In 1989, well before eighth grade broke for Christmas, my parents took me on an impromptu holiday to Germany. The occasion? To experience the collapse of the Berlin Wall.
Once we arrived, we paid five Deutschmarks to some East Germans to rent a hammer and chisel, and began chipping away. I returned to New York with little bags full of pieces of the wall I’d collected for my classmates.
More than three decades later, I still cite this as the most important moment of my life – and I imagine it always will be.
However, that same year, we saw the launch of the worldwide web – and I think it’s clear which of the two has had a greater, shaping impact on our lives.
If we trace the story of the past 30 years, we see the end of the Cold War, the expansion of global capital markets, the privatisation of economies, global investment in infrastructure growth, the eastward expansion of Europe and now, the westward expansion of China – all spurred by the digital revolution. This has brought us to a point that I call total globalisation.
Over the past two decades, numerous events – most vividly the 9/11 attacks and the 2007/8 financial crisis – have prompted commentators to pronounce the death of globalisation. But in my assessment, globalisation will always win.
Therefore, to ensure that their firms are in lockstep with emerging megatrends, treasurers must harness the geographies that are globalising the fastest. And for the foreseeable future that means looking East.
Before the pandemic, Asia saw average growth of between 4% and 6%.
Given that COVID-19 is exacting a heavy toll in nations such as Malaysia, Indonesia and the Philippines – and is mounting a swift resurgence in Vietnam and China, which had initially met with success in their efforts to contain the virus – we shouldn’t expect an entirely smooth, ‘classical’ V-shaped recovery. It will be more of an uneven one.
Yes, with appropriate stimulus and further pandemic controls, those countries could yet make up for lost ground. But instead of dwelling on those short-term factors, we should focus on the fundamentals that are likely to ensure Asia’s recovery will have some semblance of a V-shape, albeit somewhat jagged.
Those fundamentals are rooted in demographics. Asia remains a very youthful region – and one that is gravitating heavily towards urbanisation.
Treasurers must harness the geographies that are globalising the fastest
That’s a critical difference between the ASEAN bloc and other parts of the world.
In the West, people’s take on the sharp increase in homeworking can be summed up as: “OK, we’ll leave the big cities now and go live on a farm.”
But outside the first-tier cities, Asia doesn’t have an equivalent quality of life. So young Asians will continue to flock to their nearest big cities and stimulate the service economies, which are already major growth drivers.
In parallel, the global step change in digitisation is particularly pronounced in Asia. That surge of innovation has produced a series of high-profile unicorns that have reached some impressive financial milestones.
In April, Grab Holdings – headquartered in Singapore, where I’m based – was valued at almost $40bn in a deal to go public through a special-purpose acquisition tie-up with Altimeter Growth Corp.
Just two months later, payments platform Gojek and e-commerce specialists Tokopedia unveiled a merger, marking the largest business deal in the history of Indonesia.
The resulting firm, GoTo, has been tipped for a valuation of anything between $25bn and $40bn – a range that would comfortably make it Indonesia’s first ‘decacorn’. Those examples are just component parts of a fast-paced growth tangent that is new in the Asian experience.
Other, equally compelling factors underscore Asia’s favourable position.
The majority of sovereign debt in the region is in local currency, which provides a sizeable cushion. Even the poorer countries have been able to roll out generous stimulus packages because the finance isn’t US-dollar denominated.
As such, we don’t have to worry about a 2013-style ‘taper tantrum’ derailing any further fiscal measures of that nature.
Most of the region’s governments are more or less pragmatic. Infrastructure spending remains very strong. Social spending is improving and the capacity for welfare delivery is higher than ever.
Meanwhile, there’s a positive outlook for privatisation. Governments want firm control over their current accounts to keep them in sound, pre-pandemic condition. That will require them to raise more capital.
So, countries such as Thailand, Indonesia and the Philippines – plus India, too – are signalling that they will have to make good on recent proposals to float more assets. And I certainly think that will happen.
It’s important to bear in mind that ASEAN doesn’t yet function as one cohesive region in its own right
Which leads me back to my opening theme of globalisation.
Multinationals based outside Asia have exciting futures within it. My company has just completed a study on the supply chain patterns taking shape in the region, and we’ve noticed that Australian, EU and US corporates are diversifying away from having all their eggs in China’s basket.
ASEAN is the prime beneficiary of that shift.
A number of countries in the bloc already have free-trade agreements (FTAs) with the US – and in our view, amid rising suspicions over China’s trade-war stance, corporate America is set to double down on getting behind that tariff wall, diversifying its labour arbitrage and heavily investing in the ASEAN market.
At the same time, Europe is increasingly keen on an EU-ASEAN FTA. Within Asia itself, corporates in Japan and Korea are also gravitating away from China and towards the ASEAN bloc.
So, which ASEAN trends should corporate treasurers monitor going forward?
First of all, it will be vital to assess how national markets are recovering in a secular way, and what that tells you about your own firm’s positioning: where do you want to be that you may not be right now?
It’s important to bear in mind that ASEAN doesn’t yet function as one cohesive region in its own right – so a lot of this monitoring will be country specific.
For example, there’s a widely expected political transition coming up in Indonesia that will be worth keeping a close eye on. What sort of financial reforms will flow from that? And what similar developments are under way in other ASEAN nations?
While each country is its own beast, there are also pan-ASEAN trends to track: could we see further regulatory harmonisation around banking licences and other, key triggers that would unlock more liquidity across the region?
Cross-border fintech is a great example of a sector that could benefit from such reforms. In addition, look out for any improvements around labour mobility and recognition of educational certificates.
These are all potential points of deeper, pragmatic integration that will enable ASEAN to take on more of a unified, regional feel and become a whole greater than the sum of its parts.
Parag Khanna is founder and managing partner of strategic advisory firm FutureMap, and author of MOVE: The Forces Uprooting Us (Scribner, 2021)
This article was taken from the Issue 3 2021 edition of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership
