Asia and the Middle East lead a global capital shift

Asia and the Middle East are emerging as pivotal hubs in the global flow of capital, according to HSBC’s New Networks of Capital report (pdf). Financial assets in Asia Pacific — excluding Japan — are projected to grow at an annual rate of 8% from 2023 to 2028. Assets in the Middle East and Africa are expected to expand even faster, at 9% annually. HSBC’s new report takes a deep dive into how Asia and the Middle East are emerging as key centers of international capital flows — and the opportunity that their new position offers.

The report highlights six trends deepening financial ties between the two regions, including a growing proportion of investment allocated to projects within the two regions, significant efforts to liberalize capital markets, higher weightings in global stock indices, the emergence of regional asset managers as regional wealth pools grow, more dynamic private markets in both regions, and a greater number of cross-border transactions in local currencies. These shifts have the potential to see FDI flows between the two regions exceed some USD 270 bn over the next ten years — nearly double the amount of flows recorded in the previous decade, according to the report.

The GCC states are anchoring the transformation: Asian companies are increasingly participating in engineering, procurement, and construction investments in the GCC states, with the combined investment positions of China and India in Saudi Arabia, the UAE, and Qatar rising 145% between 2018 and 2022 to USD 26.6 bn. The Gulf’s sovereign wealth funds are in turn ramping up strategic investments in Asia, targeting sectors including advanced technologies to support their economic diversification plans. Meanwhile, Asian investors “regularly account for more than 20% of allocations on major international debt sales from the Gulf,” the report reads, a percentage that has remained steady despite a strong growth in volumes since 2016.

These shifts are opening up new opportunities for corporations and investors. Enhanced financial infrastructure between the two regions is fostering deeper liquidity and opening new investment channels for cross-border financial flows. Stronger investment links should also facilitate access to capital through strategic partnerships and equity investments, with recent M&A activity between the two regions an encouraging sign. Finally, the Gulf’s massive boom in infrastructure projects offers Asian investors and contractors a slew of new business opportunities, with Dubai ranking number one in global greenfield FDI projects attraction for the third year in a row.

MARKETS THIS MORNING-

Asian markets are a mixed bag in early trading this morning, with Korea’s Kospi leading the pack in the green at 2.2%, followed by Hong Kong’s Hang Seng at 0.7% and the mainland’s Shanghai at 0.6%. Japan’s Nikkei is starting the day in the red at -0.7%

THE CLOSING BELL-

The ADX rose 0.5% last Friday on turnover of AED 1.1 bn. The index is down 1.4% YTD.

In the green: Hily Holding (+15%), Abu Dhabi Ship Building Co. (+7.9%) and Adnoc Gas (+2.1%).

In the red: Abu Dhabi National Takaful Co. (-10%), Ras Al Khaimah Co. for White Cement and Construction Materials (-3.3%) and Alpha Dhabi Holding (-2.5%).

Over on the DFM, the index rose 0.2% on turnover of AED 491.9 mn. Meanwhile, Nasdaq Dubai closed down 0.1%.