Sanjeev Chatrath, Thomson Reuters
We are living in a world of unprecedented change. While the future is uncertain, one thing that we can be relatively sure of is that our future will be very different to our past. Technology has permeated through every aspect of our lives to make us more efficient yet paradoxically we appear to have less time to fulfill our insatiable ambitions. We are literally and figuratively breaking new frontiers with how far, and how fast we can go.
As a region, Asia presents a unique landscape that is advanced, yet developing, and where these forces of change are most at work with new industry disruptors emerging regularly while the old established players pursue strategies to remain relevant. With over half the world’s population, with wealth, technological adoption and knowledge increasing at a faster pace than anywhere else, Asia remains core to most companies’ growth ambitions. Not only does the region have three of the top four most populous nations in the world, it also has three of the top four economies in the world (based on purchasing power parity).
The rise of the Asian consumer and the pace of wealth creation in Asia are well documented. In 2014, according to the annual World Wealth Report 2015, there were almost 4.7 million high net worth individuals (with investible assets in excess of $1 million) in Asia-Pacific (up from 3 million in 2009) - surpassing Europe and almost equal with North America’s 4.7 million millionaires.
The depth and pace of adoption of new technology in Asia could be seen as a springboard for sustained growth and innovation opportunities for both businesses and communities. As a region Asia, has almost half the world’s total internet population at 1.6bn users accessing a range of content from multiple devices. This appetite to adopt technology, coupled with the seemingly ubiquitous internet and mobile network coverage for multiple devices provides businesses with a far-reaching infrastructure on which to build new business channels.
Evolving business priorities
Most organisations have been focused over the past few decades on top-line growth. This has lead many of these organisations to go deeper and more remote into new markets in Asia to drive top line growth. Many were ill-prepared for what is unique in these markets and the real total cost of doing business there. They are now re-calibrating their ambitions, and increasingly focusing on profitable and sustainable growth. Margins and reputation are taking a much higher focus than pursuit of top line growth alone in most organisations nowadays. Growth at the risk of reputation damage, or growth that does not allow them to deliver returns to shareholders because the profits are trapped in a particular jurisdiction are considerations that organisations are very carefully weighing nowadays as they review their market strategies and take a more balanced approach to growth. Recognising that defense of their assets – financial, physical, or intellectual - is a core element of their management responsibilities more and more executives have the foresight to forego short-term growth opportunities if that growth comes with a disproportionately high risk. The focus on growth remains high, but is now complemented with a balanced attention on sustainability.
The business environment, and the financial markets that support it, continue to evolve at a pace that has not been seen before. Some of the key themes that are shaping the Asia region and how corporations are operating here are listed below, but these are by no means exhaustive or unique to Asia.
1. Changing consumer profile and consumption habits
At the heart of most of the change facing corporations and industries are the changes in the profile of the consumers they serve as well as the change in their consumption habits. Technology has elevated the power of the consumer and subsequently their expectations. In Asia, we also see extremes of demographics with ageing population in markets such as Japan (which recently became the first country with a receding population), and China on one end; and countries such as India on the other end with a younger workforce that is more financially confident, more educated, more traveled and more technologically adept than the previous generations or even their western counterparts. The evolving needs of the Asian consumer presents unique challenges and opportunities to modern organisations that need to reinvent themselves to provide solutions for these audiences.
2. Advent of new technology and disruptors
Information and technology is credited with a lot of the change around us. Established organisations need to keep on top of the ever-changing landscape of technological advancements as well as new market entrants from non traditional players. What is often overlooked is the impact that information and technology has on human behavior, and consumption. On one front, increased risks such as cyber attacks against financial services institutions are becoming more frequent, more sophisticated and more widespread. On the other hand, there are new opportunities, for example, investment in fintech in Asia is on the rise. There are over 20 active FinTech accelerators in Asia; and Hong Kong, Singapore and Sydney are all vying to be the destination of choice to attract new start ups that will drive the future in many industries. Investment in fintech in Asia is expected to have grown four-folds in 2015 alone which demonstrates the wide support for fintech investment in the region. All this activity accelerates development and adoption of landscape changing technology such as distributed ledger - with Asia a focal point for the first implementation of a blockchain at the ASX.
3. Big data and insight
It is estimated the amount of data globally will double every two-years. Successful organisations not only need to understand the value of their data but are able to monetise it. For example, consumers leave their digital footprint with everything they do. By analysing this data they can filter through the noise of the data to gain useful insights which can be used to further engage, target and enhance product offerings. Thomson Reuters Intelligent Tagging capability provides a unique identifier and the means to gain insight from any form of unstructured data. When combined with news and sentiment analysis a great deal can be derived, and correlated. The progress being made in the field of quantum computing and augmented intelligence heralds a time where corporations can prepare themselves with reliable and trusted information delivered rapidly and with embedded insight. Many progressive companies are leveraging new advances like holographic applications incorporating virtual reality to help them better visualise and bring to life trends and outliers in data sets internal and external to their organisations.
4. Rising volatility and uncertainty
The recent past months have had high levels of volatility across most asset classes including foreign exchange, equities, commodities. As a result of rising market volatility, many corporations are pro-actively revisiting their policies to ensure they have adequate room to manoeuvre when faced with a market event in future. Even market psychology and the correlation of emotions on assets within regions can be applied to form a new understanding on market dynamics and predictability. Corporations are preparing themselves for the specific events and also preparing on how they create an institutional ability to respond better to market events which are occurring with increased frequency and greater global impact. Swiss National Bank’s actions in early 2015, as an example, had far reaching affect around the world. Since 2005, the interest rates have been record low around the world and underlined recently with the Bank of Japan’s unprecedented shift to negative interest rates. Access to inexpensive financing has enabled corporate balance sheets to be very liquid and as cost of funds will rise, it will present unique challenges for corporations to fund long-term investments and infrastructure projects. Many institutions are looking to raise long-term financing to avoid spiralling cost of funding.
They are also leveraging technology to build greater resilience and agility into their operations. As an example, traditionally, when conducting FX, corporations would interact with a pool of banks individually either over phone or through proprietary bilateral portal. Today, however, this is being done on multi-bank platforms such as Thomson Reuters FX which brings together a number of buy-side and sell-side firms for most accurate, efficient and liquid price discovery and execution.
5. Internationalisation of China
As China continues to progress with its economic and structural development, its role on the global stage continues to rise. Even with a slowing domestic growth rate, it is still growing at a faster pace than any other large economy. It is also making strong progress on changes that need to be made to develop its domestic market, and international integration. The launch of the Shanghai-Hong Kong Stock Connect Pilot programme in November 2014 was a significant step for China’s capital market reforms and lays the foundation for further liberalisation and integration in future. Thomson Reuters’ leading foreign exchange venues and trading solutions have recorded over 350% increase in offshore RMB trading which is great evidence of its increasing adoption as a trade and settlement currency. The IMF has signaled the importance of the RMB’s international status as a reserve currency by making it the fifth currency to be included in the basket of currencies which make up the IMF’s Special Drawing Right (SDR). Given the increasing stature of RMB on the world stage, financial institutions are competing to raise more RMB liquidity. Competition in most offshore RMB centres remains intense to raise RMB deposits that are needed for increased trading, settlement, and now investing purpose. Lastly, Chinese corporations are continuing to acquire material assets around the world to support their growth ambitions.
6. Regulatory changes
Thomson Reuters tracked over 50,000 regulatory changes cross 600+ regulatory bodies and exchanges in 2015. This means that there is a regulatory change happening roughly once every 10-minutes. Not only is the volume of regulatory changes immense, the regulations are increasingly extending beyond the national boundaries. Regulatory change is a disruptor to the financial markets which have changed significantly since the global financial crisis (GFC) with the major changes taking place in the processes, platforms and the impact on conduct making a large impact. Markets today require transparency and connectivity from pre-trade, execution and post-trade services which must interact with all sides of the markets including the central banks and regulators. Regulators are extending many regulations to non-bank financial institutions and other corporations. This is presenting unique challenges to many organisations. The focus on compliance continues to grow also due to the increasing cost of non-compliance in the form of reputation damage and fines. Timely access to trusted sources for regulatory changes is critical for organisations to ensure they are in compliance to the same. There is greater adoption of regulatory tracking solutions such as Regulatory Intelligence, which customers are proactively alerted of upcoming changes, helping them manage the impact, and providing the solutions to keep them compliant. Financial institutions are also integrating pricing and reference data feeds to gain the necessary data points for regulatory reporting requirements stemming from MiFID II, Solvency II, Dodd-Frank and other global regulations while also balancing the regional and local requirements as well.
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7. Risk management
Risk management has become a core responsibility for most C-level executives. While there are numerous risks that face modern day organisations, the focus on risk identification and management is yielding good results for many companies. Corporations are adopting solutions such as pricing and reference services to identify counter-party exposures for the organisation. Many are using enterprise risk management solutions to have a holistic view to risk. At the heart of a strong risk management philosophy is an increased focus on better knowing one’s customers. ‘Know-Your-Customer’ (KYC) solutions, such as Thomson Reuters Org ID, are gaining increased adoption in Asia across banks and corporations as they provide an efficient and cost-effective way to improve the risk and compliance within the organisation. Org ID, with its screened, certified and continuously monitored records – now in excess of 20,000 KYC records – can reduce onboarding time by up to 80%, and hence can help reduce onboarding costs for financial institutions and corporates. Conducting risk and improving the culture of the organisations is expected to remain a top priority for most organisations and nations, as is ensuring that employees are trained and educated, and reported, in evolving compliance best practices and regulations via eLearning solutions.
8. New silk roads
Intra-Asia trade has been one of the fastest growing trade corridors for a number of years and is expected to account for approximately 40% of global trade by 2030. This shift of the global trade corridors has given rise to new ‘silk roads’ within the region that has led to local development of the infrastructure and solutions. The One Belt One Road programme is not only opening new corridors, but also boosting investment in supporting framework infrastructure such as transport, ports, energy and social infrastructure, along national borders and the roads/belts in the region. Two areas of focus for trade in Asia are risk mitigation and supply chain financing. Supply chain financing remains very popular as a means to leverage strong balance sheets of large companies to support their supply chain partners and in many cases to receive more favorable terms of trade. We are also observing a rise in demand for solutions to manage the counterparty risk in supply chain using Know Your Supplier (KYS) and rhird party risk management systems. Early alert for risk in the supply chain and potential disruptions can enhance how corporations handle the risk.
9. Rise of Asian wealth
No discussion of Asia can be complete without a discussion of rise of Asia wealth. The pace of growth of Asian wealth continues, and at a higher rate than most regions globally. As the region continues to evolve as a consumer rather than producer of products alone, the transfer of wealth domestically in Asia and across borders presents a number of specific opportunities for most corporations. Financial institutions are investing heavily in private banking and wealth management solutions to capture a growing share of this growth opportunity. The rise of Asian wealth has meant many institutions are keen to understand what is unique about the wealth as opposed to other regions. Much of Asian wealth is self-made and self-directed. The expansion of robo-advisory technology in wealth management solutions is enabling new and more-digitally enabled audiences in Asia. This includes younger audiences who are earning and investing or are recipients of intergenerational wealth transfer, providing access to reliable and accurate data and analytics to inform their trading and investments anytime, anywhere across devices.
10. Ethics and trust
As the region gains more economic maturity it is focusing on laying better governance protocols. Anti-corruption measures are top of agenda for most of the countries in Asia and many high profile cases are good examples of the effort being put in by the region to enhance transparency. We are seeing a flight to quality with people seeking news and insights that they can trust. As market volatility rises, it is common for behaviors to be influenced by rumors. Progressive companies seek solutions that are trusted and unbiased, Thomson Reuters provides professionals with the human intelligence, industry expertise and innovative technology they need to find trusted answers. We enable leading decision makers to make the decisions that matter, powered by the world’s most trusted news organisation. This also applies to participating in the relevant local and global committees to agree the FX Code of Conduct, Codes of best Practice and Shared Global principles where Thomson Reuters actively seeks to help promote best market practices and high standards of conduct and professionalism, and to encourage fair, liquid, transparent and accessible financial markets.
In my experience of dealing with organisations across financial and non-financial world, I observe progressive corporations are clearly the ones that are not just reacting to the changes and disruptions around them, but ones that are leading them. They tend to be more nimble, have their ‘lateral’ view on and are willing to understand and embrace the change. They are leading change.
Sanjeev Chatrath is Thomson Reuters' region head and managing director, Asia, financial and risk
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