SINGAPORE -- Japan, India and Singapore are poised to be winners in Asia as Chinese markets continue to be challenged by geopolitical risks, according to a report published last week by research and analysis outfit the Economist Intelligence Unit.
The report assessed prospects for Asian financial hubs amid mounting challenges in international markets as trade disputes between the U.S. and China drag on, while Chinese authorities tighten their grip on Hong Kong.
Amid the global uncertainty, many investors "look to hedge increasing risks in China" by broadening their portfolios to other promising Asian markets, the report highlighted, spurring the rise of financial centers on the receiving end of repositioned capital.
"While geopolitical factors will continue to pose challenges for China and Hong Kong, we believe that capital markets in Japan and India will continue to thrive over the next few years," the EIU report said. "Moreover, Singapore will mop up much of the financial business that is leaving Hong Kong."
Hong Kong has borne the weight of China's increasing oversight. In March, a sweeping law was passed allowing authorities detain and punish anyone found to have the "intent" to damage "national security" -- an extension of legislation Beijing imposed on the financial hub in June 2020 covering treason and insurrection.
"Singapore has solidified its position as an international financial center, benefiting from China's crackdown on the rival business hub of Hong Kong," the report noted. "Record amounts of private wealth and capital have flowed into the city-state, owing to its stability and business-friendly, low-tax market regime."
The report assessed that Hong Kong's "standing has been diminished" by China's actions, as well as the mainland's protracted trade war with the U.S., leading to an "exodus of foreign investments and financial experts."
It added that China's economic woes, fueled by a downturn in real estate and technology, have further undermined confidence in Hong Kong, with the amount of money raised from initial public offerings in the city at a 20-year low.
While Singapore is set to benefit from a pivot away from its rival Chinese hub, the report highlighted that the city-state has its own headwinds, despite its growing pool of international wealth.
"The performance of Singapore's stock exchange has paled in comparison to the success enjoyed by its private markets," the report said. "IPO activity is likely to remain subdued in the second half of 2024."
The EIU assessed that high-growth companies backed by private equity and venture capital may hesitate to go public in a high interest-rate environment, with SGX delistings "frequently" outnumbering listings. The report pointed out that last year, just six companies launched IPOs on the bourse's main board.
Meanwhile, Japan and India may also be buoyed by regional shifts away from China. The EIU noted that in Japan, a sound regulatory framework, well-capitalized commercial banks, and low risks to financial stability are a draw for investors.
In India, the report highlighted that the South Asian country's stock exchanges emerged as global leaders in IPOs last year, with a total of 220 public issues launched, raising $6.9 billion.
"In India, both the Sensex and Nifty 50 indexes rose over 18% by 2023-end," the EIU noted. "India's economic growth, driven by strong manufacturing activity and consumer spending, bolstered market performance."
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