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Booz & Company
Hong Kong, March 2009
Discussion Document
Emerging from crisis: MINMAX strategies for Asian
financial centres
This document is confidential and is intended solely for
the use and information of the client to whom it is addressed.
The financial crisis has derailed the global growth engine of the
past decade
Positive views on globalization,
technology and low volatility:
“The Great Moderation” vs.
“Irrational Exuberance”
Confidence
Demand
Growth in consumer credit
supported by property boom;
Infrastructure and investment
boom in emerging economies
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Entry of China, India and other
emerging markets into the labour
force
Innovation, technology,
connectivity
Supply
Finance
Globalization of capital markets;
Enabling and growth of global
imbalances; Leverage, product
innovation,
1
Asia is feeling a heavy impact as exports fall
Exports from Asia countries
Real GDP Growth
Nov.2008-Jan. 2009
2007-2008E
The US Conference Board
Consumer Confidence Index
2007- present
B US$
Change %
140
14%
120
12%
China
80
China
60
1)
Japan
Korea
Singapore
0
Jan. Mar. May. Jul. Sep. Nov. Jan.
08’ 08’ 08’ 08 08’ 08’ 09’
’
Consumers
anticipate no
improvement in
conditions over the
next 6 months,
leading to all time
low index
90
8%
6%
20
120
10%
100
40
Index
India
60
4%
US
2%
Euro Area
0%
UK
30
25.0
Japan
-2%
2007
2008E
Jan.
2007
Jul.
2007
Jan.
2008
Jul.
2008
Feb.
2009
Note: 1) Japan’s export data of Jan. 2009 is estimated based on first 20 days data of Jan.
Source: Ministry of Finance (Japan) General Administration of Customers of the PRC, EIU, The Conference Board, National Bureau of Statistics of China, Korea Customers Service; Singapore Statistics
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Though China and India’s relative growth advantage looks set to
continue
Real GDP Growth: Historical and Forecast
- EIU Estimates -
Change %
14%
12%
10%
China
8%
India
6%
Euro Area
4%
United States
United Kingdom
2%
Japan
0%
-2%
-4%
2003
2004
2005
2006
2007
2008E
2009F
2010F
2011F
2012F
Source: EIU; Booz & Company analysis
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While regulatory and policy frameworks are in flux
 In the wake of the 1997 Asian Financial Crisis, US and
other western governments urged Asian countries to
liberalize markets as a remedy for the crisis
“I no longer believe in the
market's self-healing power"
– Josef Ackermann
 However today these same countries are increasingly
“nationalizing” their economy to fight the crisis
– Bailed out banks and insurers
– Provided loans to the automotive sector
– Other sectors now seeking ‘equal treatment’“
 China, with a larger degree of state ownership in the
economy, has more stability in the crisis and will be
more confident in setting its own pace of market reform
“I have found a flaw in the model
(that is) the critical functioning
structure of how the world works…
(I am in)… a state of shocked
disbelief”
– Alan Greenspan
“There is no doctor anymore. The
doctor himself is sick"
– Thomas Friedman
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Financial centres have a critical role to play in driving recovery
Confidence
and
Leadership
Showing pragmatic
leadership that confronts the
issues but aligns different
groups despite uncertainty
and continues innovation
Confidence increases willingness
to lend and availability of credit
increases confidence
Confidence boosts demand
and signs of increased
demand boost confidence
Adjustment
Aligning to the new
sources of demand e.g. infrastructure,
consumption, Govt ;
relative strength of
China, India and others
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Sources of
Demand
Access to
Financing
Access to financing increases
demand and increases in demand
make financing less risky
Providing multiple
channels of financing - and
attractive investment
vehicles for those with
capital: bank lending , ECM,
DCM, PE, etc
5
But continued uncertainty about the outlook means financial
centres also need to pursue their own “MIN-MAX” strategies
GDP
A Rapid Recovery
 Government action stimulates
consumer confidence
 Banking rescues restore
financing
 …and a positive spiral results
A Long Time Coming
 Mixed success of government
action
 Consumers caution continues
 …and a ‘wait and see’ attitude
prevails
Economic Relapse
 Stimulus plans go awry
 Consumers panic
 …and vicious circle ensues
Time
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The MIN strategy: Protecting the downside
1
Confidence and
Credibility
 Humility and transparency on financial sector role, contribution, capability
 Simple, clear communication and action on key stakeholder concerns
 Follow-through on specific initiatives
2
 Revised regulations for individual and systemic protection
“Smart
Regulation”
3
Risk
Management
and Efficiency
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 Active contributions to global debate, based on own experience, needs
 Avoidance of over-control and destruction of innovation
 Pre-emptive review of further risks under stress-testing
 Adjustments in capacity, headcount as needed in light of lower activity levels
 Continued investment in automation and information systems
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And the MAX strategy: Capturing the upside
1
 Offshore and integrated/hybrid RMB markets
Innovate in
markets and
products
 Asian infrastructure financing
 Pioneer of new ‘basic securitization’
 Asian commodities and resources hub
2
Create and
strengthen
network
connections
3
Attract, develop
and retain talent
 Strengthened links across Asia, Mid East, Latin America and Africa
 Early mover in renewed listings of growth companies
 Stronger relative position in private banking as “Swiss model” challenged
 Talent attracted through earlier rebound in financing activity and innovation
opportunities
 Self-reinforcing virtuous cycle
 Continued upgrading of ‘software’ and ‘hardware’ for living and working
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THANK YOU!
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23 May 2017
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