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Reflections from Singapore

More than 440 treasurers gathered at the Singapore EuroFinance conference in late spring to take the pulse of their profession at the centre of the most economically lively region on the planet – it made for an exciting three days. One of the advantages of chairing the conference is hearing all of the presentations and receiving immense feedback from treasurers during the breaks.

One thing I felt was that we may be getting to an inflection point in post-global financial crisis (GFC) recovery. I am not launching into economic prognostications here. Rather I felt we may finally be moving beyond the fear, uncertainty and doubt (aka FUD) that has set the tone since the crisis.

On the first day, Frederic Neumann, Co-Head of Asia Economic Research and Managing Director, HSBC, Hong Kong, set set the macroeconomic scene with verve. In summary, the party will go on for another couple of years as the Federal Reserve will not take away the punch bowl until output regains the 10% it lost and unemployment drops.

On day three, the China focus day, Richard Dobbs, Director, McKinsey Global Institute, shared a vision of relentless urbanisation driving long-term growth focused on second and third tier cities. This macro trend will require huge amounts of steel and concrete, which in turn will require vast amounts of capital. As global investment as a % of global GDP is down 5% since ‘normal’ levels last seen in the 1970s, leaving a $20 trillion shortfall, we can expect massive amounts of capital to be invested in both the developed world’s return to normal investment levels and the developing world’s urbanisation. This basic idea was set out in McKinsey Global Institute’s December 2010 report entitled ‘Farewell to Cheap Capital?’ It seems to be contradicted by Bain’s 2012 report entitled ‘A World Awash in Money’ and even by Frederic’s earlier optimism, yet Richard and I agree that this is more a matter of time horizons than of fundamental disagreement. Incidentally, it is exciting to see, reflecting Richard’s observations on the developing world leap-frogging developed countries’ evolution, how Asian treasurers are moving fast to build 21^st century treasuries, achieving in months what took Western multinational companies (MNCs) years to put in place.

This parallels the developing world leap-frogging many stages in telecommunications – skipping fixed line for mobile, bypassing telex and fax and going straight for the pervasive internet. In a very favourable development for all treasurers, this is starting to be reflected in payment infrastructure. In China, China National Automated Payment System 2 (CNAPS2) has brought ISO 20022 MX XML to Asia ahead of Europe’s SEPA programme. More impressively, People’s Bank of China’s (PBoC) Electronic Commercial Draft System (ECDS) has already reached 50% market share and will soon eliminate paper bank acceptance drafts (BADs) and corporate acceptance drafts (CADs), which are notorious for fraud. This means China has a solid digital platform for supply chain financing (SCF) probably a decade ahead of any Western country. In India, the Reserve Bank of India (RBI) set up the National Payments Corporation of India, which has implemented a 21^st century payment infrastructure within the past five years – an incredibly rapid rollout.

These technologies bolster Asia’s resilience in the face of global macro uncertainty. Just as technology is bringing corruption busting transparency to Nigeria and Punjab, that mind-set is echoed in the determination of Asian corporates to build robust treasury platforms to support their ambitious business plans.

“It is almost as if we have been going through Kübler-Ross’ five stages of grief over the loss of pre-GFC bliss.”

So how does this square with the mood on the floor?

It seems to me that treasurers still recognise the uncertainties around them. The world is changing in very fundamental ways as the developing world inexorably balances global GDP. This rebalancing is ineluctable, and actually merely a reversion to the historical norm, yet its consequences are far from clear.

It is still not clear whether the rules of economics (and maths) have really changed or whether government intervention post-crisis has merely created a big wrinkle on the fabric of apparent reality. Either way, this uncertainty makes long-term planning and risk management even more difficult than it was before.

It is almost as if we have been going through Kübler-Ross’ five stages of grief over the loss of pre-GFC bliss. We first denied the crisis by thinking it would be over soon. Then who could deny a tinge of anger at whatever perpetrators you happen to latch on to? Then, bargaining along the lines of if we diversify our deposits and funding we will be okay. Treasurers are not exactly depressed, but there was a sense of inertia and a fixation on GFC itself that could be likened to a depression within the profession.

My sense is that we are now reaching acceptance. We are not going to get clear answers – and/or we now realise that what we thought was clear before was just illusion. We have no timeline for a return to normal. We don’t even know what normal is any more. What is new is that we accept this, even if we may not embrace it. We accept this new reality (or reminder), and we are getting on with life and all the projects we had in the pipeline that we were delaying because of post-crisis uncertainties.

In recent years, the GFC weighed on most of the content of the conference. Formal presentations revolved around the crisis. Economists discussed the cause and effect. Projects focused on its consequences:

• How to manage counterparty credit risk.
• How to ensure access to funding.
• Liquidity management to reduce the need for funding.
• Piling up cash, and so on.

From what I heard off-stage and during the breaks, the informal discussions were in the same vein. The GFC dominated and underpinned our thoughts. This year, I detect a change in focus. I think we are exiting our GFC fixation. We won’t forget the GFC – it is still with us in many ways – and one has only to think of the regulatory changes we face. Yet at the same time, the GFC is moving from centre stage.

This year we heard about some very ambitious projects on stage. Off-stage I felt the mood shifting to a more forward-facing focus.

Economists were delving into macro trends, hopefully not just because the GFC has them stumped. There were treasurers talking about how to grow sales, enhancing supply chains rather than defending them, building lean and smart treasuries to handle market opportunities, and returning excess cash to shareholders, even Apple.

Off-stage I felt a similar shift, even if people are still talking about liquidity management, their rationale is to support growth rather than to defend against liquidity squeezes and debt shortfalls. The GFC has changed our world but it no longer dominates it – it has moved from centre stage to important background.

This is a healthy and welcome development. As the saying goes, what doesn’t kill you makes you stronger. Those of us still standing have reinforced our operations against any new ‘swans’ the GFC highlighted. If there are any black swans out there, we cannot prepare for them because they are by definition unexpected. We have to accept that we do not know what is coming, and move on with supporting our businesses.

It is also a breath of fresh air and I am excited to see how we will progress in adopting all the new techniques and technologies that have been maturing in the background, under the shadow of the GFC.

We are privileged to live in interesting times.

Acarate

Clients located all over the world rely on the advice and expertise of Acarate to help improve corporate treasury performance. Acarate offers consultancy on all aspects of treasury from policy and practice to cash, risk and liquidity and technology management. The Company also provide leadership and team coaching as well as treasury training to make your organisation stronger and better performance oriented.

Contact details:

David Blair

Managing Director

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www.acarate.com