Asia Finance

EU Debt Crisis May Not Hinder Asian Businesses

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Asian businesses are feeling more secure thanks to lessons from the global financial slump and recovering U.S. banks. Analysts have admitted that while an all-out Eurozone crisis may affect demand for Asian products, exporters throughout the region are less likely to suffer as much as they did in 2008 when Lehman Brothers collapsed.

“The importance of trade finance to the global economy is better understodd now than in 2008,” explained Mark Williams of Capital Economics. “One of the factors that contributed to the recovery in 2009 was the $250 billion of trade-finance guarantees announced… In the event of a second global financial crisis, future guarantees are likely to be forthcoming.”

Often compared to the oil that greases a machine, trade finance is a key component in an economy. EU banks’ exposure to it in Asia is surprisingly high, relative to their loans in the region. Williams pointed out, however, that the Bank of International Settlements revealed that Eurozone banks are responsible for a mere 2.3% of total credit in the emerging Asia. Meanwhile, they have a 47.3% share of lending in emerging Europe, and 17.1% in Latin America.

The recent developments in trade finance have encouraged banks to increase interest rates.

“The reality is spreads have gone up fairly significantly- almost to the 2008 peak levels- over the last six weeks… But the higher spreads are here to stay,” said Ravi Saxena of Citibank.

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.

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.

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.

Black Friday Sales Boost the MSCI Asia Pacific Index

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Record-breaking Black Friday sales in the United States have sent the MSCI Asia Pacific Index towards its biggest gain in two weeks. This is great news for exporters, and commodity pool operators.

The results of the Black Friday sales proved, according to Naoki Fujiwara of Shinkin Asset Management, that the U.S. is “in a mild recovery, and consumer’s purchasing power isn’t something to be pessimistic about. But with employment looking bleak, it’s uncertain whether the strong spending will continue.”

Alumina Ltd. increased 6.4% in Sydney, and Japan’s top energy explorer Inpex Corp jumped 3.8%. Hong Kong’s Li & Fung, a clothing and toy supplier with 65% of its sales based in the U.S., rose 8.8% as well.

Japan’s Nikkei 225 Stock Average rose 1.6%, and Australia’s S&P/ASX 200 increased 1.9%, too. South Korea’s Kospi Index and Hong Kong’s Hang Seng Index both rose as well.

China’s Factor Sector Drops to Three-Year Low

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China’s factory sector decreased dramatically, the most in 32 months, in fact, as the economy continues to weaken and concerns regarding a global recession heighten.

The severe fall in the HSBC flash PMI from 51 to 48 this past month reflects domestic weakness as a result of less output and new orders, even as exports increase. The flash PMI was the lowest since 2009. Added to the already unstable world economy, the news has sent financial markets into a quiet frenzy.

“I’m not sure if it (PMI) is a tipping point, but I think it adds to the evidence,” said HSBC economist Qu Hongbin. Beijing has initiated several measures already, aimed at helping small businesses, to support the economy. The sharp drop in inflationary pressure shows that the city still has hope if it brings in additional, special measures.

“There remains no need to panic,” Hongbin said. “Easing inflation provides room for more easing measures, which will keep China on track for a soft landing.”

Asian Stocks Fall as Congressional Budget Office Reaches Deadline

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Asian stocks have fallen a fifth day, as have Standard & Poor’s 500 Index futures and the Australian and New Zealand dollars. The MSCI Asia Pacific Index fell 0.4% in Tokyo, nearing to longest losing streak since August.

According to a Democratic aide, the congressional committee should be announcing its failure to reach an agreement on $1.2 trillion in federal budget savings. Japenese exports saw declines for the first time in a quarter, and Singapore predicts slow economic growth next year.

“There’s likely to be a continuing impasse and people will focus on the stability of the U.S. politically,” Tim Schroeders of Pengana Capital Ltd. said. “People will probably sit on the sideline and wait for clarity.”

Futures which expire in December show that the S&P 500 may extend its 3.8% decrease. Today marks the deadline for the Congressional Budget Office to receive a potential plan. The Congressional panel has thus far been deadlocked over taxes, while Democrats seek tax increases and Republicans push for tax cut extensions.

Asian Currencies Fall Amid Investors’ Borrowing Costs Concerns

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As financiers worry that borrowing costs in Europe will worsen the debt crisis, South Korea’s won and Indonesia’s rupiah set a falling trend in Asian currencies.

The won declined after bonds from France, Belgium, Spain and Austria climbed to the highest premiums since the euro was established, and the rupiah fell to its lowest since September.

“We think Asian currencies will depreciate by the end of the year because of the euro-zone fiscal crisis,” explained Dariusz Kowalczyk of Credit Agricole CIB. “Risk aversion will dominate trading in the near term.”

Italy’s bond yields increased more than 7%, propmpting Greece, Ireland and Portugal to call for bailouts. Meanwhile, Spain and Belgium’s debt auctions were not as successful as planned.

“Investors are buying the dollar amid all the uncertainties we are seeing in the global environment,” said Roy Paul of Federal Bank. “The rupee’s slide may induce intervention  from the central bank.”

Asian Stocks Fall as Greek Prime Minister Steps Down

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Asian stocks suffered a blow as Greek Prime Minister George Papandreou agreed to leave his post and Italian PM Silvio Berlusconi fought to maintain his advantage in face of the parliamentary vote.

HSBC Hodings, Europe’s primary lender, slipped 1% in Hong Kong, while Takeda Pharmaceutical Co. fell 2.3%. Cnooc Ltd. fell 2.2% after the Chinese oil explorer’s BP Plc purchase in Argentina fell through.

The MSCI Asia Pacific Index lost 0.4% in Tokyo, with approximately three shares falling for every two that rose. The measure fell 3.6% last week, the most since the beginning of the quarter, following Greece’s referendum plan.

“It might get worse before it gets better,” said Binay Chandgothia of Principal Global Investors in Hong Kong. “If you look at the experience in the last 12 to 18 months in Europe, the crisis brings out the right solution. The way they are going to move is one step forward, two steps backward. We have to live with this.”

China Air Gets Bond Offering from US Export-Import Bank

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China Air, China’s national flag carrier, has accepted a bond offering guaranteed by the US Export-Import-Bank, or US-Exim.

The deal, worth $135.31 million, brings into play a new capital market financing solution to airline companies in Asia-Pacific. All gains from the transaction will be put towards refinancing a financial lease structure which was used to purchase a new Boeing 777-300ER aircraft by Air China.

“We are glad to be able to further develop and explore a wider source of funding,” said Jingjing Yao of Air China’s finance department. “The notes offered us a relatively low funding cost as the coupon is the lowest when comparing to transactions with equivalent average life since the product began in October 2009.”

The notes, due in 2023, are priced at a coupon of mid-swap rate, in addition to 105bp alongside market expectations. Eight investors have placed orders, reaching a total of $142 million.