The hard fact remains: Asian finance is still bank-dominated, suffering from an overabundance of conservatism and an array of mismatches that act as headwinds to finance the region’s investment opportunities.
These mismatches include:
- Maturity mismatches: companies are overly dependent on short term bank loans whilst financing needs are longer term
- FX mismatches: insufficient FX reserves to meet needs from trade and capital account flows
- Debt/equity mismatches: loans dominate – there’s too much debt relative to equity due to underdevelopment of equity markets and an over-reliance on bank loans
- Governance imbalances: a silo mentality persists across Asian countries and regulatory regimes, resulting in a fragmented regulatory landscape
These mismatches mean both regional and global NBFIs – from insurers to pension funds – are now positioned to play a pivotal role in Asia’s emergence as a standalone strategic investment destination.
1. The Big Picture: Asia is Hard to Ignore
Asia’s key macroeconomic indicators paint a compelling investment opportunity that is hard to ignore.
For starters, Asia ex-Japan saw GDP growth of between 5-6 percent in 2016-2017, compared to the below 2 percent range for many developed markets in the same period. In addition, disposable income and spending power is on the rise across the region: By 2025, 125 million ASEAN households are projected to attain middle-class status – with consumption rates projected to rise accordingly.
At the same time, Asia’s share in world trade is significant and growing: China’s share alone is 9.7 percent, while the whole of ASEAN is at 6.2 percent. Combined, that figure easily surpasses the US’s share of global trade at 10.8 percent.