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The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers. This week, the article of the week comes from Risk Briefing, a sister service to Financial Services Briefing.

Exchange-rate management was a contributor to the financial and economic crises that struck East and South-East Asia in the late 1990s. This time around, East Asia’s currencies are being managed differently. Notwithstanding an abundance of intervention, as reflected in growing reserves balances, these countries’ central banks have allowed the market to play a role in the currency’s value, and have not given speculators a threshold to bet against. The upshot is greater resilience in the event that boom turns to bust.

One way to assess flexibility in the currency regime is to consider the exchange-rate’s volatility against the “naturalness” of the distribution in its daily (or weekly, or monthly) changes. A combination of a volatility measure and a “naturalness” measure can give an indication of the underlying regime flexibility. On this measure, East Asian currency regimes are more flexible now than they were at the time of the 1990s crises.

Read more at Risk Briefing: “East Asian crisis resilience improves” (January 4th)

Despite the region’s economic resilience, Asia saw a big fall in private equity fundraising during the downturn. Funds raised around US$28bn in Asia last year, down sharply from US$91bn the year before, according to Preqin, a research firm.

So far this year, Asia-focused fundraising has accounted for around 12% of the global total. However, funds currently on the road are seeking nearly US$120bn from investors in Asia, accounting for more than 20% of funds being raised around the world. Asia did not provide much of a buffer during the downturn, but private equity funds clearly see it as an engine of growth for the future.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

Fears about the strength of the global economic recovery have sent investors piling into bonds, and Islamic debt is no exception. The yield on a broad-based index tracking sukuk, or bonds that conform to the Islamic prohibition against interest, recently reached lows not seen since late 2005, according to HSBC, a bank, and Nasdaq Dubai, an exchange operator.

Following the high-profile restructuring of sukuk issued by Dubai’s teetering conglomerates, as well as several outright defaults by borrowers elsewhere in the Gulf, does Islamic debt deserve the safe-haven status that current rock-bottom yields imply?

Yes and no. The scarcity of Islamic bonds is as important a factor in explaining the recent rally as is their safe-haven appeal.

Read more at Financial Services Briefing: “Desperately seeking sukuk” (August 23rd)

A new report from the Asian Development Bank takes Indonesian banks to task. Or, it is as critical of banks’ lending practices as the rules of international diplomacy will allow. “The efficiency of Indonesia’s domestic financial intermediation is among the lowest in Southeast Asia,” the ADB says.

Indeed, the ratio of domestic credit to GDP in Indonesia is much lower than most of its neighbours. The spread between lending and deposit rates in the country is also wider and more volatile than elsewhere in the region. Although not a “critical constraint to private investment,” as the ADB puts it, more affordable, available credit could help Indonesia more quickly achieve its considerable economic potential.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

The planned sale by American International Group (AIG) of its east Asian life insurance business was ultimately just too large a deal. The three-month drama finally came to a close on June 2nd when Prudential dropped its offer for American International Assurance (AIA) after the AIG board rebuffed a request for a cut in the US$35.5bn price.

Still deeply in hock to the US government, AIG now needs a new strategy for AIA. Plan A, keeping AIA, is not a possibility. Plan B was the initial public offering in Hong Kong that the company put on ice when the Pru tabled its offer for the entire firm, Plan C, this past March.

With B and C now looking less appealing, it may be time to consider Plan D: a partial split-up of AIA to allow easier sales to a variety of suitors. After all, insurance companies are still keenly interested in the rapidly growing markets of emerging Asia. They may simply need to take smaller bites.

Read more at Financial Services Briefing: “Time for AIG’s Plan D” (June 2nd)

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

The music has recently sped up in what looks like a pan-Asian game of musical chairs. Unlike the parlour game, this match pits some of the world’s biggest financial firms in a race to issue shares into what increasing looks like a bear market.

In China, Japan, Hong Kong and Singapore, financial giants are readying large-scale share offerings. The mounting concern now is that a true bear market may suddenly close the door to many of these issues. It’s time to grab a seat before all the chairs disappear.

Read more at Financial Services Briefing: “Musical shares” (May 20th)

Prudential’s US$35.5bn bid for AIA, an Asian life insurer owned by troubled American conglomerate AIG, is plenty bold. The price exceeds the British suitor’s current market value and would require a mammoth rights issue. Markets are nervous about the aggressive move, sending the Pru’s share price down sharply since Monday’s announcement.

Prudential may be the boldest, but it is far from the only western life insurer with designs on Asia. The region’s fast growth and low insurance penetration is attracting attention from a number of firms, as detailed in an article on this blog’s parent site.

When unveiling a new strategy recently, Deutsche Bank described Asia as its “key driver of revenue growth” in the coming years [subscription required]. It is far from alone. International investment banks large and small are looking to Asia—excluding moribund Japan—for sources of fee-based income to make up for drastically subdued activity in the west.

Throughout a new report on the state of banking from International Financial Services London (IFSL), a lobby group, Asia emerges as the lone bright spot in an otherwise cloudy industry outlook. Global investment banking revenues grew by 12% in 2009, down almost entirely to Asia. The region now accounts for 21% of business in the industry, up from 14% a decade ago. Revenues in Europe, meanwhile, have held relatively steady over this period, while the share of global banking business in America has fallen from 56% of the total in 1999 to 46% last year. As lenders, underwriters and advisors increasingly focus on Asia in the years ahead, the gradual shift of banking power to the east seems likely to continue.

More data on earnings surprises, this time for companies in Asia (excluding Japan). Although Nomura’s definition of surprise sets the bar higher—10% above or below consensus expectations—than in Monday’s post about European firms, the results are broadly similar.

In their latest quarterly results, banks beat earnings expectations more often than the average, with insurance firms lagging behind. But unlike in Europe, where a larger share of insurers beat expectations than missed them, insurers in Asia missed analysts’ forecasts more often than not. This was also true for Asian companies as a whole, with food retailers, software companies and professional services firms missing the mark by the widest margins.

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