Foreword - Safe from harm?
After rebounding quickly from the 2008 credit crunch, Asia, once again, faces a threat from a crisis not of its own making.
The region’s issuers, investors and central banks are now in a much stronger position than many of their western peers. Economies are growing strongly, while politicians are – in most cases – able to act without the threat of social unrest or the hurdle of partisan conflict, and capital markets are largely open for business.
Against such a backdrop, it is tempting to think that the ongoing European sovereign crisis and threat of a US recession are someone else’s problems. History has shown, however, that is not the case.
Just as regional consumption is not strong enough as yet to protect Asian economies from a drop in demand from the US, the region’s issuers also cannot afford to rely entirely on local sources of capital.
The regional capital markets have come on leaps and bounds since the 1997-98 Asian financial crisis. Deeper domestic markets were one of the key reasons Asia escaped the worst of the fallout when the collapse of Lehman Brothers sent the global capital markets into meltdown. While foreign investors fled, Asian buyers threw their support behind their local champions, keeping defaults to a minimum. At a higher level, the region now benefits from a far bigger safety net in the form of currency swap lines put in place as part of the Chiang Mai initiative.
A flight to quality in response to the US downgrade and mounting European crisis has produced some remarkably low rates in Singapore – which is making the most of its US-beating Triple A rating. Asian equity markets, while depressed, are still open to new listings – albeit on a very selective basis.
Even at their best, however, Asia’s capital markets are not deep enough just yet to rival the US dollar or the euro for funding alternatives. More worryingly, a flight of foreign capital will still leave many of Asia’s domestic markets looking precarious – Indonesia’s march towards investment-grade status has put more than a third of its government bonds in overseas hands.
The smartest Asian treasurers have been taking advantage of record-low interest rates to lock in long-term US dollar funding or lower their costs of capital, while a handful of owners have been pragmatic enough to raise equity at reasonable share prices. This report aims to highlight issuers that have impressed in both camps.
The vast majority, however, are choosing to ignore the very real risk of a full-blown liquidity crisis in the European markets. Countless deals have been pulled from receptive markets for no reason other than pricing, when issuers should, instead, be jumping at the chance to raise cash before the next European domino falls.
That approach, of course, is a sign of the level of confidence that prevails across Asia’s capital markets today – even in the face of the twin threats of a European meltdown and a US recession. Yet, it is hard not to come to the conclusion that Asia remains woefully exposed to the risk that international capital may pull back from emerging markets on a massive scale.
Only time will tell if that confidence will prove to be well founded.