Connecting Global Markets, Supporting Asia’s Growth

MAS Managing Director Mr Ravi Menon presented “Connecting Global Markets, Supporting Asia’s Growth” at Nomura Investment Forum Asia.

Asia’s dynamism and growth will be the defining investment theme of the next decade.

  • Asian assets have become an essential component of a balanced and diversified portfolio.
    • The expansion of Nomura’s forum from an Asian equity event previously to one that showcases the full suite of investment products in the region reflects the growth in investment opportunities in Asia.
  • Like Nomura which serves investors looking to invest in Asia, Singapore aims to connect investors to opportunities in the region.

Asia will remain the fastest growing region in the world over the next five years.

  • The IMF puts Asia at the top of the global growth league, with a projected annual growth rate of 6.4%.
    • India at 7-8% p.a., China at 6% p.a., and the ASEAN-5 economies – Indonesia, Thailand, Malaysia, Philippines and Singapore – at around 5% p.a.

The size of the Asian middle class is set to double by 2025, from 2015 levels.

  • The rapid expansion of the Asian middle class will spur urbanisation and demand for financial services, especially wealth management and insurance.

Global investors are flocking to participate in the Asian growth story

  • There has been a growing diversity of institutional investors – from Asia, Europe and the Americas.

Two key trends in the Asian landscape warrant investors’ attention:

  • the expansion of Asian enterprises; and
  • the demand for infrastructure development.

More Asian companies are expanding regionally and globally.

  • Companies from Asia have become increasingly active in cross-border M&A as they seek to expand their regional and global footprint.

The need to fund this expansion has led to a surge in capital raising in Asia and increased the depth and diversity of Asian assets.

  • Dollar bond issuance by Asia-ex Japan companies climbed to a record high of around US$400 billion last year, up 40% from 2016.
  • About one-third of equity raised through IPOs globally in 2017 were in the Asia Pacific.
  • Investors now have a wide array of Asian assets to choose from.

As Asian companies gain market share globally, investing in Asian companies has become more attractive.

  • Asia’s share of companies with market value of more than US$10 billion stands at 30%, compared to 20% just ten years ago.

Investors in Asia are also looking to private markets for investment opportunities.

  • Asian companies are choosing to stay private for longer and becoming more receptive to venture capital (VC) and private equity (PE) financing.
  • Asia is already a major destination for VC and PE investments.
    • Last year, VC and PE investments into Asia reached US$160 billion, accounting for 30% of global investments, surpassing Europe for the first time.
  • With close to 7,000 start-ups in Southeast Asia alone, there are opportunities abound for private investments in the region.

The demand for infrastructure financing in Asia is outpacing countries’ funding capacity.

  • According to the ADB, Asia will need around US$1.7 trillion annually in infrastructure financing between now and 2030 to sustain economic growth.
  • Currently, more than 90% of infrastructure investment is financed by governments.
  • This is not sustainable if the demand for infrastructure is to be met.

The challenge for governments in Asia is this: to make infrastructure more attractive to private capital.

  • At their recent meeting in Singapore, ASEAN Finance Ministers agreed to accelerate infrastructure development through mobilising private capital.

This means mainstream infrastructure financing as an asset class.

  • The prospects are good. There is a strong pipeline of projects in the transport and energy sectors, diversified across the ASEAN countries.
  • We have seen some early success.
    • For instance, the debut of project bond issuance by PT Paiton, Indonesia’s second-largest independent power producer, reflects growing demand for Asian infrastructure debt.

Singapore is well positioned as a gateway to investment opportunities in Asia.

  • We offer a world class financial centre, with a sound regulatory framework and business-friendly environment.
  • With its pan-Asian reach, Singapore is an ideal location for investors to set up base and tap on opportunities in the region.

Singapore is a leading asset management hub for institutional investors and fund managers to access pan-Asian opportunities.

  • Assets under management in Singapore have grown by an average 15% each year over the last five years, reaching US$1.9 trillion in 2016.
    • About 80% of funds are sourced from outside Singapore.
    • Two-thirds are invested in Asia.
  • Interestingly, we have seen faster growth in alternative AUM (17%) compared to traditional AUM (3%).
  • This points to the growing pool of investors setting up in Singapore to access private market opportunities in Asia.

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Source: MAS news and publications