Asia Markets Afford Best Margins

As global investment banks focus their diminished bonus pool on their biggest growth regions, those focused on China and Southeast Asia should be the big winners. Rising markets and boisterous share issuance in the Asian-Pacific region have returned well for the bottom lines of Wall Street and elsewhere. As reported by the Wall Street Journal, total investment-banking revenue from the region excluding Japan rose 56% last year to $12.2 billion, increasing its total proportion of industry fee revenue to 17.4% from 12.8% in 2009, according to estimates from data provider Dealogic.

Further indication is augmented by the escalating competition over talent in the region too.  All totaled, this is good news for the region’s investment bankers during a time when associates in New York, London and Zürich are facing tough government scrutiny on compensation levels and/or where business has been noticeably slower.

“Most [Wall Street] firms were forced to scale back their bonus pools from earlier last year and as a result, year-end increases will be much more modest than originally thought,” said Alan Johnson, managing director of New York compensation consulting firm Johnson Associates. In addition, “the political and regulatory environment will continue to weigh on the sector in terms of pay magnitudes and design.”

All of the available research methods suggest Asian bankers who focus on deals, real estate and stock markets in China and South Asia are returning the biggest returns. Others in the global markets -- bond traders and bankers who provide services to the more sophisticated traders (erg: hedge funds) -- have seen smaller bonuses compared with last year amidst weak trading volume. Banks have reported that the overall number of individuals who qualify for bonuses has shrunk as well.

Bonuses can be considerable too. While numbers vary greatly from bank to bank, a regional head of equity capital markets, which focuses on initial public offerings and public stock placements, can earn $1 million to $3 million, in cash and stock. The cream is definitely rising to the top, as the polarization between performance is remarkably more noticeable.

An excitement of privatizations from Southeast Asia last year led to a multitude of record-breaking IPOs in the region. As reported by the WSJ, Malyasia’s $4.8 billion IPO from Petronas Chemicals Group in November of 2010 was the biggest ever, and the $3 billion IPO of Global Logistics Properties in Singapore ranked as the city-state’s biggest in years.

Southeast Asia investment-banking revenue as a proportion of global revenue rose to an estimated 2.3% last year from 1.9% in 2009, according to Dealogic estimates. Following a slow-moving global trend, the Real Estate sector was on fire due to a number of deals, including the GLP IPO as well as $718 million IPO of Singapore’s Mapletree Industrial Trust. This property report further indicates a general high margin trend for Asia markets. The implications seem clear in that Asia presents a profitable outlook in real estate as well as in other sectors, and the region also appears to be leading a general recovery - if a slow one.