In March 27, 2017, the Global Financial Centres Index (GFCI) ranked London, New York, Singapore, Hong Kong and Tokyo as the world’s top five financial centres, assessing them for business environment, financial sector development, infrastructure factors, human capital, and reputation and general factors.
Asia-Pacific financial centres in the top 20 include Singapore, Hong Kong, Tokyo, Sydney, Shanghai, Osaka and Beijing, and 21 of the 88-strong GFCI list are from Asia-Pacific. Leading Asian financial centres rose significantly while western European ones remained volatile. Singapore gained at the expense of New York, while Beijing jumped 10 places.
How will major global forces and trends such as Brexit, the new US administration, increasing protectionism and digitisation affect Asia’s financial centres? In the short term, the situation is becoming increasingly tense. Political, security and major social upheavals undermine investor sentiment and unsettle financial centres despite improvements and gains from trade agreements, strong intra-Asia business environment and other key areas.
North Asia is particularly exposed to higher political and security risks. If the security threat escalates to armed conflict on the Korean Peninsula, this will greatly undermine South Korea and, to a lesser extent, Japan.
Meanwhile, India is contending with an unresolved border dispute with China, as well as the latter’s strategic ties to Pakistan. If the US engages in an economic stand-off and sanctions with world powers such as China, Chinese financial centres will be seriously affected.
While south-east Asia centres are suffering fewer similar risks, they do face terrorism, insurgency and transnational crime as well as ongoing maritime disputes with China, which is trying to secure territorial and maritime claims in the Yellow, East and South China seas. Besides China, the Spratly Islands are claimed by Malaysia, the Philippines, Vietnam and Taiwan. If confrontation involved Japan in the East China Sea or the Philippines in the South China Sea, the US would be obliged to consider military action under defence treaties.
Brighter prospects in Asia include rising economic growth, market liquidity and financial technology development, improving ICT and transport infrastructure, as well as increasing workforce education and skills. These factors underpin the longer term ability of the financial sector in Asia to ride out any current – or brewing – storms.
Lawrence Yeo is CEO of AsiaBIZ Strategy, a Singapore-based consultancy that provides Asia market research and investment/trade promotion services.