It may be slight consolation for all the bankers getting laid off right now, but banks always cut staff at the bottom of a cycle. And here we go again. Two of FinanceAsia’s best-read web stories during the past week show that while underworked banks are cutting staff to maintain the salaries of those left, those that are left are busier than ever.
The rapid spike in business during the past three weeks is across all products and markets. In fixed income a cascade of trades has hit the market, enticed by the perfect combination of excess liquidity and low yields. On the buy side, a steady stream of asset managers are busy establishing dedicated Asian credit teams and products. Last month we reported on Ashmore and BNP Paribas Investment Partners looking to create dedicated Asian credit funds, away from the more traditional emerging-market fixed-income category.
In the equity markets, governments feel the time is right to start long-planned privatisations. Japan Airlines, RBS’s Direct Line and even Russia’s Sberbank have tapped or are tapping the market in long-planned deals. This could be a sign that they want to just get deals done in what could be a small window of opportunity. Or they realise what the wider market does not: that the markets are not as bad as many people think. Indeed a survey this week claimed that most retail investors in the US believe the S&P is considerably below where it was in 2007. However, at 1459, it is now higher at any time since December 2007.
This lack of confidence and understanding of where the markets are present huge opportunities, of which many Asian companies are taking advantage. Despite the league tables showing a slowdown in completed ex-Asian M&A deals, anecdotal evidence abounds that M&A teams have never been busier. They are fielding multiple calls on a daily basis from Asian buyers looking for targets in Europe, the US and non-Asian emerging markets. Just this week Itochu has bought Dole’s packaged food business and it has emerged that GIC is part of an investor group that has bought a 10% stake in global private equity firm CVC.
The image of Asian corporate executives, galloping across the market, Gangnam Style, is too good to pass up. While the buying might not have quite the exuberance of Korean rapper PSY, Gangnam Style’s 250 million Youtube hits, shows the world’s embrace of all things Asia.
All this activity should be cause for cheer. But many in the market still view what is going on through the prism of the big banks, which are still existentially challenged. Chief among their problems are inflated cost bases that cannot react to the risk on/risk off world. Partly this is a hangover from decades of consolidation and concentration. It is also partly due to the increases in regulation and compliance that impose huge structures onto them. As a result, they cannot create a return on equity greater than their cost of capital, taking them one step away from financial obsolescence.
But, if you overlook the travails of the big banks, disregard politicians in Europe and the US actively trying to destroy capitalism, ignore mob belligerence in China and Japan, overlook the fear of Israel nuking Iran, and discount from the fiscal cliff... then things don’t actually look too bad. The return of animal spirits usually happens when people just get bored of being in a slump. It is time to get back on the horse — Gangnam Style!