The year in numbers

Early last year, shortly after banks in Asia first began telling staff to work from home, the regional CEO of a global bank received an unusual request from a junior banker. Would the firm start paying his rent, the young staffer asked, since it now qualified as his main place of work under the Hong Kong securities regulator’s rules. The request was politely declined, but the coronavirus pandemic threw up many more tricky questions as executives swapped boardrooms for kitchen tables and business class flights for Zoom calls. It also triggered a feast of capital markets deals that made 2020 the best year on record for Asian investment banking fees, according to Refinitiv data. After a hugely successful 12 months, bankers see little reason to go back to the pre-Covid way of doing business. “The world is not going back to where it was previously. We will move towards a hybrid work model involving a mixture of working remotely and working from the office,” said Chandra Mallika, Deutsche Bank’s Asia Pacific chief operating officer. “We’re currently going through a planning exercise looking at what this will mean for each role depending on its requirements and also the local regulations but what is clear at least is that things have changed for good.” STATUS QUO Asia, the first region to be hit by Covid-19, was the testing ground for remote working and online dealmaking. As it became more successful than other regions at containing the virus, allowing some countries to relax restrictions, it also gave the world a glimpse at what the future might look like once the pandemic is under control. The response across Asia’s financial centres was broadly consistent. All but the most essential staff were asked to work from home, with some critical functions moved to back-up sites on socially distanced floors. After an initial scramble for laptops and spare monitors, most bankers have been taken aback by the ease of the transition. “At one point, we had 95% of the workforce at home almost with no disruption to services for our customers,” said Farhan Faruqui, group executive for international banking at Australia and New Zealand Banking Group. “If you had asked me two years ago whether that could have been done, I would have been sceptical.” One year on, many are in no rush to bring staff back to the office. In Hong Kong, where the government is chasing a target of zero infections, some are still advising staff to stay away or limiting office capacity. The success of remote working has prompted a rethink of expensive office costs. Standard Chartered has told staff they can work from home or adopt a hybrid office-and-home set-up indefinitely if their job allows it. The bank is trialling a partnership with International Workplace to offer a third option of using serviced co-working spaces and meeting rooms in 3,500 locations. Local media in Hong Kong recently reported that the bank would not renew the lease on eight floors of its Central headquarters in Hong Kong. StanChart declined to comment. Others are expected to follow suit. “It partly depends on the function and I think for back office functions, it is more likely that banks will provide more flexibility than for front office sales and trading roles, where the regulatory requirements are greater,” said Mark Austen, CEO of trade body Asifma. “Even for sales and trading though it is likely that banks will grant some flexibility as it’s been proven that it can work.” In China, however, normal office life has resumed now that the pandemic is under control. Offices in Beijing and Shanghai are busy again, with around 90% of staff back on location. INVESTMENT BANKING Unlike traders and private bankers, who were not previously set up to work from home because of regulatory requirements around documenting client orders, road-warrior investment bankers were already accustomed to life outside the of

Shanghai’s Nasdaq-style board for new-economy listings beat all expectations in 2020, its first full year of operation, and is poised for further growth in 2021. The Shanghai Stock Exchange Science and Technology Innovation Board, better known as the Shanghai Star board, finished 2020 with more than 200 listed companies commanding over Rmb3trn (US$463bn) in market capitalisation. Expectations for the market were high, to be sure. “The Star Market forms part of a broader strategy in the PRC to develop its equities market into one that is fitting for the second largest economy in the world,” said Terry Yang, a capital markets practice partner at international law firm Clifford Chance. The reasons to celebrate its success are many. China’s main boards of Shanghai and Shenzhen have historically subjected companies to painfully slow regulatory approval processes, leaving hundreds of firms stuck in pre-listing limbo for years. “The Star Market was launched to supplement the main boards,” said Gu Haibo, head of China equity capital markets at HSBC. “The average application review period for a Star board IPO is around seven months, which is slightly longer than in Hong Kong, but compared to the old days it is certainly an improvement. The whole process has been streamlined and expedited, which is good for issuers.” In a big departure from stringent requirements around profitability, track record and ownership structures, the Star board introduced a more flexible, disclosure-based regime – far closer to international standards. “Thanks to the adoption under the PRC New Securities Law of the registration-based IPO system first piloted on the Star Market, many market observers would consider this initiative a success,” said Clifford Chance’s Yang. Among other innovations, the registration-based IPO system also removes the unwritten cap on valuations at 23 times historical earnings and allows pre-profit, red-chip and weighted voting rights companies to list in the A-share market for the first time. The new rules have added real variety to the Chinese equity market, which has been traditionally dominated by old industries, often at least partially state-owned. The China Securities Regulatory Commission said in January 2019 it would favour listing applications from six industries, namely IT, high-end equipment, new materials, new energy, environmental protection and healthcare. All six segments are now represented on the Star board, according to analysts at Credit Suisse. Among the stocks listed on the Star board as of end-November, IT companies took the largest share, accounting for 42% of the total number of companies, followed by healthcare with 22%. “By their nature many new and innovative companies do not yet meet those [previously stringent] standards,” said HSBC’s Gu. “The companies that have listed include those that are not profitable yet, or those with weighted voting rights, for example. The diversity of these companies also achieves the purpose behind the Star board.” The notable impact of the registration system has been on waiting periods. The first 197 IPOs on the Star board had an average waiting period of 228 days from application to listing, compared to the 382 days for the ChiNext board, 546 days for the SME board and 617 days for the main boards of SSE and SZSE, Credit Suisse noted. The ChiNext timeframe has also shortened dramatically since it adopted a registration based-system in the second half of 2020. The average ChiNext IPO in the final quarter of 2020 was completed in just 110 days, down from 209 days in the previous six months and 322 days in 2019. Global attention The Star Market has inevitably caught the attention of global banks looking to expand their China business, which already accounts for three quarters of investment banking fees generated in the whole Asia Pacific region, according to Refinitiv data. F

The grand buildings of the Bank of Japan and Tokyo Station stand as testament to Japan’s embrace of modern ideas at the end of the 19th century. The mastermind behind both structures, Japanese architect Kingo Tatsuno, spent four years studying architectural design at the Royal Academy of Arts in London and is credited as being the first to introduce European-style brick masonry to Japan. The change in architectural style was mirrored in the wider society. The turn of the 20th century marked a period of rapid development for Japan, when the abolition of many old-fashioned restrictions helped unlock the country’s rapid economic development. After a miserable year in 2020, it is the architecture of Japan’s capital markets that is now in need of a similar, transformational approach. The yen has largely retained its value throughout the Covid-19 pandemic, along with its status as a safe-haven G3 currency, but it has lost its appeal as a global funding currency. Indeed, cross-border yen issuance plummeted a whopping 65% in 2020 to its lowest in 36 years. International issuance in yen totalled just ¥1.164trn (US$11.26bn), according to Refinitiv data, compared to ¥3.309trn in 2019 and the worst year since 1984. Bankers in Tokyo said foreign issuers and Japanese investors were equally affected by the breakout of Covid-19 and the subsequent response from central banks around the world, which scrambled to provide ample liquidity to help battered economies deal with the effects of the pandemic. On the supply side, easy money elsewhere led to a decline in issuance from French banks, which have been the main issuers in the cross-border yen market in recent years, while other global banks simply looked elsewhere. With central banks in many emerging economies having adopted bond purchase programmes, according to a BIS report, regular sovereign Samurai issuers from emerging economies also stayed away. On the buyside, uncertainty around Covid led Japanese investors to shift their focus to the domestic market. Pension funds, for example, were expected to be main buyers of bail-in-able bonds after banking accounts reduced their exposure because of higher risk weighting, but they turned defensive after suffering losses when the breakout of the coronavirus sent spreads widening for both foreign credits and domestic hybrid bonds. Even after market conditions improved, pension funds remained reluctant for fears that the market could become volatile again if second and third waves of the virus hit Japan. “They shifted focus out of the cross-border yen market to the domestic market as they chose to make money steadily by doing the ‘BoJ trade’,” said Akihiro Igarashi, debt syndicate head at Nomura. The Bank of Japan trade refers to buying domestic bonds and then selling them to the central bank, which expanded its corporate bond purchases in 2020 to help the coronavirus-hit economy. Subordinated hybrid bonds were also an attractive alternative. They had been sold off badly when the market became volatile in March to May, but once things settled down, the product became very popular again. Even short-term investors started participating, motivated by the fact that subordinated bonds are more liquid in the secondary market than cross-border yen bonds and hence it is easier to sell whenever they want to take profits. Even after the credit markets stabilised globally in the middle of the year, foreign issuers, although they were well aware of the importance of diversifying their funding channels, chose to issue in their mother currencies or in US dollars, with funding costs declining because of the easing by central banks and the US Federal Reserve in particular. “Issuers this year were in crisis mode, raising funds from wherever [cheap] funds were available,” said Igarashi. “As a result, the yen market was left as an ‘auxiliary’ to the dollar and euro markets.” Some banke

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To see the digital version of this report, please click here To purchase printed copies or a PDF, please email gloria.balbastro@lseg.com

Ant 1. Tiny insect that can support many times its own weight; 2. Behemoth that folds under pressure from above Barrenjoey The Australian investment bank formerly known as UBS Bitcoin Something to bet on when you’re bored of making electric cars or launching rockets Block leave Holiday spent in your own apartment complex Blue bond A whale-y big deal in sustainable finance Bookbuilding Process of taking orders when a deal is already covered, especially in Chinese US dollar bonds Bookrunner In Hong Kong, anyone who promises an order for a debt or equity offering Coronavirus A handy excuse for companies that were going to default anyway Covid premium Polite way of saying ‘we don’t want to lend to you anymore’ Distressed debt Everything (as of end March 2020) EV bubble Electric vehicle maker with absurdly high enterprise value Flight to nowhere When Asian investors sell all their high-yield bonds at once, before buying them back a month later GameStop When your free brokerage blocks you from buying more shares Hyflux Confused procrastination ending in disaster. The company was in a state of Hyflux Keepwell deed Feature of a Chinese bond that leaves investors keeping them, well, forever K-pop The sound a Korean IPO makes when retail investors start selling Lockdown Excuse for selling more shares during a lock-up period Loss-absorbing capital Bank funding instruments that – shock horror – actually do absorb losses, even in China Luckin Rhymes with… National Security Law No comment Oil futures Investment capable of leaving traders with no oil and no future Pentagon list One-sided view of Chinese companies QAnon Ludicrous theory that assumes people in positions of power are competent Quarantine hotel Tourist tax Red lines Chinese building code Reddit Source of poorly researched investment advice with ridiculous price targets. Not to be confused with sellside research on US tech stocks Robin Hood 1. Folk hero famous for redistributing wealth from the rich to the poor; 2. Trading app used to redistribute stimulus cheques into the stock market Secondary listing A hedge against mutually assured destruction Social bond Capital markets response to social distancing Social covered bond Connection made at a party in a marquee Social distancing Reason not to talk to your boss SoftBank Japanese institution capable of making hard currency savings double, then halve, then double in value SPAC Stop Panicking And Carry on raising money Star Board 1. The right side of a ship; 2. The right place to sell shares in China Sustainability coordinator The bank responsible for arranging Zoom calls and adding pictures of trees to bond docs Sustainability-linked loan Banking product that does what a green loan should do Term funding facility Australian central bank initiative to ensure bankers can still afford to send their kids to private school TLTRO In India, an effort to channel some of the central bank’s injections into bonds, not just stocks Transition 1. The scientific process of transforming from one state to another, eg, from solid to liquid 2. Vague capital markets pledge to install more solar panels on the roof by 2050 Travel bubble Airline and hotel stocks in 2019 Twitter Website used by some unscrupulous people to pump stocks, at least until they are removed from office VOE Virtually office-free environment WFH Why fly here? Yes Bank The bank that said ‘yes’ too much Zoom Video conferencing tool keeping barbers in business To see the digital version of this report, please click here To purchase printed copies or a PDF, please email gloria.balbastro@lseg.com