Since the term BRIC was first coined to encompass the fast-growing economies of Brazil, Russia, India and China (and later expanded to BRICS to include South Africa) numerous other acronyms have been deployed to group other emerging markets together, such as CIVETs (Colombia, Indonesia, Vietnam, Egypt and Turkey) and TICKs (Taiwan, India, China and South Korea). There continues to be considerable interest in pinpointing markets which have the potential for rapid growth – although different companies will have different priorities when it comes to identifying the most interesting markets.
ANZ’s Sarup says that despite macroeconomic factors and geopolitical tensions playing some part in tactical activity shifts, “each market presents growth opportunities that will be of interest to different industries and businesses. Our view is that there are clusters of markets that will be ‘hotspots’ depending on the business or the industry.”
Among the factors contributing to this are dependency on technology and changing consumer behaviour, including the development of online marketplaces, demand for faster and more secure digital/internet capability and changing consumer choices, with a greater focus on healthier and more sustainable food, Sarup says.
Where specific markets are concerned, BofA’s Ameen notes that shifting supply chains are supporting steady trade growth in Southeast Asia. “The region continues to develop increasing manufacturing capacity, infrastructure and talent to support their growth,” he says. “Vietnam and the Philippines in particular are expected to emerge as key beneficiaries.”
Ameen also says that India will be interesting to watch this year. “Growth is slowing and inflation is rising, but at the same time, there is a shift towards increased manufacturing capacity and expertise,” he says. “This could drive corporates to look to India as they consider continued diversification away from China for their supply chains.”
Technology is another major consideration when it comes to growth. According to Ameen, the rise of the digital economy and ever-expanding coverage of unserved populations will also be a key consideration – “particularly in markets such as India and Indonesia, which have a huge population of the middle class entering the global economy.”
Alongside the opportunities presented by high-growth markets, Asia is also characterised by considerable diversity. As Jason Tan, Regional Head of International Countries, Global Liquidity and Cash Management at HSBC observes, some say the diversity across Asia does not provide a consistent way to do business – “but Asia as a market is very different from its more established European and American counterparts – notably, in terms of its growth stage.”
Tan points out that the diversity of Asia Pacific allows international corporates with a global footprint and an in-depth knowledge of regulators and market practices to support the growth of this dynamic region. “This is particularly relevant to cash management, where that insight is there to help navigate the diversity, including local regulations and local payment infrastructures,” he adds.
For treasurers, the region’s diverse market conditions and business practices bring numerous challenges. For one thing, the region encompasses a multitude of regulatory environments, with different rules on areas such as accounting, tax and know your customer (KYC), as well as industry-specific regulations. What’s more, the pace of regulatory change can be very rapid in some markets, meaning that companies need to work proactively to stay on top of upcoming developments.
Likewise, where liquidity management is concerned, treasurers operating in Asia will find the complex landscape can make it difficult to gain visibility over cash in different countries. What’s more, different countries will have different rules about cash management structures such as physical and notional cash pooling, making it difficult to consolidate cash balances and thereby reduce borrowing or maximise interest. In more highly regulated jurisdictions, treasurers will need to address the challenges brought by trapped cash.
Other challenges faced by treasurers in the region include:
Numerous currencies and diverse hedging techniques.
The adoption of real-time payments, with varying levels of maturity in different locations.
Trade-related risks and shifting relationships as a result of geopolitical considerations.
In addition to these obstacles, Sarup points out that treasurers also have to navigate the risk of sudden business changes, such as adjustments to the business model as a result of geopolitical factors. “Another example is the risk imposed by cyber threats and events – both these can vary widely in different Asian markets,” he says.
Overcoming the obstacles
Fortunately, there are plenty of steps that treasurers can take to address these issues. For one thing, technology can be a powerful tool when it comes to achieving greater efficiency across the region. Vijay Shankar, Head of TB ASEAN & India and Head of Regional Sales, ANZ Institutional, says that treasurers can mitigate challenges “by implementing an effective treasury management system (TMS) platform by integrating real-time API feeds from ERPs and banking platforms.”
Ameen, meanwhile, argues that technology “is no longer an enabler” but has become a key driver behind businesses, citing the adoption of API technology to connect treasury with bank systems for real-time interaction and exchange of information. “Companies can leverage technology such as AI and machine learning to drive automation,” he says. “This reduces dependency on human intervention, and with digitalisation, processes can be shifted across borders more easily.”
Other strategies treasurers can use to overcome the challenges of Asia Pacific’s diverse landscape include:
Stay informed. BofA’s Ameen says treasurers should look to their banking partners as a good source of information, alongside industry sources such as news outlets, associations, forums, journals and newsletters. “Besides regulations and local practices, banks can also provide case studies which provide useful insights into how other companies are managing similar issues,” he says.
Shankar, meanwhile, notes that treasurers have multiple sources to consult. As well as banking partners, he cites companies’ empanelled legal/tax advisors, well-established consulting companies, government and industry trade associations, companies’ country CFOs and company secretaries, consulting websites – “and finally, practical experience of being in the industry from local management.”
Build strong bank relationships. Ameen points out that a company’s choice of banking partner is important when it comes to addressing the challenges, noting that treasurers “can leverage the expertise of their banking partners, who can provide insight to industry and market trends such as cyber-security and fraud trends.” In addition, he says, treasurers should aim to understand their banks’ technology and innovation roadmaps for the next five years “to see how they can harness emerging technologies to help them stay on top of changes.”
Be flexible. Ameen notes that treasurers should remain flexible, “so they can respond quickly to any changes in the regulatory environment and market, given the uncertain macro backdrop.”
Hedge effectively. Shankar says that treasurers can leverage low-cost funding options by “hedging base currency with effective deposit optimiser solutions offered by banks.” He also notes that adopting “optimum and effective hedging solutions” can address short to medium-term geopolitical uncertainties.