Why it’s been a bad nine months to be a banker in Hong Kong or Singapore

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If you work in Asian investment banking, you may not have enjoyed the past nine months terribly much. US-China trade tensions have worsened, Chinese economic growth has slowed, and Hong Kong is on the brink of a recession as anti-government protests sweep the city.

Perhaps worse still for investment bankers in Hong Kong and Singapore, the value of Asia (ex-Japan) M&A and ECM deals have fallen substantially year-on-year, according to new figures from data provider Refinitiv. Asian M&A volumes for the first nine months of 2019 were down 21% to $539.3bn, while ECM has slumped 20% to $155.5bn compared with the same period last year.

There’s discouraging news for coverage bankers, too. Of the 12 industries tracked by Refinitiv year-on-year, only consumer staples experienced an uptick in nine-month deal volumes for ex-Japan Asia. Previously buoyant sectors for bankers in Asia are among those to have suffered the biggest declines. Healthcare and media/entertainment – both high-growth industries in China in recent years – fell 27% and 36%, respectively.

Not all investment bankers in Asia have had a bad time if it so far this year. DCM deal volumes rose 36% in the region compared with 2018 to reach $2,051.3bn, according to the year-to-date Refinitiv numbers. About 75% of this ($1,536.9bn) came from China, where volumes were up by 48%.   

Therein lies the rub, however. As China dominates DCM deals in Asia, mainland banks – with their close relationships to Chinese corporates – are the ones cashing in. CITIC leads the pack in Dealogic’s new league table for Asia (ex-Japan) DCM revenue by bank for the year to end-September. China Securities and Haitong Securities finish second and third, respectively, for DCM, while the best-placed global bank is HSBC in seventh.

But while Chinese banks have long undercut the underwriting fees of Western banks, they are now taking the practice to a whole new level as the market becomes increasingly competitive. The average charge for selling Chinese corporate bonds in 2007 was typically 1% or more of the deal size, according to Bloomberg. Last year it dropped to just 0.44%, and many deals paid 0.1% or less. While DCM jobs at Chinese banks may bring you plenty of deals to work on, they won’t necessarily pay you any better than those at Western firms.

Image credit: tuaindeed, Getty

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