Asset Finance International

Connaught was recently asked by a world renowned Online Finance Magazine, Asset Finance International to contribute to their “Asia Pacific Country Report”.

Paul Errington, the CEO of Connaught based in Hong Kong, writes numerous industry articles on project finance and equipment finance for the Asian region.

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Asset finance trends in Asia Pacific

Local and global political winds are blowing through the finance markets of the Asia Pacific region. The repercussions of the Brexit vote followed by the election of Donal Trump have the potential to impact the economies in the region, while escalating tensions between the United States and North Korea add troubling uncertainty.

The two biggest economies in the region, China and India, appear to have the size and momentum to withstand whatever happens on the world stage, and both hold enticing prospects for asset finance companies.

“Both economies are showing political support through tax breaks and economic zones that will assist asset finance growth,” said Paul Errington, chief executive officer of Connaught Finance Investments, based in Hong Kong.

While the decision of the US to end its involvement in the Asia Pacific Trade Agreement at the start of 2017 may jeopardise smaller economies, the impact on China appears limited.

“China already has the Regional Economic Partnership, which can easily replace the USA based agreement and attract stronger regional trade,” said Errington.

He sees the political stage as having the greatest impact on growth in the region, with economies adjusting to new elections over the last three years in Hong Kong, Philippines, Sri Lanka, Myanmar, Thailand, Laos and Nepal.

“Political risk is always a factor in any economy and some far more than others,” said Errington. “In the region the Maldives and Myanmar are probably the highest risk of economic implosion through political machinations.”

These, though, are tiny economies compared to some of their neighbours, and investors would be wise to view Asia-Pacific as a hugely diverse region, where a broadbrush approach is in danger of missing significant local differences in critical measures like per capita income and the penetration of connected devices.

Connaught has divided the region into tiers, ranked one to six, grouping countries according to how established each national asset finance market is, as well as factors such as size by GDP, GDP growth, population, industry growth and political risk (see table 1).

With an umbrella view of the region, the Asian Development Bank forecasts GDP growth for Asia Pacific of 5.7% in both 2017 and 2018, as controlled growth in China is balanced by more dynamic growth elsewhere.

“Growth is picking up in 30 of the 45 economies in developing Asia, supported by higher external demand and rebounding global commodity prices,” said the ADB.

The bank anticipates authorities in China maintaining financial and fiscal stability as the country rebalances its economy from industry to services, with domestic consumption driving growth. This in turn will reduce China’s reliance on exports.

But it is the economic development of India that excites so many experts. Measures of GDP per capita, oil demand and even the flourishing new car market remind specialists of China a decade ago, and if India can follow a similar economic trajectory, the Asia Pacific region will have two titans of the global business world.

“Government deregulation and reform of taxes on goods and services, among other areas, should improve confidence and thus business investment and growth prospects [in India],” said the ADB. “Growth is expected to edge up to 7.4% in 2017 and 7.6% in 2018.