World of possibilities

After another debt-dominated year, Asia has now surely shrugged off its reputation of being an equity-focused region. Any arranger or portfolio manager waiting for stock offerings to rebound to their 2010 levels – or even to pre-crisis highs – was in for a frustrating year. While 2012 proved a one-way bet for bonds, however, the picture at the end of 2013 is far more complex.

Low US interest rates and easy-money policies in the world’s three biggest economies drove bond issues to another record over the last year, but a sharp correction during the summer was a reminder of the damage that rising interest rates can do in Asia’s emerging markets. Higher yields will reduce the appeal of global debt for Asian companies, and 2013’s record for international bond sales will prove hard to beat.

The inevitable slowdown of US quantitative easing, when it finally comes, should see equities regain some prominence, but that will put Asia’s investment banking industry in a tricky spot. Positioning for an uptick in equity underwriting is an expensive investment with uncertain returns, and analysts have been wrongly predicting a “great rotation” from bonds into equities for the last two years.

Competition is swelling bookrunner groups and eating into fees in both debt and equity as more players push for a share of the already overbanked business. While that may be good for issuers, it is already looking unsustainable for underwriters. The top houses in debt and equity managed to expand their market shares in 2013, suggesting that the hopeful competitors are finding it hard to make any profitable inroads.

It’s becoming clear that banks need a defined strategy for Asia’s capital markets: new capital rules make the old scatter-gun approach to coverage too expensive. Issuers, too, need to be careful to choose the right option at the right time

The deals and institutions featured in these pages all did exactly that. This year’s awards showcase arrangers that excelled in their chosen arenas, rather than attempted to be all things to all people, as well as individual deals that helped develop Asia’s financial markets in their own way.

New equity products, new financing currencies and new bank capital formats all feature among the list of winners, providing an encouraging glimpse of the innovation that is a constant in Asia’s capital markets.

Some rocky conditions across Asia’s markets provided another test of staying power in 2013 – both for investors and investment bankers. Those that stuck it out, however, look well placed as the year comes to a close.

The next chapter may be uncertain, but it is clear that Asia’s financing markets reward commitment and innovation. As long as those two factors remain in place, 2014 offers a world of possibilities.

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