Fifty years of Asia: The Region that Roared

Euromoney, May 9 2019

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When Euromoney meets Joydeep Sengupta, co-head of Asia-Pacific fixed income, currencies and commodities at Bank of America, to talk about the themes that have shaped Asia’s recent financial history, he starts reeling off statistics about Japan.

In 1990, Japan made up 45% of global equity market capitalization, its largest 13 banks accounted for $470 billion of market cap and its three long-term credit banks $140 billion, he says. At the time the top 50 US banks combined were worth $110 billion.

Japan owned 40% of international bank assets and was home to nine of the 10 largest banks by assets. And it was where every international bank had its regional head office.

It is a useful lesson in how things can change over a relatively modest time frame. Today Japan is just another large market in Asia Pacific for the international banks – barely even that for some of the Europeans – and China totally dominates the conversation.

You probably wouldn’t have seen that coming in 1990, when Jardine Fleming had just given back its first ever China fund mandate because it couldn’t find a way to deploy the money successfully – having had disastrous episodes with fish and ducks along the way. You certainly wouldn’t have seen it coming in the 1970s if, like PAG’s Weijian Shan, you were spending the decade freezing in Inner Mongolia illegally reading a manual about insecticides during the Cultural Revolution.

At that time it would have been quite a leap to imagine that Vietnam would become one of the world’s most adored frontier markets – ask the management of Techcombank, who at the time were fleeing the country in boats as refugees.

Having spent the last several months visiting leading bankers of the past and present in 10 different countries and territories, it is apparent that one key to success is the ability to adapt. It is as true for Agus Martowardojo, who had to bolt four failed banks together in a riot-hit Indonesia during the Asian financial crisis to create Mandiri, as it is for Joseph Yam, head of the Hong Kong Monetary Authority, who had to take unorthodox steps to defend the Hong Kong dollar and won.

Laura Cha showed it in being able to thrive as a regulator first in Hong Kong and then on the mainland; Uday Kotak did so in seeing the potential of Indian financial services when it was wholly unapparent to anyone else; and the Wee family, who run UOB, have married deftness with conservatism in piloting their bank through not just financial crises but wars and the birth of a nation.

For international banks today, the principal challenges involve positioning correctly for an opening China and dealing with a transformed competitive environment, particularly in investment banking – where Chinese players have become so powerful – and in payments and consumer where tech-enabled entrepreneurs have torn up the rule book.

Getting on the right side of these shifting patterns is more important than it has ever been as Asia has become the indisputable engine of world growth. Yes, per-deal fees have been crushed, but look at the volumes. As Sengupta’s colleague Jin Su, newly appointed co-president of Asia Pacific, points out, the stock of Asian credit bonds was $200 billion in 2007 and is around $1.7 trillion today.

Asia is a source not just of paper but also investment. Its sovereign wealth funds are becoming behemoths. Mainland Chinese money drives more deals than ever. And north Asian markets such as Japan, Korea and Taiwan, says Su, represent “the intersection of demographics and QE [quantitative easing]. North Asia, driven by a savings glut and low domestic bond yields, is basically the vol seller and the credit buyer of the world.”

So Asia now has the supply and the demand to be relevant globally. More and more US or European houses are finding the region the second-biggest contributor worldwide after their home base. Asia is the true home of digital disruption and the most powerful voice in financial inclusion. Banks, home-grown and global, need to get it right.