Banking and Finance News & Trends: Oct Week 3

Table of contents

1. Banking and Finance Industry News
2. Investment, PE & VC News

Banking and Finance Sector News

1. Market

i. Most Major Banks in Rate-Cut Mode

Central banks across the globe have announced their monetary policy decisions.

Takeaway:

Countries that hold or are undecided include:

• Singapore:
  • Singapore’s central bank, the Monetary Authority of Singapore (MAS), will keep its monetary policy unchanged and expects core inflation to drop to around 2% by the end of 2024.
  • Despite positive growth, analysts anticipate a policy loosening early next year due to external risks, particularly geopolitical tensions and trade conflicts that could hinder investment and trade.
  • Analysts also believe that Singaporean banks are also believed to be positioned to benefit from the rising number of wealthy individuals in Asia, with expectations of double-digit increases in loan books and wealth fees. Although the full impact of rate cuts and stimulus will take time to materialise, sentiment around investments remains positive.
• Indonesia:
  • After an early rate cut in September, the Bank Indonesia may hold this month due to a weak rupiah and defer to November and December.
  • With foreign exchange reserves close to record levels, the bank might turn to market intervention to prevent further weakening of the rupiah. It may also need to maintain appealing yields on rupiah-denominated securities to attract sufficient foreign investments and stabilise the currency.
• Thailand:
  • Despite the government’s calls for a rate cut, the central bank has held rates steady for five consecutive meetings to avoid inflation risks.
  • The central bank’s independence is under scrutiny, and it is expected to continue to hold off on cuts and prioritise financial stability amid high household debt levels.
• Norway:
  • The Norwegian central bank remains cautious, holding rates at 4.50% and signalling that cuts may not come until early 2025.
• Australia:
  • The Reserve Bank of Australia maintains a hawkish stance, keeping rates steady while considering future hikes to control inflation.
• Vietnam:
  • The State Bank of Vietnam (SBV) has not made a decision on interest rates but is monitoring inflation, growth support, and exchange rate stability.
  • Domestic conditions such as low money supply and high credit growth limit the SBV’s ability to reduce rates.
  • Analysts expect the SBV to maintain its current refinancing rate at 4.50%, focusing on targeted support rather than broad rate cuts.

Countries with expected cuts:

• China:
  • The People’s Bank of China (PBOC) indicated potential interest rate cuts by the end of the year, depending on liquidity conditions. The reserve requirement ratio for commercial lenders may be reduced by 25 to 50 basis points.
• Philippines:
  • Gradual quarter-point rate cuts at each meeting are expected, with a total reduction of 175 basis points by the end of 2025.
  • Risks like rising global oil prices or slower Fed easing could halt further cuts.
• South Korea:
  • South Korea’s central bank has cut its benchmark interest rate by 0.25%, its first cut in over four years.
  • Further rate cuts will be gradual due to concerns about rising household debt and property prices.
• Canada:
  • The Bank of Canada is expected to lower rates for the fourth consecutive time to 3.75% due to a sluggish economy and easing inflation at 2%.
• Switzerland:
  • Swiss inflation is low (0.8%), allowing the Swiss National Bank to cut rates to 1% and potentially lower them to 0.5% by March 2025.
• Sweden:
  • The Riksbank has cut rates to 3.25% in September.
  • It planned further back-to-back cuts from November to January to stimulate growth after earlier hikes stifled the economy.
• New Zealand:
  • With inflation at 2.2%, the Reserve Bank of New Zealand has room to ease further following a recent 50 bps cut.
  • Another such move is expected to occur in November and February.
• Euro Zone:
  • The ECB has cut rates thrice this year.
  • Continued reductions of 25 bp at each of its next three meetings are expected to achieve its 2% inflation target.
• Britain:
  • The Bank of England reduced rates to 5%.
  • More cuts are anticipated following significant declines in inflation.
• US:
  • The Federal Reserve started an easing cycle with a 50 bps cut in September, its first reduction in over four years.
  • Traders anticipate that the Fed will refrain from taking any more drastic actions, given the ongoing strength of the US economy. However, markets are forecasting approximately 50 basis points of additional easing by the end of the year, a reduction from around 70 basis points just a few weeks ago.

Countries with expected hikes:

• Japan:
  • The Bank of Japan will adopt a cautious approach to interest rate hikes to avoid premature increases, and a hike is predicted to occur by March 2025.
  • This comes as uncertainties remain despite the stabilising of Japan’s economy and broadening of inflation. These include rising yen values, slowing global demand and the outcomes of the US presidential election, which could affect inflation and wage growth.

ii. MAS Expected to Maintain Currency Band Stability

The Monetary Authority of Singapore (MAS) is expected to maintain its current currency policy of using a strong Singapore dollar to manage inflation despite global trends toward monetary easing. While other central banks are cutting rates, Singapore faces persistent inflation due to high import costs. MAS relies on exchange rate adjustments, not interest rates, to curb inflation.

Takeaway: Economists predict no major policy shifts until 2025, though a dovish stance may be adopted as price pressures ease. The geopolitical outlook, particularly the upcoming US elections, could affect Singapore’s economy and currency.

iii. India Equity Option Traders Explore Alternatives as Tighter Rules Loom

India’s equity options market is set to experience major changes as the Securities and Exchange Board of India (SEBI) introduces stricter regulations next month. These rules, aimed at curbing risks for retail traders—who make up a significant portion of the market—include reducing the number of available contracts and tripling the minimum trading amount.

Takeaway: Retail traders who incurred significant losses in the past year are now seeking alternative trading opportunities:

• Commodity derivatives;
• Forex;
• Holding option contracts for a longer period;
• Intraday equity trading.

However, experts warn that none of these options will match the liquidity and depth of equity options trading, and the transition may be challenging. The new regulations will likely reduce equity options volumes.

2. Business Moves

i. UOB Boosts Partnership with Chinese Banks and Businesses

United Overseas Bank (UOB) renewed its memorandum of understanding (MoU) with mainland Chinese bank Hengfeng Bank. The move comes as it seeks to strengthen cooperation in wealth management, investment banking, and trade financing. UOB also established three new MoUs with Shandong-based companies to aid their international expansion.

Takeaway: Shandong is one of China’s rapidly growing provinces, with a GDP of RMB 9.21 trillion ($1.3 trillion) in 2023. The collaboration comes as Singapore is quickly becoming Shandong’s second-largest foreign direct investment source and a popular destination among Chinese businesses looking to expand into APAC.

ii. Stripe in Talks to Buy Stablecoin-Focused Fintech Bridge

Payments company Strip is in advanced discussions to acquire Bridge, a Texas-based fintech platform that specialises in stablecoin transactions. While no final agreement has been reached, Bridge has raised US$58 million from notable investors like Sequoia and Ribbit Capital.

Takeaway: This acquisition aligns with Stripe’s strategy to enhance its capabilities in the stablecoin space. The move comes after its recent decision to allow US merchants to accept crypto payments again amid a growing interest in stablecoins, with other companies like Visa, Revolut, and Robinhood also exploring this market.

iii. Wise Becomes the First Foreign Firm to Get Direct Access to Japan’s Payment Clearing System

British fintech Wise was allowed direct access to Japan’s bank payment clearing network. This access will enable Wise to bypass intermediary banks, potentially lowering fees and processing times for remittances in Japan, where average cross-border fees are notably high at 6.94%.

Takeaway: Being the first foreign company to achieve this gives Wise a first-mover advantage and helps it grow its customer base.

iv. Arta Makes Launches Singapore Office Supported by Ex-UBS CEO

Digital wealth management platform Arta Finance has expanded into Singapore, which will serve as a hub for its global operations. It will serve accredited investors and offer a range of wealth management solutions curated with the help of partnerships with exclusive fund managers. Meanwhile, its partnerships with Google Cloud and Capco will also assist financial institutions in implementing its technology.

Arta’s ambitions are supported by Ralph Hamers, former CEO of UBS and ING, who was named the senior advisor and will offer strategic guidance as the platform expands. He joins a group of notable investors, including former Google CEO Eric Schmidt and Mastercard CEO Michael Miebach, alongside 140 other leaders from the technology and finance sectors who are supporting the initiative.

Takeaway: Notably, the firm’s innovative “AI Copilot” tool allows users to manage portfolios independently, democratising capabilities typically served by private bankers and investment analysts. Its Singapore expansion aligns with the city’s growing role as a wealth management hub, where $4.8 trillion in assets are expected to be managed by 2028.

Investment, PE & VC News

1. Markets

i. Analysis of China’s Economic Stimulus Policy

In recent weeks, market anticipation for a significant fiscal stimulus from China has risen, particularly after an unexpected monetary package was introduced in September. However, the absence of a concrete stimulus figure has led to disappointment among investors.

The Central Financial and Economic Affairs Commission, under President Xi Jinping, now has primary decision-making power for economic policies. The stimulus decision-making process involves multiple layers: the State Council initiates actions, followed by the National Development and Reform Commission (NDRC) and the Ministry of Finance (MOF) outlining specific plans. The MOF is expected to explore options like debt relief for local governments and support for state-owned banks.

However, Chinese leadership has favoured targeted measures rather than broad stimulus packages since the 2008 stimulus, which led to concerns about overcapacity and increased local debt. This was highlighted during a Politburo meeting that called for a renewed focus on economic growth, aiming for a 5% growth target. Any significant stimulus figure will need approval from the National People’s Congress (NPC), with details likely to emerge after their upcoming meetings.

Takeaway: Analysts speculate that while trillions may be involved, the government might refrain from disclosing a specific figure due to political sensitivities. China’s economic stimulus strategy is shifting towards targeted policies rather than broad figures.

Given the broad impact of China’s economic performance on global trade, analysts are monitoring the government’s stimulus package aimed at reviving growth. The stimulus measures include significant monetary easing, but their effectiveness currently remains to be determined as September’s import growth was only 2.4%.

Key commodities, like iron ore and crude oil, are likely to see decreased demand from China, which traditionally relies on imports for construction and manufacturing. As a result, countries dependent on exporting to China, such as Australia and Brazil, may face challenges.

Meanwhile, the weaker domestic demand and a prolonged property crisis may make Southeast Asian economies that have increasingly integrated with China vulnerable. However, as its purchasing power declines, there is potential for China to boost exports, with discussions about South Korea importing cheaper Chinese cement as a case in point.

Economist’s Take:

Recent stimulus measures from Beijing have ignited a heated debate among economists and fund managers on China’s economic outlook. Prominent economist Liu Shangxi warned that the economy could face a severe downturn without bold stimulus measures, and deflation risks make it vital to act now. Several recommendations were made, including:

• A suggestion for the stimulus to exceed 10 trillion yuan.
• The purchase of more treasury bonds.
• Allocating ample funds to support ongoing urbanisation.

Similarly, investor Dan Bin has questioned the optimism. Meanwhile, renowned economist Ren Zeping believes in a sustained bullish run for China’s economy and criticises bearish perspectives. Amid this divide, market volatility has surged, with the CSI 300 Index experiencing significant price swings, leading to a clampdown by the central bank on stock investment loans.

Market Sentiment: For instance, asset managers like Principal Asset Management are adding to their Chinese stock positions, citing meaningful economic recovery steps by the Chinese government. Although still underweight on China, optimism is growing due to policy stimulus aimed at stabilising the property and stock markets. Global funds could see inflows of up to US$6 billion if they move to a neutral allocation. While there are concerns over the past execution of policies, there is now cautious optimism about sectors like property and construction materials.

Beijing’s approach to debt and deficits is shifting towards an emphasis on expanding domestic demand and increasing central government debt. Policymakers are also more open to flexible fiscal strategies.

ii. Takeaways from Hong Kong’s Policy Address

Hong Kong’s Chief Executive, John Lee, delivered his third policy address, outlining key reforms to revitalise the economy amid challenges.

• Mortgage Policy Changes: Eased mortgage limits to 70% (from 50 – 60%) for all residential properties and increased the maximum debt servicing ratio to 50% (from 40%) to stimulate the property market.
• IPO Incentives: New measures will enhance market efficiency and reduce transaction costs to attract more IPOs. The move is expected to provide greater certainty in approval timelines for companies looking to list and facilitate mega listings, particularly from mainland China.
• SME Support: Extended loan support to allow SMEs to apply for a 12-month principal moratorium, alongside increased funding of HK$1 billion to support non-listed firms’ brand development and global expansion.
• Tax Incentives: Tax exemptions for maritime businesses and potential concessions for funds and family offices to attract investment.
• Investment in Innovation: A new HK$10 billion fund to support innovation and technology sectors.
• Yuan Market Expansion: Enhanced fixed-income market infrastructure, including a central clearing system for RMB-denominated bond repurchase transactions.
• Talent Attraction: The New Capital Investment Entrant Scheme will permit investments in residential properties to be included, provided they are a minimum of HK$50 million. However, only up to HK$10 million of this real estate investment will count toward the total capital requirement. Meanwhile, under the Top Talent Pass scheme, the number of eligible universities will increase from 185 to 198. The initial visa for high-income talent will also have its validity extended from two years to three years.

• Educational Promotion: Increased efforts to attract international students, especially those from ASEAN and other Belt and Road countries, students to study in Hong Kong.
• Tourism Initiatives: Expanded travel permits and hospitality infrastructure improvements to attract visitors from the Middle East and ASEAN and support their diverse cultural needs.
• Liquor Tax Reduction: Liquor tax imposed on products with import prices above HK$200 will be slashed from 100% to 10% to boost the tourism and hospitality sectors.
• Sports Hub Development: Plans to position Hong Kong as a destination for major international sports events.
• Regulation of Subdivided Flats: New laws will ensure minimum standards for subdivided flats, addressing housing quality.
• Youth Homeownership Support: Additional opportunities for young families and individuals under 40 to access subsidised housing.
• Low-Altitude Economy: Initiatives involving drone technology for various applications, enhancing operational efficiency.

iii. Indonesia Mulls Corporate Tax Cuts

Indonesia’s incoming president, Prabowo Subianto, is considering reducing the corporate income tax from 22% to 20%. His administration aims to enhance tax compliance and increase tax revenue to 18% of GDP. Plans include establishing a state revenue agency by separating tax and customs offices from the finance ministry.

Takeaway: Concerns remain among foreign investors about potential fiscal leniency due to an expected expansion of government ministries. However, Prabowo has committed to maintaining agreed spending levels through 2025 and adhering to current budget regulations. Any corporate tax reduction will be contingent on government revenue performance.

iv. APAC Real Estate in Demand Among Investors

Citi’s Australia chief, Mark Woodruff, reported that real estate is currently the most sought-after sector for investors in Australia. Woodruff noted that five of the six most in-demand companies are in real estate. Australia’s stable economic growth, relative isolation from geopolitical tensions and favourable fiscal position add to this interest. On a broader level, cross-border real estate investments in Asia Pacific (APAC) are poised to reach a two-year high, with expectations of a 50% increase in 2024, totalling around US$48 billion.

Takeaway: The surge in interest in Australia is linked to expectations of an easing cycle from the Reserve Bank of Australia (RBA), which has yet to cut interest rates like the US and New Zealand. Meanwhile, the growth in real estate investments in APAC is largely driven by the booming data centre sector, which accounted for 46% of all cross-border investments in the third quarter of 2024. Year-to-date, cross-border investment rose 15.7% to US$36.3 billion in the first nine months, while global transactions fell by 1.3%. A recent interest rate cut by the US Federal Reserve has reduced borrowing costs, enhancing the appeal of debt-financed acquisitions. Traditional asset classes, like offices and industrial properties, remain significant but face competition from the data centre boom.

2. Business Moves

i. Horizon Robotics’ US$700m IPO Sparks Confidence in Hong Kong’s Market

Horizon Robotics is set to raise approximately US$700 million through an IPO on the Hong Kong stock exchange. Key players like Alibaba and Baidu are backing the Horizon IPO, reflecting growing confidence in the market.

Takeaway: This marks a notable boost for the region’s IPO market amid renewed investor optimism following Beijing’s economic stimulus measures. Since these measures were announced, the number of companies filing for IPOs in Hong Kong has increased significantly, with Horizon being one of 16 recent applicants. The Hong Kong stock market has risen about 20% over the past month, though it is now entering a period of stabilisation as investors evaluate the implications of the stimulus.

However, analysts caution that while the recent activity is promising, sustained liquidity and long-term investment viability remain to be seen, and the market still faces challenges from volatility and investor risk appetite.

ii. BlackRock in Talks to Form Private Credit-Focused JV in India

BlackRock is negotiating with Mukesh Ambani’s Jio Financial Services to establish a 50:50 joint venture focused on private credit in India. This venture would target lending opportunities across various business sizes, from large corporations to startups. While the partnership is still under discussion, it would mark BlackRock’s third collaboration with Ambani’s firm.

Takeaway: Private credit has surged in India, reaching a record US$6 billion in the first half of 2024, attracting major players like Apollo Global Management and Cerberus Capital Management.

iii. KWAP Partners with Foreign Players to Support Malaysian PE

Kumpulan Wang Persaraan (KWAP), Malaysia’s public pension fund, is actively working to enhance the local private equity ecosystem. Their plans include:

• Announcing 12 new global general partners (GPs) in December for an RM6 billion ($1.4 billion) domestic private equity programme. This initiative aims to foster collaboration with international asset managers and Asian asset owners, focusing on bringing semiconductor investments to Malaysia. KWAP plans to partner these global GPs with 12 new local GPs, using a co-investment model to generate opportunities in the Malaysian market.
• Launching several semiconductor-focused funds to attract companies to the region.

Takeaway: The move comes amidst growing interest from international investors in Malaysia’s green and digital infrastructure, including renewable energy, data centres, and semiconductor projects. It positions KWAP to tap into the wave of investors seeking geographic diversification against the backdrop of geopolitical tensions.

3. People Moves

i. Banks: Citi, BoS, ING, EFG and Goldman Sachs

Citi: Citi added two senior executives from J.P. Morgan to its Asia team:

• Anand Goyal is now the head of FX institutional sales. Goyal will focus on Japan, Asia North, Australia, and Asia South from Singapore, and collaborate with various divisions, including rates and wealth management.
• Hooi Wan Ng was appointed as head of markets for Malaysia. Ng has over 24 years of financial services experience. She has held leadership roles at J.P. Morgan and served at Bank Tokyo-Mitsubishi, Southern Bank Berhad, and Standard Chartered.

BoS: The Bank of Singapore (BoS) appointed Claire Boey as the head of its Malaysia team. Boey, who was previously with SMBC, will lead efforts to enhance the bank’s presence in the ASEAN region and strengthen client relationships.

ING: ING made two senior-level appointments:

• Eva Smolen was named the new head of Wholesale Banking for EMEA. Smolen, who has been with ING for 18 years, will manage operations across 23 countries in EMEA and focus on the bank’s “Growing the difference” strategy.
• Uday Sareen was named the head of Wholesale Banking for APAC. Sareen, a 30-year veteran, will lead operations in 11 APAC countries.

EFG: EFG Bank added two senior-level hires to its Regional Asia Advisory Board.

• Dr Urs Buchmann joins as the vice chairman. Buchmann has over 30 years in Greater China, previously serving at Credit Suisse,
• Ashish Gumashta joins as a board member. Gumashta has 30 years of experience in the Indian market and has held leadership roles at Motilal Oswal and Julius Baer.

Goldman Sachs: Goldman Sachs’ CEO for Saudi Arabia, Khalid Albdah, will leave his position after nearly 10 years. He has also served as the managing director for the bank’s asset management division in the country. Albdah joined Goldman in 2013 from Al Rajhi Capital. Concurrently, the bank has recruited Habib Saikaly from JPMorgan Chase to lead its fundamental equity operations in Riyadh, covering the Middle East and North Africa. This comes as the bank is in the process of establishing a fund focused on the Middle East.

ii. Financial Services: Allianz, Batambu

Allianz: Allianz Trade appointed Harry Edwards as the new Asean commercial director, effective October 21, 2024. Edwards will oversee commercial operations across six countries in the region, including Singapore, Malaysia, Thailand, and Indonesia. Edwards replaces Céline Peredy, who has taken on a new role as strategic account director for multinationals. Edwards has been with Allianz Trade since 2015 and has held positions in London and Dubai, where he focused on underwriting and account management.

Batambu: Batumbu, an Indonesian fintech lending firm under Validus Investment Holding, made three senior-level appointments pending approval from the Financial Services Authority (OJK).

• Reza Perazi Armadi succeeds Tan Glant Saputrahadi as the new President Director. Raza has over 20 years of experience in banking, especially in MSMEs and supply chain finance.
• Paulus Adinata Widia was appointed Deputy President Director.
• Mochamad Tommy Hersyaputera was appointed Director.

iii. Regulatory Bodies: SFC

SFC: The Hong Kong Securities and Futures Commission (SFC) made two senior-level appointments.

• Kelvin Wong Tin-yau was appointed as the new chairman, effective October 20. He replaces Tim Lui and will serve a three-year term. Wong will continue to serve as the chairman of the Accounting and Financial Reporting Council until the end of the year. He also served at Cosco Shipping Ports before this and is the first chairman with prior executive experience in a listed company. During his time at AFRC, he was involved in significant regulatory reforms, improving audit quality, and increasing the organisation’s independence. Wong will focus on fostering a sustainable capital market that protects investors, promotes economic growth, enhances corporate governance, and encourages innovation.
• Keith Pogson, a senior partner at Ernst & Young, was appointed the non-executive director for a two-year term. Pogson has rich expertise in financial services, particularly in banking and capital markets.

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Image Credits:

• Reuters
• CFP