To travel from the ash-cloaked, no-fly zone of Europe in mid-April to the buzzing financial hubs of Hong Kong and Singapore was to experience in reality a journey that many bankers will have thought about in recent months. Asia’s markets are alive and well, as the non-stop flow of headline-grabbing deals such as the Prudential AIA takeover and the IPO of Agricultural Bank of China demonstrates. The region’s hubs offer attractive tax environments. The world’s developed markets are struggling for growth and to be competitive and Asia looks to be the most exciting frontier for investment banking and global markets practitioners for the next decade at least.
But hold on. As senior bankers managing businesses in Asia can and do attest, there is an expectation of deal flow, galvanized by such optimism and by the supposedly inexorable eastward shift in the centre of gravity of global financial markets, that cannot yet be matched by results.
Asia’s markets are exciting and broad but they can also be cruelly shallow for regional heads being pressured by global bosses to deliver now. Dealogic data figures show that Asia excluding Japan’s $627.5 billion of total debt capital markets volume in 2009 was just 10% of the global total. In equity capital markets, $72.4 billion of deals accounted for 12.7% of the total. Only in M&A, where huge outbound deals from China prop up the results, was the total volume of announced deals (at $481.5 billion) above one-fifth of the global total of $2.38 trillion.
These data do not of course capture the whole opportunity in Asia. For many firms, the real draw is in the global markets business, where clients are increasingly demanding a slew of products across rates, credits, FX, commodities and of course equities. Experienced Asia bankers in these products are fiercely fought over, while their equivalents in markets such as London and New York are increasingly willing to transfer to Asia. However, the skills required of traders and salesmen in Asia often demand local knowledge that cannot be faked or learnt quickly.
Meanwhile the very deals that grab the headlines in Asia also demonstrate the frequent shallowness of its markets. The acquisition of the assets of insurer AIA by the UK’s Prudential, for example, dominates this year’s M&A league table. It’s even arguable whether this is an Asia deal: while the Asia-based bankers working on it ruefully say they are fighting for every scrap of internal credit, this is ultimately the sale of a US-owned asset to a UK-based company and the extent to which it fails or succeeds depends much on the approval of UK shareholders far from the Asia bankers’ influence.
In equities, the IPO of Agricultural Bank of China demonstrates another pitfall for the regional investment banking head when it comes to accounting for himself to his global masters. The process by which the bookrunners were appointed is – as even the successful applicants admit – somewhat opaque to outsiders, and the deal has been years in the making such that current Asia heads might owe their success or failure in securing the mandate to their predecessors.
Hardly any investment banks make as much as 15% of their overall revenues from Asia. The past few years have shown steady growth in earnings from the region. But there has been no sudden boom, and nor is there likely to be any time soon.
This is not a plea for sympathy for Asia’s investment banking heads. Rather, it is a reminder that for all the excitement surrounding the world’s fastest-growing markets, they are still small in global capital markets terms and cannot be expected completely to deliver from trouble firms that are getting it wrong elsewhere.
