Managing excess liquidity in Asia can be a challenge but companies and banks are starting to rise to the occasion.
Finding ways to improve investment of excess liquidity as well as access to excess liquidity is always challenges in Asia. This is mainly because growth and opportunities are outpacing the facilities to support them. This was the topic of one session at The NeuGroup’s recent Asia Treasurers’ Peer Group in April. One of the key issues is that as balances in Asia accumulate, more members see their firms recognizing the need to do something.
Here are a few of the hurdles they face:
Regulated markets and tax structure impediments. While regulated markets pose challenges on their own in terms of having access to liquidity for utilization of investment, the situation is often compounded by the tax structure of entities in the region. In some cases the tax and legal entity structures are left over from an era when Asia did not represent the strategic growth engine for the company. The required overhaul can be a major undertaking and needs to be pushed at a senior level across functions from the business as well as finance side.
Global banks slow to catch up. For that same “not the engine” reason, global banks haven’t been quick to develop investment instruments in the markets where cash is building. This is starting to change as many global banks have opened their eyes to what is at stake with the success of their funds in China.
Getting cash in one place is a requirement to optimize investment. Part of the challenge to optimize excess liquidity investment is getting it all in the same place to invest. Here too banks can play a role in integrating liquidity management platforms with available investment instruments.
Asia offerings lacking. Given the opposing pressures of growing cash balances and regulatory and market constraints, compounded by the low interest environment, it will take herculean efforts to develop reasonable investment alternatives, particularly in China. In addition to the regulatory constraints, there simply isn’t the type of investment infrastructure (e.g. CP, longer term debt, government note, rating agencies and governing authorities such as the SEC) to which developed markets are accustomed. A concerted effort by global banks, local banks and MNC’s, both local and foreign, to gradually change the landscape will likely be what is necessary.