Beneath the broader macroeconomic war waged across Asia by central banks equipped with interest rate, currency devaluation and quantitative easing (QE) arms, countless smaller yet no less crucial battles will simmer to a head in 2015, says East & Partners.
Among the examples cited by the banking market research firm are India vs. China, Hong Kong vs. Singapore, the renminbi (RMB) vs. the US dollar (USD), North vs. South and regulation vs. growth.
Competition emerging between these selected rivalries within the ever evolving Asian banking sector is fierce, reports East. Speculation that economic growth in China could stall has been rife for some time, yet the acceleration of India as a revitalised economic powerhouse is particularly noteworthy.
Gross domestic product (GDP) growth projections for the two most populous nations on the globe are set to overlap as soon as Q4 2015 as India drives towards 7.0% GDP growth and China fades below 6.5%.
Following in the footsteps of the US and Japan, People’s Bank of China (PBOC) officials are tipped to introduce a bout of QE intended to stimulate waning inflation. Equity driven growth is a focus for China given the abundance of credit driven industries currently undergoing review. The results of this review have been felt in global commodity markets such as iron ore.
Rotation away from primary industries into service based commerce and consumer driven growth is in full swing. The ability to smoothly transition into a modern economy and straddle exciting digitally disrupted concepts is argued to be the primary determinants for realising current GDP growth projections.
Bragging rights for ‘Asia’s Financial Capital’ remains tensely fought over between Hong Kong, the capital raising juggernaut, and Singapore, a regional foreign exchange (FX) turnover hub.
Businesses expanding abroad and considering centralising their treasury operations in the form of a regional treasury centre (RTC) are increasingly faced with the dilemma of selecting which geography in which to be based. Both cities offer a diverse range of advantages yet additional incentives introduced to make doing business easier could be the difference.
The proliferation of RMB convertibility across the globe and rapid expansion in RMB turnover resulting from currency liberalisation is posing interesting strategic discussions over its potential to challenge the almighty US Dollar.
As more businesses move into the nearby Shanghai free trade zone (FTZ), capital restrictions are eased and trading systems are enhanced, Hong Kong continues to emerge as a centre for RMB turnover. Hong Kong RMB trade has ballooned by almost 75%, surging to over RMB 5 trillion in executed trades within the last year while the number of enterprises based in the FTZ has more than doubled to well over 20,000.
Surprisingly the correlation between Asian equities and currencies has broken down, highlighting the presence of ulterior market forces providing a distortive influence on Asian capital markets.
The requirement for banks to hold more capital against lending balances will force Asia’s banks to become more streamlined and efficient, quickly separating the industry leaders from the challengers.
Additional regulatory and compliance costs balanced against continued growth aspirations will play out as a fascinating interplay throughout 2015.
East’s report concludes: “A New Year is never truly underway until the wave of ‘Year Ahead’ forecasts subsides, yet these relatively disassociated battles will not just define the dialogue for next year’s 2016 ‘Year Ahead’ forecasts – they could ultimately influence who wins the war.”
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