FinanceAsia Magazine

Issue: June 2013

Running out of room

Central banks, led by Great Depression-era scholar Ben Bernanke, have helped save the world from outright economic collapse.They understood the role that monetary stimulus could play in enabling banks to repair balance sheets, to support indebted homeowners, and, most of all, to give governments a period of time to enact reforms to engineer a permanent escape from sovereign debt crises.

Quantitative easing has not been cost-free. The liquidity generated has not been lent on by commercial banks. Instead it has gone into financial assets. Companies have deleveraged but, similarly, have chosen to use their vast cash horde for financial engineering rather than investment.

Private actors cannot be blamed for self interest, but the net effect has been to delay recovery, postpone investment and avoid hiring. Without consumers, credit creation or the resuscitation of animal spirits, banks and corporations will ultimately hit the wall no matter how much cash they hold.

This suggests the policies that central banks have enacted to save the world are becoming counterproductive. The reason that animal spirits remain caged is that businesses do not know how to make profits other than by cutting costs. When the risk-free rate of return is zero — or actually negative, adjusted for inflation — it’s hard to make money. That has been especially true in banking, which must contend with complex and costly new regulation at the same time as its ability to generate credit is suppressed.

The US is entering its fifth year of QE. Although the Fed will have its critics, I think history will look kindly on Bernanke’s gambit. He gave policymakers the breathing space to make some important changes. Unfortunately, America’s politicians have wasted most of that opportunity, but at least its banks were forced to quickly recapitalise, usually against their will, and lending activity is picking up as housing markets heal.

In our neighbourhood, Japan has been the latest convert to massive QE, but here its government appears to be squandering its breathing space even more quickly. Shinzo Abe’s June 5 speech was meant to outline his agenda for structural reforms to make Japan’s economy more open and competitive. It did none of that, and instead it appears that Abe is relying entirely upon a potential trade deal with America to pass the buck.

Japanese investors will absolutely not hold onto loss-making JGBs; the idea that domestic debt is ‘safe’ is dangerous nonsense. Japan’s debt-to-GDP ratio is out of control and Abe’s programme to borrow even more is looking increasingly absurd without a meaningful shock to zombie entities still stalking Japan Inc. He and his mates at the BoJ should remember too that US QE depends implicitly on the dollar’s privileged position as the world’s reserve currency. Japan has embarked on QE without many of the props the US enjoyed five years ago, and the political window of opportunity bequeathed by monetary easing is already starting to close.


I am delighted to announce the appointment of Alison Tudor-Ackroyd as editor of FinanceAsia. She brings industry knowledge and flair thanks to her experience at the Wall Street Journal and Reuters in Hong Kong and Tokyo. I will continue as editorial director, working with Alison and the FA team on our brand’s offering, but from next month I will hand over this page to its rightful author.

Jame DiBiasio, editorial director


About FinanceAsia Magazine

Established in 1996, FinanceAsia is the leading publisher of financial news in the Asia-Pacific region. Our combination of print and online products provide the latest news, analysis and insight into Asia’s financial markets.

Published monthly from our office in Hong Kong, FinanceAsia magazine provides our readers with the latest financial trends, interviews, features and investigative reports. The publication has a readership of key decision-makers at corporations, governments, investment and commercial banks, institutional investors, asset managers, brokers, traders and financial intermediaries.

Our regular sections include:

Data Story
We look at the key data behind a topical theme in Asian finance, showcased with an array of graphs and tables.

A monthly opinion column from the FinanceAsia editorial team. We provide our thoughts on a topic making the headlines.

Deal of the Month
Our regular two-page spread with its signature artwork and in-depth analysis examines the equity, debt or M&A deal that we feel has had the biggest impact on the Asian capital markets that month.

Investor Dialogue
For company CEOs and CFOs, what investors think is a critical concern, and in this column we help them understand just this. Each month we speak to a Chief Investment Officer of a top fund and outline their views on corporate governance, what stocks they like and where they expect to generate the best returns.

A monthly opinion piece from a respected author or commentator on Asian business, finance or economics.

People on the Move
Here we summarise the key hires, fires and moves at the region’s banks, highlighting at least one major move each month.

Deal Tracker
We examine the major primary markets deals of the month and comment on the quality of the debt or equity transaction and the secondary market performance.

The Arts of Finance
A light-hearted look at investment opportunities surrounding the arts business in Asia.


Print Edition

FinanceAsia Print Edition