In hard times, global banks lean on Asia

With the US economy flatlining, Asia appears to be the silver lining in increasingly gloomy times. Without continued strong growth from Asian operations, the financial results of some global financial institutions would have been dismal.

Take for example, HSBC - a bank with deep roots in China. More than half of HSBC's profit in 2007 came from Asia-Pacific, up from 40% in 2006. North America contributed less than 1% to the bank's profit, a drastic turnaround from its 21% share in 2006.

Another British bank, Standard Chartered, drew much of its profit from Asia. The bank's 27% profit growth in 2007 was driven largely by strong performance in markets such as Hong Kong, Singapore, China, Malaysia and India. In contrast, Standard Chartered's profit growth in the US, Europe and the UK fell last year.

Standard Chartered Bank chairman Mervyn Davies said while growth in Asia will soften because of the US economic woes, the region is now more insulated than it was before because of increased domestic demand, inter-Asian trade, China's economic resurgence and strong policy responses from financial authorities.

If Asia delivered for Standard Chartered and HSBC's bottom line, expect other companies to redraft their business strategies to be more Asia-heavy. Companies hobbled by difficulties and even losses in North America could lean on Asia to weather financial turbulence.

Here, the party is still swinging, while in America the music has pretty much faded. Take another example - Deutsche Bank said it is moving its global head of equity trading, Noreddine Sebti, from New York to Hong Kong.

Wealth is definitely not lacking in Hong Kong. Lines outside Louis Vuitton in Hong Kong's Kowloon district over the Chinese Lunar New Year unabashedly proclaimed Chinese spending power.

In the capital markets, China and India are the world's top markets for initial public offerings so far this year, says Thomson Financial. In the middle of a turbulent market in March, China Railway Construction Corporation raised US$5.4bn in an IPO in Hong Kong and Shanghai, its share price rising 12% on its first trading day.

While the US suffers a liquidity crunch, Hong Kong is giving away money. Flushed with a US$15bn budget surplus, the government is slashing taxes and giving subsidies to residents, and spending millions on infrastructure such as a US$5bn bridge connecting Hong Kong's Lantau Island to mainland China via Macau.

Those moves could help Hong Kong residents bear the brunt of rising living costs and keep the economy humming. Financial Secretary John Tsang warned residents of a global economic slowdown coupled with inflation.

Economic growth is expected to slow down to 4 to 5% this year, from 6.3% last year. A good chunk of the budget surplus came from taxes from financial and property transactions - sectors that enjoyed double-digit growth last year but that may not be replicated in 2008.

Beyond inflation and GDP, unforeseen cataclysmic events that could make a global slowdown hurt even more - another 9/11 event or a pandemic - are nagging financial authorities. Hong Kong is quietly remembering five years after the SARS epidemic that wreaked havoc on the economy and killed 300 people.

Those fears of an unknown infectious disease were rekindled in March after three children died and many others fell ill with flu-like symptoms. Health authorities erred on the side of caution and hastily closed primary schools. That day, the Hang Seng index dropped nearly 5% - a jittery market made even more edgy.

The party may not yet be over in Asia, but there are fewer reasons to celebrate.

Heda Bayron is a Hong Kong-based journalist.

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