Month: December 2011

Asia Headed Towards Becoming Largest Corporate Market by 2015

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Global consulting firm McKinsey & Co released a report stating that global corporate and investment banks will get almost 50% of their revenues (around $799 billion) from Asia by 2015. The leading countries will be China and India. In 2010, the revenues originating in Asia constituted nearly 33%, or $442 billion.

The report, entitled ‘Asia: The Future of Corporate and Investment Banking’, stated: “The surprisingly strong economic health of Asian economies in 2010 saw the risk-adjusted corporate and investment banking (CIB) revenues from the continent, touching nearly $442 billion, just under a third of the global total. But by 2015, this revenue pool will rise to about $790 billion by 2015 or 45% of the global CIB revenue.”

Akash Lal, McKinsey partner, said “Asia will become the largest and fastest growing region in the wholesale banking universe by 2015.”

He continued, explaining that the market will change dramatically as new investors, more demanding customers and multi-regional businesses join the industry. According to Emmanuel Pitsilis, senior partner and Asia corporate and investment banking practices leader, the biggest challenges in the growing industry will be regulation and very intense competition.

“Global banks will have to find a path to become more Asian by making the right investments from both business as well as geographical perspectives, apart from building a business model that is both profitable and durable,” he explained.

East Asian Giants Strengthen Financial Ties

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Japanese Prime Minister Yoshihiko Noda recently visited Beijing to meet with China’s leaders. The two governments revealed a surprising plan to use their own currencies in bilateral trade, instead of in U.S. dollars, as part of an effort to strengthen financial ties between the two economic giants. The pledges came as a shock; the countries are competitively the second and third largest economies in the world. They also struggle with political issues regarding territory and other disagreements.

The East Asian countries also agreed to encourage the sale of bonds denominated in China’s yuan by foreign markets, Japanese companies as well as the Japan Bank of International Cooperation in China’s markets. Until now, these markets have been mostly closed to investors from outside.

“To support the growing economic and financial ties between China and Japan, the leaders of China and Japan have agreed to enhance mutual cooperation in financial markets of both countries and encourage fiscal transactions between the two countries,” the governments said.

East Asia is the fastest-growing region in the world today. This recent development is likely to significantly reduce the U.S. dollar’s dominance in the area.

Yahoo In Talks to Sell Asian Shares

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Yahoo, a major U.S.-based internet company, may sell a significant amount of its Asian investments. According to inside sources, the plan can put $17 billion on the holdings, putting the value of the Asian stakes at more than the entire company’s worth as of September.

The transaction will be discussed at a board meeting later today, as part of an intensive review of the company following the departure of former chief executive Carol Bartz.

One source, who is directly involved in discussions, has revealed that valuations are still unclear, and that so far offers have fallen short of $17 billion. Another source added that whether Yahoo executives choose this option or not, the deal will take at least three weeks to close.

Reports have stated that Yahoo’s primary negotiations are related to stakes in Yahoo Japan, as well as Alibaba, the Chinese e-commerce group. Yahoo’s partners in Asia, Alibaba and Softbank, made the initial offer to buy back the 40% stake in Alibab and the 35% in Yahoo Japan this past October. Today’s discussions will focus on Yahoo keeping a 15% share in Alibaba for future gains in China, with all remaining holdings to be sold.

North Korean’s Kim Jong Il’s Death Sends Asian Stocks Tumbling

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The shocking death of North Korea’s leader has sent Asian stocks tumbling, deepening concerns regarding the financial market.

Kim Jong Il’s death was announced last night in Pyongyang, the North Korean capital. Stability in the region has been compromised, and the reclusive regime will now undergo a major change in leadership.

South Korea’s Kospi index initially fell 4.1%, but later regained to trade 3.1% at 1,782.50. The won also slid 1.6% against the dollar. Aside from that common safe haven, the yen and the euro sank as well.

Japan’s Nikkei 225 index fell 1% at 8,314.44, while the Hand Seng plunged 2.5% to 17,833.42. Similarly, the Shanghai Composite Index fell 2.6%.

Tensions on the Korean peninsula have heightened, and South Korea has put both its police and military on high alert. President Lee Myung-Bak also convened national Security Council meetings. Japanese leaders are keeping an eye on markets, and are in touch with the U.S.

“We need to prepare for any contingencies,” said Jun Azumi, according to Kyodo News Agency.

Citigroup Plans to Hire More Staff and Boost Trade Finance Services in Asia

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Anthony Nappi, head of global transaction services at Citigroup, said the bank is now looking to increase its staff and boost its trade finance service business in Asia.

“Trade finance is a key area for us- we are going to hire more trade transactors because a business perspective trade has been the outstanding performer for us,” he told Dow Jones Newswires.

“My own personal aspiration,” he said, “is to double the size of the business every three to five years… We continue to want to grow at double digits. That’s our aspiration.”

Nappi went on to explain that there are 50-70 new positions that he intends to fill throughout the whole global trade service business in markets like China, Malaysia, India and Australia. These regions have a strong demand for cash management. Now, Citigroup’s Asian GTS business has more than 5,200 employees.

Trade Financing in Asia

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The Asian Development Bank is expecting a sudden increase in demand for trade financing as European banks limit their lending in the face of the ongoing crisis.

“The trade-finance program is filling persistent market gaps, but it will become even more important,” said Steve beck of ADB. “With some major European banks retrenching from the trade-finance business, we see that the gaps are increasing.”

Beck predicts even more growth in the operation, which is already worth $3 billion. A credit crunch will most affect smaller emerging markets such as Bangladesh, Sri Lanka and Vietnam. There is risk for a collapse similar to that of 2008, which will inhibit growth across the continent and add to the global recession.

Now, European banks are scrambling to raise their capital ratios, and Morgan Stanley estimated that many lenders would lower their leverage by $2 trillion to $3 trillion.

“European banks that had exposure in Asia have had to repatriate some of the money from Asia, and that’s why you see volatility” in the area’s exchange rates, explained Iwan Azis, also of ADB.

IATA Lowers Profit Expectations for 2012

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IATA has lowered its profit expectations from its global airline earnings in 2012 to $3.5 billion, 28.6% less than its last prediction, stating its concerns of a net loss of $8.3 billion if the Eurozone crisis continues to worsen and global GDO growth falls.

IATA’s previous forecast was released in September, in which they revealed their expectations of a $4.9 billion profit next year. The airline industry leaders represents more than 200 airlines around the world, including Asia, Europe and the Americas.

“The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the Eurozone sovereign debt crisis. Such an outcome could lead to losses of over $8 billion- the largest since the 2008 financial crisis,” said Tony Tyler of IATA.

“This admittedly worst-case- but by no means unimaginable- scenario should serve as a wake up call to governments around the world,” he continued. “Government policies need to recognize aviation’s vital contribution to the health of the economy.”

He added that even the best case scenario for next year “is for a new margin of just 0.6% on revenues of $618 billion. But the industry is really moving at two speeds, with highly taxed European carriers headed into the red.”

China’s Economy Threatened by Global Crisis

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Chinese leaders have implied that times may get tougher for the country’s exports with a warning that the global crisis may impact the nation’s economy.

Vice Premier Wang Qishan, the top financial official in China, encouraged companies to contribute their efforts to securing a “stable increase” in exports, despite the lessening of external demand.

“The severe and complex world economic situation will inevitably mean global demand is insufficient,” Wang said.

Over the past year, China’s exports increased 15.9%, or $157.49 billion, down from the $169.7 billion of the previous year. The fall is a result of decreasing demand in Europe and the U.S.

Chinese Commerce Minister Chen Deming agreed with this approach, also warning that the global woes may have negative results on the nation’s economic growth next year.

“Under the influence of the contracting international economy and market, China’s economic growth next year may slow slightly,” he said.

Thailand Remains Popular Investment Focus

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World Bank country director Annette Dixon stated that Thailand is still an investment hotspot at a press conference this week.

“Globally and regionally, Thailand remains an attractive investment destination. We won’t expect a lot of business to relocate,” she said, adding that the government should work to support the flood recovery efforts as opposed to populist policies.

The Bank of Thailand has been urged to reduce the policy rate to strengthen the economy in the past. Dixon said that given the high volatility of the world’s economy, Thailand “should be extremely prudent.”

Ekaterina Vostroknutova, a senior economist for East Asia and the Pacific region, explained that developing countries in the sector are currently preoccupied with growth, and have put less focus on inflation, thus ignoring policy rates.

“Central banks in Asia are waiting to see how things unfold,” she said.