Growth economies take centre stage in new financial world order, survey says

The results of the seventh edition of the survey suggest these growth regions have now ‘truly emerged’ and will be the source of much of the financial growth in the coming years.

They are no longer just investment destinations for mature economies, but are also now capable of raising their own capital, potentially bypassing the established world financial centres, respondents suggest.

This is a trend backed by the series of western companies who have sought to raise capital on Asian stock exchanges, including Hong Kong and Singapore, in recent months, said Norton Rose.

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Asia is identified as the primary business driver in the short, medium and long-term. Latin America is also highlighted as a particularly strong short-term opportunity, with the Middle East and Africa standing out as key markets in the medium and long-term respectively.

“These findings show a shift in the financial landscape. Financial institutions are no longer talking about the potential of places such as China and India. They now fundamentally depend on these markets as sources of business and of capital. There’s a genuine recognition that, in the mid and long-term, Latin America and Africa will join Asia as the real drivers of financial activity,” said James Bateson, Partner and Head of Financial Institutions at Norton Rose.

“What began as a trend before the global financial crisis hit has become cemented in the post-Lehman Brothers world. Previously, we talked about the importance of growth economies. The results of our research show that some of those economies have well and truly emerged, and others aren’t far away from doing so. It’s these regions that will be the source of much of the financial growth we see in the coming years. The focus for the more established financial institutions should be on understanding how to play their own part in that growth,” he added.

The survey also highlighted the significant hurdles that stand in the way of businesses looking to play a part in the new financial order. The enforcement of legal rights, foreign ownership restrictions and political instability all remain challenges for growth economies and businesses, said Norton Rose.

According to the survey of 246 respondents from financial institutions’ professionals around the world the enforcement of legal rights in growth markets is a major concern. Participants particularly felt this is the case in Africa, 62%, Central and Eastern Europe, 56%, the Middle East, 47%, and South Asia, 60%.

Similarly, foreign ownership restrictions are highlighted as major barriers to doing business in South Asia (63%) and the Middle East (42%).

Political instability has emerged as a primary concern to financial institutions, most notably in connection with Africa (70%), and the Middle East (62%).

42% of survey participants believe the global financial crisis has created more opportunities than problems. This figure rises to 52% in Australia and 64% in Asia Pacific.

Global regulatory standards, as proposed by the G20, are unachievable, according to 70% of the survey’s participants. Whilst 65% reported that their boardrooms have become more focused on risk procedures since 2008.

“Respondents were also acutely attuned to the flow of capital between growth markets and understand that the traditional financial centres such as New York and London may now have a different role to play in this arena,” said Norton Rose.