The pace of deals has slowed in recent months, but South-East Asia continues to provide a tantalising opportunity for capital markets professionals.
As with any region, South-East Asia’s markets remain susceptible to shifts in global sentiment and the rout in commodity prices last year has rocked the confidence of many of the region’s issuers. Interest rates are also a threat and continued uncertainty over the timing of the US Federal Reserve’s first rate hike has contributed to a slowdown in fixed-income financings in the early part of 2015.
There are local pressures, too. Already facing lower revenues from oil exports, Malaysia has been struggling with the controversy around investment vehicle 1MDB, where a heavy debt burden and unclear relationship with the government have given foreign investors more reason to be wary.
Thailand’s economic growth has slowed enough to trigger a surprise cut in interest rates in early March. Singapore’s central bank is concerned that its currency is rising too fast. Rule changes have stemmed the flow of offshore Indonesian loans.
Some global banks have retrenched staff back towards North Asia, shifting resources towards a Chinese market that is opening up to foreign capital more than ever before. Standard Chartered has pulled out of equities after struggling to make ends meet in the sluggish and competitive South-East Asian markets. CIMB has reversed part of its investment banking expansion, shedding many of the staff, who joined in its acquisition of RBS’s Asian and Australian investment banking teams in 2012.
Talk of an end to South-East Asia’s promise, however, is clearly premature.
Across the region, there are many bright spots to whet dealmakers’ appetites. Singapore is poised for the imminent arrival of covered bonds – a tool that will strengthen the city state’s already solid banking sector. Thailand is vying to host equity offerings from South-East Asia’s frontier markets, building on a growing track record of cross-border bond issues and advancing efforts to build a pan-ASEAN capital market.
The Philippines has revamped its equity market with tougher free-float rules to boost liquidity, and is pushing for a rewrite of REIT laws to open a new asset class. Political crises have been averted in Thailand and Indonesia, and Vietnam’s government is pressing ahead with plans to reform and privatise state enterprises.
At the same time, global high-yield bond investors are actively seeking alternatives to China’s property sector after the near-collapse of Kaisa Group, a former market favourite. Japanese funds are beginning to flow in earnest beyond the country, after two years of inflation-generating stimulus policies at home, and South-East Asia’s manufacturing connections to Tokyo are well known.
The region offers a diverse mix of economies, from Triple A rated Singapore to newcomer Myanmar – all with their own individual appeals and, with so many encouraging steps for the future already taken, South-East Asia surely can offer something for everyone.
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