Key trends that will shape APAC region’s financial services sector in 2021

Alfred Lee | Updated on February 23, 2021

The financial services industry across APAC will be expecting continued volatility and will be paying particularly close attention to a new world under Biden

Twenty-twenty has been quite the year. In fact, it is astonishing to reflect on the events and circumstances we have all found ourselves in and the collective experiences we have all endured. APAC (Asia Pacific Accreditation Cooperation) was the first region in the world to be hit by Covid-19 and go into large-scale lockdowns. And even though many APAC nations have led the way in terms of virus control, Hong Kong, Korea and the UK are experiencing new surges in cases and implementing new restrictions.

Meanwhile in the US, cases continue to soar to new heights, highlighting the on-going fragility of the situation. The unprecedented nature of the Covid-19 pandemic, the mayhem of the US elections and the evolving regulatory landscape for Chinese IPOs make analysing APAC economies and the future a complex undertaking.

Despite such a turbulent year for markets, global equities now sit at all-time highs and continue to break records. Moving ahead from 2020, it is a timely opportunity to reflect on the fundamental shifts that have emerged amid the disruption over the past year, as well as explore new opportunities that investors and businesses can capture in 2021 and beyond.

Below are some key trends that will continue to play an instrumental role in shaping the APAC region’s financial services sector in 2021.

Geopolitical tensions in Asia continue to impact markets and deal-making: It’s been a tumultuous and dramatic year in the global and Asian political arena with Covid accelerating US-China tensions, the implementation of a new Securities Law in Hong Kong by China, and new tensions between India and China, to name just a few. All have had considerable impact on markets and deal-making in the region.

The election of Joe Biden as the new US President has the potential to reform the US-China relationship, but it will take some time to ascertain what his stance and policies are on Asia.

Aside from the US, China saw itself in conflict with India, which resulted in India banning 118 Chinese apps from its domestic market in September last year and continuing its stance since then, while the US ramped up its war on Chinese tech. Both of these situations are likely to continue to play out throughout this year.

A big positive for global markets and investors was the appointment of Prime Minister Yoshihide Suga in Japan. Japan’s economy grew at the fastest pace on record in the third quarter, rebounding sharply from its biggest post-war slump, as improved exports and consumption showed the country is recovering from damage caused by Covid.

As economies across the globe claw their way to recovery, some Asia Pacific countries have led the way with virus control and GDP bounce backs across many countries including Japan, Singapore and Australia.

It would be trivial to predict the future given the events of this year. The financial services industry across APAC will be expecting continued volatility and will be paying particularly close attention to a new world under Biden.

China’s financial market continues to open up: China has continued to accelerate the opening up of its financial market despite the pandemic and political upheaval this year. The priority for the country over the next five years is to make new strides in improving its economy significantly and to foster a new development pattern where domestic and foreign markets can boost each other.

China is committed to open up its domestic financial markets to foreign players. It is now allowing qualified foreign institutions unlimited access to Chinese stocks and bonds.

Further regulations and announcements are likely to be made by the second largest economy in the world during this year.

Sustainable finance gains prominence: In many respects, Covid has been a wake-up call prompting governments, businesses and investors alike to pay greater attention to environmental, social, and governance (ESG) issues, and providing the impetus for all stakeholders to chart a sustainable recovery.

This trend is visible in Asia as well with sustainable finance gaining more traction across the region. China made a big call in September with President Xi pledging that the country will achieve carbon neutrality before 2060. Meanwhile, New Zealand became the first country to require the financial sector to report on climate risks.

Steered by the Environment Ministry, India has set up an Apex Committee for Implementation of Paris Agreement (AIPA) in an effort to coordinate climate policies, regulate carbon markets and see how private companies are doing. The main job of the committee is to ensure that India sticks to its three promises — a 33-35% reduction in emissions intensity by 2030 from 2005 levels; 40 per cent of all electricity to be generated from non-fossil fuels by 2030; and tree plantation programmes that can remove 2.5-3 billion tonnes of carbon dioxide-equivalent GHG from the atmosphere.

Apart from governments, companies and investors are also focussing more on ESG risk management to build greater resilience in their business operations and supply chains.

As ESG data is becoming increasingly available and accessible, businesses and investors in Asia are afforded greater opportunity to actively incorporate sustainability into their internal processes and make ESG a core driver of future growth.

Digital becomes mainstream: Asia continues to make progress in digital banking. This will continue into 2021, with Singapore and Hong Kong leading the race. However, with digital solutions becoming a mainstay, especially during an ongoing pandemic, the cyber risks that institutions face have also increased as a result.

Cyber-attacks are becoming more sophisticated, and the recent attacks on New Zealand’s stock exchange, which disrupted the country’s financial markets for four consecutive days, shows that organisations are vulnerable to cyber-security risks, irrespective of their size. In short, companies cannot pay enough attention to being ahead of the game when it comes to cyber-security.

The Covid outbreak has prompted more organisations to shift their business online and migrate processes to the cloud. In fact, earlier this year Asia led the world in the mass working from home experiment. With a virtual office environment becoming the ‘new normal’, businesses cannot afford to fall behind in their risk management capabilities. This is a timely wake-up call for companies in APAC to evaluate and enhance their technological infrastructure.

Spotlight to intensify on Chinese IPO landscape: In 2020, the US’s tougher stance on China extended into financial markets with plenty of rhetoric around Chinese companies listing on US exchanges. This looks set to continue to play out into this year, with US Congress passing legislation in early December that would force companies to de-list from American exchanges unless they comply with US accounting rules.

Despite the Ant IPO being on hold, Hong Kong is challenging the Nasdaq in the race to be 2020’s top IPO venue, with a wave of Chinese ‘homecoming débuts’.

More than 1,200 companies have raised $228.7 billion through new listings in 2020. The figure, which includes proceeds raised from original IPOs and secondary listings, is already 11 per cent higher than the proceeds raised through the whole of 2019, and higher than any other annual total since 2014.

Increased AI/ML maturity: As firms strive to gain competitive edge over their peers, machine learning (ML) is maturing in financial services globally and in the APAC region, as companies deploy ever more sophisticated technologies to drive innovation.

Seventy-eight per cent of APAC firms are making significant investments in related technologies and over two-thirds indicate that ML is a core component of their business strategy. A majority of APAC respondents deployed ML for investment research and idea generation.

As ML adoption increases globally, ML and data science teams have also expanded, with 39 per cent of APAC firms expecting an increase in the number of data science roles in 2021.

The writer is Managing Director, Data & Analytics, Asia Pacific at London Stock Exchange

Published on February 22, 2021

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