South-East Asia 2013: The tigers roar again
South-East Asia’s economies are in full voice once again. GDP numbers are strong and stable, rating agencies are handing out upgrades and international investors are pouring in. It’s no surprise that the region is taking a bigger share of Asian capital market activity.
This economic sweet spot spells a new age of opportunity for dealmakers, and for South-East Asia’s homegrown financial institutions in particular.
Many are expanding beyond their borders for the first time, challenging the dominance of the more established, global players.
This is good news for investors and issuers across the region. Greater competition from local banking groups will help deepen South-East Asia’s domestic capital markets, while their cross-border expansion is forging closer ties between investors in the many individual markets.
The so-called tiger economies have roared before, of course, and few in the region will have forgotten the painful outcome of over-expansion in the run-up to the Asian financial crisis 15 years ago.
There are risks from this renewed growth spurt, too. Lured by irresistible US dollar rates, South-East Asian companies are borrowing heavily overseas, while international investors have taken control of a far bigger portion of local currency debt than they did even in the pre-1997 boom. A third of Malaysian government bonds are in foreign hands, rising to nearly 40% in newly investment-grade Indonesia. That raises the risks of a severe shock should global capital suddenly retreat.
This time around, though, South-East Asia is financing a far larger amount of its growth from within the region, and has built a safety net to protect against another collapse global markets. Domestic capital markets are also deeper than they have ever been – as underlined by the relative performance of new stocks in Malaysia last year versus those in Greater China.
Some countries are in better shape than others, but the speed at which South-East Asia bounced back after the global credit crisis showed an impressive resilience that has only added to confidence in the region’s prospects.
More needs to be done to build connections between South-East Asia’s financial markets, to ensure that the region’s growing savings pot is used for its own benefit, rather than invested elsewhere.
But encouraging moves in this direction, and a lack of enticing opportunities in the developed West mean the tigers should keep roaring for some time yet.
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