part of the evolving digital ecosystem, and which can aid credit decision-making: mobile operator and app-based data, digital payments, e-commerce data and enterprise-tech (business-performance) data. Such alternative data has also been highlighted by the Asian Development Bank as one of the key areas for driving financial inclusion in Southeast Asia. 

Across the region, governments, banks and key stakeholders are becoming increasingly interested in the potential of alternative data as a tool to expand the scope and accessibility of financial services.

In December 2022, the National Credit Bureau of Thailand announced the plan to launch a non-credit data centre by consolidating such data into NCB’s existing credit database with initial application of utility payment data from Electricity and Water Utilities.

In Indonesia, Experian collaborated with a telecom company to uplift financial inclusion by using data from telco to provide advanced credit assessment to empower unbanked and underbanked.

In the Philippines, Credit Information Centre (CIC) is working on an open policy to enable accessing entities to utilize credit bureau data with alternative data to come up with a complete picture of a borrower’s credit profile.

In the context of Cambodia, utility bill payment and telco payment data can serve as important sources of alternative credit data. Moreover, with rapid digitalization along with adoption of digital payments, there should be enormous potential to tap a wide array of alternative data on payments and digital footprints. Around the world, such data have served as key drivers for digital financial inclusion. 

With a rise in digital financial service providers, digital payment catalysts and e-commerce in Cambodia, massive amounts of alternative data are already generated at present. Given this scenario, it is important to have an organized ecosystem to collect, process and utilize such alternative credit data.

On the regulatory front, the National Bank of Cambodia revised the prakas on credit reporting in 2020, enabling Credit Bureau Cambodia (CBC) to collect alternative data along with traditional credit data to support financial institutions to strengthen credit risk assessment capabilities.  

CBC was established in 2012 with the support of the National Bank of Cambodia, the Association of Banks   in Cambodia and other key stakeholders in the sector to manage a fair and transparent credit market in support of the nation’s economic development. Since then, CBC has become the leading body providing financial information in the country. Although currently CBC only manages traditional data reported by member banks and financial institutions, it is preparing an ambitious roadmap to collaborate with multiple sectors in the country. Its plan is to establish a comprehensive alternative credit data ecosystem that can work together with the traditional credit data ecosystem for social and economic benefits to Cambodians.

“I would say Cambodia stands a decade ahead of other emerging market economies because of the Credit Bureau and the lending environment,” explained Gordon Peters, co-founder and CEO of fintech firm Boost, which harnesses popular social media platform such as Facebook and Telegram to enable access to finance. “CBC has done a great job of collecting, collating and sharing data on the financial lives of customers,” he said. “I think that is a huge unlock.”

For Peters and company, CBC establishes a level of legitimacy and security that has benefited Cambodia’s financial sector and allowed his firm to fill a gap in the ecosystem. Banks and financial institutions have a high degree of confidence and trust in the role of CBC as a key financial data infrastructure in the country. For a company that already manages credit history data of more than 7 million individuals and businesses, expanding the capabilities to manage alternative data reporting system looks plausible.

Ms. Phal-Chalm Theany, Secretary General of the Association of Banks in Cambodia

Ms. Theany elaborated: “CBC is a data centre for the financial sector that collects data from banks and financial institutions, stores and analyses them for the purposes of credit scoring for those financial institutions. Where each bank and financial institution may have its own data, CBC has the financial information for the whole sector.

“With strong capabilities in data analytics, artificial intelligence and machine learning, CBC is uniquely positioned to harness alternative data from diverse data sources to enable banks and financial institutions to conduct better assessment of the profile of the unbanked (mainly women and farmers) and informal small businesses, estimate income with more precision. This shall enable financial institutions to offer more appropriate credits or other financial services in the absence of a financial footprint, credit histories or property guarantees.”

Mr. Chan added: “CBC could spearhead the aggregation of payments, telco and utilities data. These datasets are then fed into a prospective customer’s credit score. Over the past few years, with NBC’s Bakong as a key enabler, we’ve seen a rapid digitization of payments. We believe that when assessing customer creditworthiness, payments data is just as important as borrowing and repayment data, and should be prioritized. At the same time, CBC would need to seek the cooperation of their member financial institutions to provide these datasets. For SMEs, we also see data from GDT as an important asset. If CBC could connect and obtain data with GDT, it will allow the banks to form better assessments for clean loans, spurring economic activity.”

Currently, CBC provides K-Score, an algorithmic credit score (ACS). ACS uses machine-learning algorithms to analyse massive data sets to produce credit scores without traditional financial information. This is the only industry level credit score available in Cambodia. First launched in 2015, CBC did a major revamp of the algorithms in 2020 to keep up with the evolving changes in the market landscape. Today, K-Score is available to all member financial institutions of CBC and (via CBC’s mobile app) to all individuals as well.

Example of a K-Score from CBC

A 2023 report in the Asian Journal of Law and Science states: “ACS is the tip of the spear of the global campaign for financial inclusion, which aims at including unbanked and underbanked citizens in financial markets and delivering them financial services, including credit, at fair and affordable prices.” The study outlines the wide ranging benefits of ACS and alternative data as tools to benefit individuals across Southeast Asia who lack access to financial services.

In the Cambodian context, Credit Bureau of Cambodia is well positioned to lead the way in leveraging these tools. To make sense of the massive datasets now available thanks to digitalisation, CBC utilises a host of ACS tools. Machine-learning algorithms and other artificial intelligence mechanisms allow for the analysis of data at a scale that was previously impossible. Risk analysis profiles and loan portfolios that are regularly updated and refined are just a couple of the ways these technologies can be leveraged using alternative data. While the power of these tools is certainly important, CBC’s experience in the sector — and its standing as the leading institution managing, analysing and providing financial data — are the most compelling reasons for the adoption of alternative data schemes in Cambodia.

“As we are entering our second decade of credit reporting in Cambodia, CBC is committed to being a trusted (element in the) national financial infrastructure for providing alternative credit data, to strengthen credit risk assessment for our 190-plus member financial institutions, and to expand access to credit for the new-to-credit consumer segments. We are very open to collaborate with alternative data providers such as telcos, utilities and payment service providers to harness information not found in traditional credit reports, to help more Cambodians obtain access to mainstream financial services,” explained CBC CEO, Oeur Sothearoath.

As CBC leverages its established presence in the financial sector, a growing pool of innovators is working with the agency to develop and facilitate the alternative data ecosystem.

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Two blockchain firms to be added to MAS’ licensing list | FinanceAsia

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Two crypto firms have recently announced that they have obtained in-principle approval (IPA) from the Monetary Authority of Singapore (MAS) to provide digital asset-related offerings compliant with the watchdog’s requirements.

Through the licensing scheme under the city state’s Payment Services Act, MAS regulates seven types of payment services, including account issuance, domestic money transfer, cross-border money transfer, merchant acquisition, e-money issuance, digital payment tokens and money-changing.

Singapore-headquartered StraitsX acquired its licence as a major payment institution (MPI) for digital payment token services, while Taiwan-based XREX’s Singapore entity received approval covering six service categories except for money-changing services.

Upon receiving the licence, StraitsX will focus on issuing two single-currency pegged stablecoins (SCS) that are 1-1 pegged to Singapore dollars (XSGD) and US dollars (XUSD), respectively.

XSGD is currently available for minting and redemption via StraitsX’s platform, while XUSD is under development and will be released to the public in the near future, FinanceAsia has learned..

“The in-principle approval from  the MAS allows us to demonstrate compliance with the regulatory framework for stablecoin issuance,” Kenny Chan, head of StraitsX, said.

“We see potential in single-currency pegged stablecoins as a credible and reliable medium to facilitate innovations in payment transactions both domestically and across borders,” he added.

Citing the purpose bound money (PBM) testing led by MAS as an example, Chan emphasised the programmability and interoperability of stablecoin-powered payment solutions and explored use cases, including programmable rewards and escrow arrangements for online commerce.

“Stablecoins play a significant role in the digital asset ecosystem as they frequently form the bridge to the fiat leg of a transaction,” said Etelka Bogardi, Asia head of fintech and financial services regulatory, partner at Norton Rose Fulbright.

“It was therefore important to safeguard financial stability and consumer protection in this space.”

She added that as one of the frontrunners in stablecoin regulation, Singapore’s licencing regime has introduced important safeguards through reserve management and redemption mechanics requirements.

The MAS is also expected to introduce a regulatory framework under the Payment Services Act, which will be dedicated to stablecoin-related issuance and intermediation activities. The framework is set to be finalised in Augustafter a public consultation which started in October 2022.

“We believe that the regulatory clarity provided in the finalised framework, as well as Singapore’s position as a trusted hub for global business will provide a strong foundation for the issuance of stablecoins pegged to other G10 currencies,” Chan remarked.

Blockchain benefit

XREX’s business focusses on blockchain-based cross-border payment technology. The Taiwan-based team will useXREX Singapore as their Asia Pacific (Apac) headquarters, and look to expand its payment product that supports fiats, stablecoins and cryptocurrencies in the region.

Christopher Chye, chief executive officer (CEO) at XREX Singapore, told FA that the approval process took approximately two years’ , which he referred to as “hard fought” in a company press release. The team is looking to elevate the in-principle approval to a full licence over the next six months, he added.

“Blockchain technology has the potential to decimate transaction fees, facilitate atomic settlement and enable programmable money,” he said.

Moreover, he addted that “stablecoins are particularly well-positioned to bring respite to illiquidity issues, and we look forward to acquiescing our customers and prospects to the use of stablecoins in the imminent future.”

The XREX Group team claims to be the only digital asset player approved by both Singaporean and Taiwanese regulators to provide virtual asset services, according to the note.

Chye said that the compliance team has been studying the licensing regime formalised in the United Arab Emirates (UAE) and closely following regulatory developments in Hong Kong.

“Singapore boasts a progressive and robust regulatory framework, offering our users the clarity and confidence they need to access digital assets and use stablecoins,” said XREX Group and XREX Singapore head of compliance, Nick Chang, in the statement.

Chye added: “We feel optimistic about the regulatory developments across various jurisdictions and the attention central banks have afforded to this. Clear, reasonable, and practical regulations are crucial for the development of the blockchain industry.”

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Two blockchain firms to be added to MAS’s licensing list | FinanceAsia

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Two crypto firms have recently announced that they have obtained in-principle approval (IPA) from the Monetary Authority of Singapore (MAS) to provide digital asset-related offerings compliant with the watchdog’s requirements.

Through the licensing scheme under the city state’s Payment Services Act, MAS regulates seven types of payment services, including account issuance, domestic money transfer, cross-border money transfer, merchant acquisition, e-money issuance, digital payment tokens and money-changing.

Singapore-headquartered StraitsX acquired its licence as a major payment institution (MPI) for digital payment token services, while Taiwan-based XREX’s Singapore entity received approval covering six service categories except for money-changing services.

Upon receiving the licence, StraitsX will focus on issuing two single-currency pegged stablecoins (SCS) that are 1-1 pegged to Singapore dollars (XSGD) and US dollars (XUSD), respectively.

XSGD is currently available for minting and redemption via StraitsX’s platform, while XUSD is under development and will be released to the public in the near future, FinanceAsia has learned..

“The in-principle approval from  the MAS allows us to demonstrate compliance with the regulatory framework for stablecoin issuance,” Kenny Chan, head of StraitsX, said.

“We see potential in single-currency pegged stablecoins as a credible and reliable medium to facilitate innovations in payment transactions both domestically and across borders,” he added.

Citing the purpose bound money (PBM) testing led by MAS as an example, Chan emphasised the programmability and interoperability of stablecoin-powered payment solutions and explored use cases, including programmable rewards and escrow arrangements for online commerce.

“Stablecoins play a significant role in the digital asset ecosystem as they frequently form the bridge to the fiat leg of a transaction,” said Etelka Bogardi, Asia head of fintech and financial services regulatory, partner at Norton Rose Fulbright.

“It was therefore important to safeguard financial stability and consumer protection in this space.”

She added that as one of the frontrunners in stablecoin regulation, Singapore’s licencing regime has introduced important safeguards through reserve management and redemption mechanics requirements.

The MAS is also expected to introduce a regulatory framework under the Payment Services Act, which will be dedicated to stablecoin-related issuance and intermediation activities. The framework is set to be finalised in Augustafter a public consultation which started in October 2022.

“We believe that the regulatory clarity provided in the finalised framework, as well as Singapore’s position as a trusted hub for global business will provide a strong foundation for the issuance of stablecoins pegged to other G10 currencies,” Chan remarked.

Blockchain benefit

XREX’s business focusses on blockchain-based cross-border payment technology. The Taiwan-based team will useXREX Singapore as their Asia Pacific (Apac) headquarters, and look to expand its payment product that supports fiats, stablecoins and cryptocurrencies in the region.

Christopher Chye, chief executive officer (CEO) at XREX Singapore, told FA that the approval process took approximately two years’ , which he referred to as “hard fought” in a company press release. The team is looking to elevate the in-principle approval to a full licence over the next six months, he added.

“Blockchain technology has the potential to decimate transaction fees, facilitate atomic settlement and enable programmable money,” he said.

Moreover, he addted that “stablecoins are particularly well-positioned to bring respite to illiquidity issues, and we look forward to acquiescing our customers and prospects to the use of stablecoins in the imminent future.”

The XREX Group team claims to be the only digital asset player approved by both Singaporean and Taiwanese regulators to provide virtual asset services, according to the note.

Chye said that the compliance team has been studying the licensing regime formalised in the United Arab Emirates (UAE) and closely following regulatory developments in Hong Kong.

“Singapore boasts a progressive and robust regulatory framework, offering our users the clarity and confidence they need to access digital assets and use stablecoins,” said XREX Group and XREX Singapore head of compliance, Nick Chang, in the statement.

Chye added: “We feel optimistic about the regulatory developments across various jurisdictions and the attention central banks have afforded to this. Clear, reasonable, and practical regulations are crucial for the development of the blockchain industry.”

¬ Haymarket Media Limited. All rights reserved.

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Impact investing on the rise: BNP Paribas survey | FinanceAsia

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Impact investing is gaining in popularity across the globe, but a lack of harmonised environmental, social and governance (ESG) data, regulations and standards pose barriers to its development in Asia, a BNP Paribas survey suggested.

“Asia Pacific (Apac) is behind Europe, which has already integrated broader ESG topics such as inequalities and biodiversity. But it is ahead of North America which is highly fragmented over this topic,” Jules Bottlaender, Apac head of sustainable finance at BNP Paribas (securities services), told FinanceAsia.

So far 41% of global investors recognise a net zero commitment as their priority, while in Apac, 43% have set a due date to achieve net zero targets, according to the survey.

The global survey, titled Institutional investors’ progress on the path to sustainability, looked into how institutional investors across the globe are integrating their ESG commitments into implementation.

It gathered data from 420 global hedge funds, private capital firms, asset owners and asset managers between April and July 2023. Among them, 120 (28.6%) are from Asia Pacific (Apac) markets including China, Hong Kong, Singapore and Australia.

Impact investing

Impact investing, a strategy investing in companies, organisations and funds generating social and environmental benefits, in addition to financial returns, is a global trend that in the next few years, is set to overtake ESG integration as the most popular ESG strategy, the report revealed.

Globally, ESG integration dominates 70% of investors’ ESG investment strategies, but the proportion is expected to drop by 18% to 52% over the next two years. In contrast, 54% of respondents reported a plan to incorporate impact investing as their primary strategy by that time.

European investors have the greatest momentum in adopting impact investing at present, with 52% employing impact investing. While in the four markets in Apac, the proportion stood at 38%.

Negative screening took a lead as a major strategy of 62% investors surveyed in Apac. In the next two years, the figure is set to shrink to 47%, overtaken by 58% estimating to commit to impact investing.

“Impact investing is a rather new concept for most people [in Asia]. It is driven by the need to have a clear and tangible positive impact,” Bottlaender said.

An analysis from Invesco in March 2023 pointed out that while impact assessment is key to a measurable outcome of such investments, clear and consistent frameworks are required to avoid greenwashing acts.

“There is no singular standard for impact assessment,” the article noted. On the regulatory side, specific labelling or disclosure requirements dedicated to impact investing have yet to come in Asia.

Private markets, including private debt, private equity and real assets, will take up a more sizeable share of impact investing assets under management (AUM), it added.

Bottlaender echoed this view, saying that current regulatory pressure in Asia “is almost all about climate”. As a result, Asian investors’ ESG commitments are mostly around climate issues such as including net zero pledges and coal divestment. These are coming before stronger taxonomies and broader ESG regulations which are set to be finalised over the next few years.

Data shortage

A lack of ESG data is one of the greatest barriers to investors’ commitments, as respondents to the survey reported challenges from inconsistent and incomplete data. The concern is shared by 73% of respondents across Apac, slightly higher than a global average of 71%.

Bottlaender explained that although mandatory reporting of climate data is adopted in certain regulations, a majority of ESG data is submitted voluntarily.

This leads to a fragmentation and inconsistency of sources based on the various reporting standards they adhere to. Moreover, the absence of third-party verification results weighs on the accuracy and reliability of the data provided, he continued.

He shared that investors are either engaging directly with companies to encourage standardised reporting practices, or relying on data providers, or leveraging technology to carry out quality control to address the lack of ESG data.

But “significant gaps persist, especially concerning private companies and aspects like scope 3 emissions.”

“As a result, investors must be extremely cautious when advancing any ESG claim or commitment,” he warned.

¬ Haymarket Media Limited. All rights reserved.

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Impact investing on the rise: BNP survey | FinanceAsia

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Impact investing is gaining in popularity across the globe, but a lack of harmonised environmental, social and governance (ESG) data, regulations and standards pose barriers to its development in Asia, a BNP Paribas survey suggested.

“Asia Pacific (Apac) is behind Europe, which has already integrated broader ESG topics such as inequalities and biodiversity. But it is ahead of North America which is highly fragmented over this topic,” Jules Bottlaender, Apac head of sustainable finance at BNP Paribas, told FinanceAsia.

So far 41% of global investors recognise a net zero commitment as their priority, while in Apac, 43% have set a due date to achieve net zero targets, according to the survey.

The global survey, titled Institutional investors’ progress on the path to sustainability, looked into how institutional investors across the globe are integrating their ESG commitments into implementation.

It gathered data from 420 global hedge funds, private capital firms, asset owners and asset managers between April and July 2023. Among them, 120 (28.6%) are from Asia Pacific (Apac) markets including China, Hong Kong, Singapore and Australia.

Impact investing

Impact investing, a strategy investing in companies, organisations and funds generating social and environmental benefits, in addition to financial returns, is a global trend that in the next few years, is set to overtake ESG integration as the most popular ESG strategy, the report revealed.

Globally, ESG integration dominates 70% of investors’ ESG investment strategies, but the proportion is expected to drop by 18% to 52% over the next two years. In contrast, 54% of respondents reported a plan to incorporate impact investing as their primary strategy by that time.

European investors have the greatest momentum in adopting impact investing at present, with 52% employing impact investing. While in the four markets in Apac, the proportion stood at 38%.

Negative screening took a lead as a major strategy of 62% investors surveyed in Apac. In the next two years, the figure is set to shrink to 47%, overtaken by 58% estimating to commit to impact investing.

“Impact investing is a rather new concept for most people [in Asia]. It is driven by the need to have a clear and tangible positive impact,” Bottlaender said.

An analysis from Invesco in March 2023 pointed out that while impact assessment is key to a measurable outcome of such investments, clear and consistent frameworks are required to avoid greenwashing acts.

“There is no singular standard for impact assessment,” the article noted. On the regulatory side, specific labelling or disclosure requirements dedicated to impact investing have yet to come in Asia.

Private markets, including private debt, private equity and real assets, will take up more sizeable share of impact investing asset under management (AUM), it added.

Bottlaender echoed this view, saying that current regulatory pressure in Asia “is almost all about climate”. As a result, Asian investors’ ESG commitments are mostly around climate issues such as including net zero pledges and coal divestment, before stronger taxonomies and broader ESG regulations which are set to be finalised over the next few years.

Data shortage

A lack of ESG data is one of the greatest barriers to investors’ commitments, as respondents to the survey reported challenges from inconsistent and incomplete data. The concern is shared by 73% of respondents across Apac, slightly higher than a global average of 71%.

Bottlaender explained that although mandatory reporting of climate data is adopted in certain regulations, a majority of ESG data is submitted voluntarily.

This leads to a fragmentation and inconsistency of sources based on the various reporting standards they adhere to. Moreover, the absence of third-party verification results weighs on the accuracy and reliability of the data provided, he continued.

He shared that investors are either engaging directly with companies to encourage standardised reporting practices, or relying on data providers, or leveraging technology to carry out quality control to address the lack of ESG data.

But “significant gaps persist, especially concerning private companies and aspects like scope 3 emissions.”

“As a result, investors must be extremely cautious when advancing any ESG claim or commitment,” he warned.

¬ Haymarket Media Limited. All rights reserved.

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Nobel Sustainability Trust launches digital currency initiative

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MUNICH, Nov. 9, 2023 —A meeting sponsored by the Nobel Sustainability Trust today launched the Central Bank Digital Currency Collaboration Organization (CBDCCO), under the chairmanship of Peter Nobel, president of the Trust. The organization’s goal is to nurture sustainable economic growth and stability by encouraging the adoption of digital currencies.

The inauguration ceremony represents the culmination of years of activity on the part of a pioneering global Central Bank Digital Currency research organization, the International Telecommunications Union Focus group headed by Dr. David Wen. Dr. Wen is the Director-General of the new CBDCCO.

The new initiative draws on experts from leading regulatory and financial organizations, including the European Security and Market Authority, the Federal Reserve, the Official Monetary and Financial Institutions Forum, China Merchant Bank, CBDC solution provider eCurrency, and technology experts from CBDC solution providers like eCurrency, and Modern Sustainable Solutions (MOSS), a leading carbon offset provider.

Dr. Bruno Wu, the President of CBDCCO and Director-General of the World Sustainability Standard Organization (WSSO), outlined a seven-part program in his keynote speech to the founding conference. Dr. Wu was the honoree of last year’s Nobel Sustainability Trust award.

Under the theme “Star Bridge,” the CBDCCO program will work with central banks to develop digital technology, assist in the integration of digital financial infrastructure, promote accounting standards that corporate sustainability data in accounting standards, apply CBDC technology to Real World Asset Management, develop digital infrastructure for improved global carbon asset management, foster technical standards for a wide range of CBDC solutions, and provide innovative technology for regulatory oversight of sustainability products.

Dr. Wu is a shareholder of the parent company of Asia Times.

Peter Nobel, representing the Nobel Sustainability Trust, stressed the importance of embedding sustainability into the core of future economies. They stated, “Digital currencies present a unique opportunity to rebuild and reshape our financial systems with sustainability at their core.” The Nobel Sustainability Trust, long active in the sustainability space, will provide expertise and support for the new organization.

The CBDCCO and the Nobel Sustainability Trust extended an invitation to other organizations and governments to join their endeavors in forging a sustainable and inclusive financial future.

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Malaysia’s net zero transition: expediting ESG | FinanceAsia

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The Joint Committee on Climate Change ( JC3 ) of Malaysia met last month to discuss working together to improve the financial sector’s ability to develop climate resilience. & nbsp,

According to a spokesperson for Bank Negara Malaysia( BNM ),” sustainable assets are gaining momentum in Malaysia with key investment styles built around the need for accelerating sectoral transition and climate resilience, such as energy transition, circular economy, food security, and freedom change.”

The JC3 board was established in September 2019 to ensure a cogent approach to ESG initiatives, with its founding serving as” great testimony” to how proponents of Malaysia’s capital markets intend to work closely to improve sustainability practices in Malaysia, according to Angelia Chin – Sharpe, CEO of BNP Paribas Asset Management, which operates in Southeast Asia.

Its members include representatives of the market’s central bank, BNM, capital markets regulator, Securities Commission Malaysia ( SC ), stock exchange, Bursa Malaysia, and 21 other financial industry players, including Chin-Shawni at BNP AM, insurance companies Allianz, Swiss Re and Zurich, as well as banks like RHB Islamic and CIMB.

The committee outlined five initiatives at the meeting that” emphasise the crucial part of the banking sector in enabling a lasting plan” with the goal of expediting the economy’s low-carbon practices. A pilot project to switch industrial parks and their operational infrastructure to low-carbon practices was one of these, along with three data-related initiatives and a RM1 billion($ 0.210 million ) guarantee to provide funding to smaller market players to support their ESG agendas. & nbsp,

The BNM spokesperson stated to FA that one of the goals of” Ekonomi Madani” is to encourage Malaysia’s green growth in the direction of climate resilience. This goal aims to put Malaysia on a strong development path by realizing and addressing key national issues.

There are numerous opportunities for industry players, including international investors, to achieve the National Energy Transition Roadmap ( NETR ) targets set for 2050, she said.

Energy efficiency( EE ), renewable energy( RE ), hydrogen, bioenergy, and green mobility and carbon capture, utilisation and storage( CCUS ) are the six energy transition levers that Malaysia’s NETR identifies as its ten flagship projects. These are anticipated to catalyze and quicken the market’s energy transition, reduce greenhouse gas ( GHG ) emissions by at least 10 metric tons of carbon dioxide equivalent ( MtCO2eq ) annually, create 23, 000 high-impact job opportunities, and improve corporate ecosystem growth opportunities with benefits to society.

According to the BNM touch, their powerful supply necessitates investments in infrastructure, engineering, and human capital totaling between RM1.2 trillion and Rs1.3 trillion up to 2050. In addition to & nbsp,

While Malaysia’s administrative society is capable of reviewing such an option and is aware of the significance of incorporating ESG into purchase technique,” there is still a need to teach” smaller scale investors on the opportunities and risks associated with sustainability strategies, according to Chin-Sharpe, BNP Paribas AM.

Having said that, she added,” Most banks in Malaysia are committed to playing a more active role to align and help their clients understand the[ relevant ] Malaysian taxonomies.”

Purchase and regulation

The five new initiatives have been included in the government’s budget for 2024 and” complement other policies such as the NETR, the New Industrial Master Plan ( NIMP ) 2030 and the Mid-Term Review of the 12th Malaysia Plan ( MTR – 12MP ,” according to YB Nik Nazmi Nk Ahmad, minister of Natural Resources, Environment, and Climate Change.

All governing events, including JC3 users, Malaysia’s Corporate Guarantee Corporation, and pertinent ministries, are committed to putting the tasks into action, the BNM representative confirmed with FA.

The regulatory environment in Malaysia keeps up with the country’s continued energy transition and the funding needed to make it happen. To obtain conservation and environment goals, the money market should be prepared to help finance raising and investments. Since 2011, when Sustainable and Responsible Investment ( SRI ) has been included as a crucial growth strategy in the Capital Market Masterplan CMP2, the SC has paved the way for sustainability, according to Dato ‘ Seri Dr. Awang Adek Hussin, its chairman.

A Climate Chance and Principle-based Taxonomy was published by BNM in 2021. In December 2022, SC unveiled a Principles-Based SRI Taxony for the Malaysian Capital Market. This year, in June of this year. SC also established the International Sustainability Standards Board’s ( ISSB ). & nbsp,

Meanwhile, the BNM spokesperson emphasized last month’s Energy Efficiency and Conservation legislation as having the potential to significantly lower energy use by 2050 — by 2, 017 million gigajoules, or RM97 billion in savings— and to” create new jobs in energy management and auditing ,” she said.

According to Adrian Wong, mind of jobs and director at the Singapore-based law firm Prolegis, which has a formal legal ally with Herbert Smith Freehills( HSF ),” investment has increased in Malaysia in part because the regulatory environment has done more to promote appetite in renewables.”

Large-scale solar auctions in Malaysia’s peninsular and projects along the Sarawak Corridor of Renewable Energy ( Score) are two of the renewable infrastructure projects his team is helping clients with.

The transport industry is anticipated to play a significant role in the demand for renewable energy, with electric vehicle ( EV ) usage expected to reach 80 % of the car market in 2050.

However, he informed FA that the greatest possibility is present in projects involving solar, water, and biofuel. In 2040, it is anticipated that all three sources will increase and account for roughly 17 % of Malaysia’s total energy mix.

a files travel

Data and the potential of emerging technologies to support Malaysia’s conservation plan are the three activities that were announced at the event.

The first builds on the accomplishments of JC3’s Greening Value Chain ( GVC ) pilot program, which began in 2022 and has so far assisted 80 small and medium enterprises( SMEs ) in tracking and reporting greenhouse gas ( GHG ) emissions across the length of their supply chains. In order to provide public listed companies( PLCs ) capacity-building support, reporting tools, and additional financing facilities, which the BNM spokesperson said could be accessed” at competitive rates via the Low Carbon Transition Facility( LCTF ), the updated plan connects Bursa Malaysia’s sustainability data platform with the GVC program.

Access to an” ESG jump-start portal,” through which Malay businesses can obtain useful information on ESG-related capacity-building programs, certification, as well as financial and opportunity methods, and the introduction of a Green AgriTech program to promote the adoption of green technology and sustainable agriculture techniques among local producers, are additional data related initiatives.

According to the BNM director,” Green AgriTech offers substantial potential for Malaysia’s agricultural field by opening up new possibilities and addressing vital difficulties.”

Wong concurred that emerging technology has the potential to modernize and alter Malaysia’s ESG strategy, particularly in the agricultural industry. From ensuring a sustainable supply of food sources to raising general health and environmental criteria, he mentioned the potential for positive effects.

To ensure that farmers may conduct their financial transactions online, he suggested the Malaysia Digital Economy Corporation’s project, which linked small farmers to online marketplaces offering bright warehouse facilities, supply, and farming solutions.

Through a thorough approach to alternative solutions, this catalytic pilot program encourages farmers to use technologies and follow greener and ecological practices. Participating farmers can obtain grants and LCTF to purchase natural systems, the BNM spokesperson added.

” Technology use may improve produce stability and quality while also assisting in the resolution of food safety issues.”

maintaining speed

The efforts to enlist input from all parts of Malaysia’s market, both the public sector and the private sector, is at the core of the country as it transitions. The BNM spokesperson informed FA that” efforts to level public-private partnerships are even continuing, with fresh initiatives.”

She stated that the GVC program is an excellent illustration of a cutting-edge blended financing initiative in Malaysia that supports the country’s move toward enlightenment.

BNM continues to support private institutions’ participation in the government’s loan offerings, the call emphasized,” BNM also supports such attempts by facilitating the release of Government of Malaysia Sustainable Sukuk for registration by both domestic and foreign investors.”

According to SC chairman Hussin at the conference, the SRI-linked Sukuk Framework was introduced last year, giving the Indonesian capital market access to a full range of frameworks to assist businesses in financing transitional projects as well as alternative, social, and sustainability initiatives.

Fitch recently released an ESG document that showed a steadfast global appetite for the sukuk. The data shows that by the end of 3Q23, ESG sukuk issuance had increased by 66 % year over year( YoY ) to reach$ 33.3 billion worldwide.

Due to built-in sharia filters, there is a cross between Islamic funding and ESG principles, according to the ratings agent’s research. & nbsp,

Over the moderate name,” Fitch Ratings anticipates more rise.” According to the review, the company’s growth is largely driven by governments’ sustainability initiatives and issuers’ funding diversification goals toward both sharia and ESG-sensitive investors.

” ESG sukuk could receive an awareness and issuance boost ,” said Bashar Al-Natoor, Fitch’s global head of Islamic Finance, with the United Arab Emirates( UAE) hosting the Conference of Parties( COP ) 28 this year.

It is motivating to see the Indonesian government adopting a” full of state” approach to addressing the impact of climate change on economic conservation, Hussin said at the conference’s conclusion. The nation’s interests and sustainable development methods are outlined in roadmaps and masterplans that have been made available by the relevant ministries.

I want to say it again:” Our planet is facing an unprecedented problem, one that necessitates immediate and coordinated effort from all countries, sectors, and individuals.”

 

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How to read China's US Treasury sell-off

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In the home stretch of a rocky 2023, China and Warren Buffett are warning the global economy that the year ahead could be even more precarious.

Not directly or in tandem, of course. But the financial decisions being made in Omaha, Nebraska and Beijing don’t seem very promising for the 12-14 months ahead.

Buffett’s Berkshire Hathaway conglomerate, for example, is raising its cash position in headline-generating ways. Its cash pile is now a record-breaking US$157.2 billion amid rising global interest rates and a lack of solid investment options.

Xi Jinping’s China is also going as liquid as it can — and rapidly — without panicking investors everywhere. As of the end of August, China’s stockpile of US Treasury securities dropped to the lowest level in at least 14 years.

What’s more, Beijing’s exposure to US government debt has fallen about 40% in just the last decade. Xi’s Communist Party has long since passed the dubious honor of Washington’s top banker to Japan. But at No 2, with $805.4 billion of US Treasuries, China’s selling activity is raising eyebrows in government offices and trading pits around the globe.

Though some might claim foul geopolitical play, there could be perfectly rational economic reasons for Xi’s government to offload US debt. As economist Torsten Slok at Apollo Global Management sees it, “growth in China is slowing for cyclical and structural reasons, and Chinese exports to the US are lower. As a result, China has fewer dollars to recycle into Treasuries.”

Brad Setser, a former US Treasury Department economist, says the suspicion that Xi is exacting revenge on the US “sort of makes sense. China does worry about the weaponization of the dollar and the reach of US financial sanctions. And why would a rising power like China want to fund the Treasury of a country that China views as standing in the way of the realization of the China dream ­– at least in the Pacific?”

Yet, Setser says, “that is not what I believe is actually happening.” The bulk of China’s post-2012 efforts to diversify its reserves “have come not from shifting reserves out of the dollar, but rather by using what could have been reserves to support the Belt and Road and the outward expansion of Chinese firms.

Those non-reserve foreign assets, strangely enough, seem to be mostly in dollars; almost all the documented Belt and Road project loans, for example, have been in dollars.”

A Belt and Road bridge project in Croatia. Image: Twitter

Whatever the motivation, though, the global financial system is right to worry about the wider fallout from China selling dollars, including surging US yields. US bond rates recently hit a 17-year high and further spikes are sure to hit asset markets around the globe.

Slok notes that rising US yields are “inconsistent” with the view that stock markets are undervalued. “In short, something has to give,” Slok notes. “Either stocks have to go down to be consistent with the current level of interest rates. Or long-term interest rates have to go down to be consistent with the current level of stock prices.”

Strategist Lauren Sanfilippo at Bank of America sees China’s selling of Treasuries, circa 2023, as a bookmark of sorts. The other was in 2013, when senior People’s Bank of China officials declared it was “no longer in China’s favor to accumulate foreign exchange reserves.” That, she argues, marks “the beginning of a downtrend in China’s holdings of US Treasuries.”

In late 2013, Sanfilippo says, China owned more than $1.3 trillion in Treasuries, in excess of 23% of all foreign holdings. More recently, and over the last 18 months, China has sold more than $200 billion in Treasuries.

This isn’t the full picture, though. All in all, Sanfilippo says, “the landscape of buyers of US Treasuries has shifted. While foreigners own 30%, that share has been declining. The Federal Reserve owns 18%, or another $4.7 trillion, down from a peak of $6 trillion via the monthly run off of $60 billion of Treasuries through their ongoing quantitative tightening program. Importantly, and increasingly coming to the table, are hedge funds, pensions, retail investors, mutual funds and insurers as marginal buyers.”

In Sanfilippo’s view, the “bottom line” is that “foreigners are still a major source of demand for our paper. An important fact, particularly when accounting for a growing US deficit. A list of concerns such as a shifting geopolitical landscape, polarizing US politics, hits to the US credit rating, or a worrying pile of debt, could all chip away at the allure for US assets over the long term.”

But, she notes, “good reasons remain for our preference of US dollar-denominated assets relative to non-US dollar assets. The US economy remains the largest, wealthiest and most competitive economy backstopped by the US corporate sector. Globally speaking, that’s a rare combination that continues to drive flows into US assets, both foreign and domestic.”

Even so, Washington’s bankers in Asia losing faith en masse could be the game-changer officials in Beijing have long feared. The nine Asia-Pacific economies holding the most US debt are sitting on more than $3 trillion of it.

That, at a moment when the US national debt tops $33 trillion and the Fed might soon extend its most aggressive tightening cycle since the late 1990s. Add in extreme political dysfunction in Washington putting the last of its AAA credit ratings at risk.

US Federal Reserve Chair Jerome Powell. Image: Xinhua

The risk is that all that red ink prompts more of Washington’s bankers to buy fewer Treasuries or, worse, call some loans.

In March 2018, Cui Tiankai, China’s then-ambassador to the US, hinted that Beijing might scale back on debt holdings amid concerns about losses. “We are looking at all options,” he said.

That same year, Fan Gang, a top PBOC adviser, said the time to diversify had come. “We are a low-income country, but we are a high-wealth country,” Fan said. “We should make better use of capital. Rather than investing in US government debt, it’s better to invest in some real assets.”

Those concerns in 2018 were being expressed seven years after the US lost the first of its AAA ratings – from S&P Global Ratings. They also came nearly a decade after then-Chinese premier Wen Jiabao in 2009 urged Washinton to safeguard its creditworthiness.

“We have made a huge amount of loans to the United States,” Wen said at the time. “Of course, we are concerned about the safety of our assets. To be honest, I am a little bit worried.” Washington, Wen stressed, must “honor its words, stay a credible nation and ensure the safety of Chinese assets.”

One big worry for China and the rest of Asia: that bickering in Washington between President Joe Biden’s Democrats and the Republicans loyal to predecessor Donald Trump might brawl in ways that prompt Moody’s Investors Service to downgrade the US as Fitch Ratings did in August.

With approval ratings in the low 40s, at best, Biden’s path to defeating Trump in November 2024 is narrowing. Trump has suggested in the past that he might default on US debt to retaliate against China.

Also on Trump’s watch, from 2017 to 2021, America’s standing in Transparency International’s annual corruption perceptions index nosedived 11 places since from 2017 to 2021 – to a 27nd ranking from 16th place.

These aren’t comforting data points for China and other Asian governments effectively holding Washington’s mortgage. As 2024 approaches, Xi, the strongest Chinese leader since Mao Zedong, may also be trying to avoid terrible headlines about hundreds of billions of state wealth lost to US yield volatility. It’s complicated, of course.

The resulting surge in US yields if China accelerated Treasuries selling would boomerang back on China’s economy, just as it’s growing the slowest in three decades. As rates rise, American consumers will buy fewer Chinese goods. The US, of course, is already slowing. In October, the US added just 150,000 nonfarm payroll jobs, a marked slowdown.

“Some of [October’s] weakness will reverse next month with the United Auto Worker (UAW) strike ending, but there is more weakness beyond that,” says economist Thomas Simons at Jefferies, a US investment bank. “This data fits in line with the trend that had been in place before the surprisingly strong September print.”

Yet as Buffett’s Berkshire noted in a recent report: “The effects of significant increases in home mortgage interest rates in the US over the past year has slowed demand for our home building businesses and our other building products businesses. We continue to anticipate certain of our businesses will experience weakening demand and declines in revenues and earnings into 2024.”

As such, economist Mark Williams at Capital Economics doubts that Beijing is letting political objectives dictate foreign exchange reserve management.

“Falls in the value of China’s recorded holdings of US Treasuries tell us little about whether China is divesting from the dollar,” Williams notes. “A broader look at the data suggests that it isn’t, despite geopolitical pressure to decouple. The analysis of the US Fed suggests that China has been a net buyer overall,” of dollar assets.

Photo: Reuters/Jason Lee
China isn’t apparently wholesale dumping US debt. Photo: Asia Times Files / Reuters / Jason Lee

Setser, who’s now with the Council on Foreign Relations, thinks worries about China dumping US debt are overdone. In his view, there “aren’t realistic channels for financial contagion” from the second-biggest economy to the US. Bottom line, he sees “no real scenario” in which China “disrupts” American markets in ways the Fed can’t handle.

But can the PBOC handle things? Some of the US Treasuries sales of late seem to reflect a desire to have funds available to keep the yuan from extending its 5.5% drop this year.

On the one hand, it’s increasing the odds China will import inflation amid elevated global commodities prices. On the other, it raises the risks of additional defaults among property developers as offshore debt payments become more expensive.

Still, as recent actions by Xi’s government and Buffett suggest, there may be an even bigger economic storm brewing in 2024. As such, some battening down of the hatches may be in order.

Follow William Pesek on X at @WilliamPesek

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