Citi bullish on Asia in 2014

Nadir Mahmud, head of markets for Asia-Pacific, and David Ratliff, head of investor sales & relationship management, Asia-Pacific, said greater top-line growth would help to offset fee compression.

The year is new, bond and equity markets are off to a positive start, and investment banks are awash with hopes, fears and resolutions for the next 12 months. Among them is Citi.

On Wednesday senior Citi bankers Nadir Mahmud, head of markets for Asia-Pacific, and David Ratliff, head of investor sales & relationship management, Asia-Pacific, outlined their thoughts for 2014 to a small group of reporters at the Grand Hyatt hotel in Hong Kong.

Initial public offerings had a mixed 2013 in Asia, making a slow start but picking up towards the end of the year. The clamour to be involved on the deals was intense, leading to large numbers of bookrunners on many deals, which eat into the fees of participating banks.

The question asked towards the end of the year was, what is the point of being on the deals if you’re not making money?

“The fear is still very much there. There are still way too many bookrunners and the fee compression remains an issue. What helped out last year was that the volume of IPOs and equity issues grew and, by the looks of it, they will continue to grow this year,” Ratliff said.

“The China A-share market seems to be opening up after [the regulators] held them on a very tight leash. The fee compression is there; the number of banks competing to get on deals is there but top-line growth can help ease some of those concerns,” he added.

Mahmud acknowledged that 2013 had been marked by uncertainty, as China and India growth faltered, the A-share market shut, and the US Federal Reserve announced it would taper its bond purchases.  

“We were dealing with the unknown, which was Fed tapering and what effect that would have on domestic rates. I think that situation has played itself out to a large extent,” Mahmud said.

The US bank, however, is bullish on the region for this year, saying that emerging markets are underweight across debt and equity, and calling two potential destabilising factors – the elections in India and Indonesia – an opportunity for positive change.

“These will hopefully clear... some uncertainties in those big economies and allow for a much more robust environment for the second half,” said Ratliff.

Ratliff added that the Chinese leadership was focused on doing the right things for the country's economy, which would help support its markets.

“If you believe in a steadier economy in China; if you believe they are not going to give us another credit crisis and massive economic downturn, then China is a good bet for investors,” he said.

So far so steady.

“For the moment the drama is over. The real drama will happen when the tapering starts,” Mahmud said.

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