On the brink of dominance: Shanghai's reputation as an international finance centre is growing fast

As uncertainty continues to dog Western markets, Asia-Pacific financial centres are seizing their opportunity and increasingly drawing business away from their more established rivals. Michelle Price reports.

The Asia-Pacific region has experienced an impressive recovery over the past year, fuelled by extraordinary fiscal and monetary stimulus, amounting to more than $950bn, according to data from Bloomberg. In July, meanwhile, the International Monetary Fund (IMF) upgraded its forecast for regional growth for 2010 from 7% to 7.5%.

This is all good news for the region's established and aspiring financial centres. As investors seek out opportunities beyond the low-interest rate environment in the West, they are fixing their eyes on the Asia-Pacific growth story.

According to the Institute of International Finance (IIF), for example, net private flows to Asia-Pacific rose from $171bn in 2008 to $191bn in 2009, signalling what many onlookers believe to be a more or less permanent shift in the balance of global economic power to the Asia-Pacific region - and such inflows are set to accelerate to $273bn in 2010.

Asian enthusiasm

Investor enthusiasm for the Asia-Pacific region is borne out in this year's international financial centres (IFC) ranking, which broadly shows the creeping influence of the region.

Last year, Asia-Pacific cities featured three times in the top 10 IFCs ranking, with Singapore the highest ranked in the region, followed by Sydney and Tokyo. This year, however, Tokyo has slipped out of the top 10 to number 13, replaced by Hong Kong, which has jumped an impressive 10 places to supplant Sydney. After Singapore - Asia-Pacific's best-established IFC - Hong Kong is now the most highly ranked international financial market in the region.

Hong Kong's impressive leap up the table reflects the growing importance of the administrative region as China's international market, as well as the efforts the Hong Kong Stock Exchange has made to attract foreign investors and issuers on this basis. Singapore, meanwhile, sustains its reputation as the world's second most business-friendly market, an important pre-condition for internationalisation that has long positioned Singapore high up the IFC rankings.

As the IIF figures and other data from the Asian Development Bank demonstrate, Asia-Pacific is the regional destination of choice for inward capital flows. Few will be surprised to see therefore that Asia-Pacific dominates the top 10 inward FDI ranking, accounting for 50% of the table. Asia-Pacific's two most developed financial centres, Singapore and Hong Kong, lead the way, with Shanghai and Beijing close behind. Sydney also puts in a showing, this year rising up the rankings to take the number 10 spot. Both Mumbai and Tokyo, however, have slipped from the top 10 this year.

Last year was a quiet one for initial public offering listings. Nevertheless, Asia-Pacific has again put in a good showing. In last year's IFC ranking, Singapore was the only Asia-Pacific financial market in the top 10 foreign new listings ranking, but this year Singapore is joined by both Sydney and Seoul, reflecting not only the growing momentum in Asia-Pacific listings more broadly, but also the increasing attractiveness of Asia-Pacific markets as an alternative location for capital raising.

Stock raised

In terms of stock market capitalisation, again Asia-Pacific provides three entrants in this year's top 10 breakout table. Tokyo manages to cling onto its number two position, but this year Paris is supplanted by Shanghai, which takes the number four spot just behind London. Mumbai, meanwhile, is the most improved, this year moving into the top 10 table to take the number five position, a move that reflects the growing importance of Mumbai to India's economic development. Shanghai's ascendance up the stock market capitalisation table reflects again the enormous growth of China's public and private sector.

Should Shanghai become internationalised, as many onlookers hope, the city will likely dominate this particular table, since many foreign companies' need for renminbi funding is likely to make Shanghai more attractive than Hong Kong, which has retained its position at number six.

As such, this year's data bears out the growing importance of China to the broader Asia-Pacific growth story.

Although Beijing would not be regarded as the natural Chinese financial centre of choice, this year it takes the number four position on the breakout financial markets table. This table takes into account a variety of indicators, a key one being the profitability of the local banking sector. As data from The Banker's annual Top 1000 banks ranking this year demonstrates, China's Beijing-based mega-banks stole the show when it came to banking sector profitably in financial year 2009: all told, Beijing's behemoths accounted for a staggering 25% of the Top 1000 aggregate pre-tax profits for financial year 2009.

Next year will likely see China dominate the rankings further.


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