Speech By Mr Tharman Shanmugaratnam, Minister for Education and Second Minister for Finance, at The Opening Ceremony of New Office for SG Private Banking In Singapore, Monday, 10 Sep 2007 at 10 am10 Sep 2007
Mr Pierre Buhler,
French Ambassador to Singapore
Mr Steve Forbes,
President & CEO of Forbes
Mr Philippe Collas,
CEO of Global Investment Management Services, SG
Mr Daniel Truchi,
Global CEO of SG Private Banking
Mr Pierre Baer,
CEO of SG Private Banking (Singapore)
It brings me great pleasure to join you here at the opening ceremony of the new office for SG Private Banking.
SG's presence in Asia and Singapore
2. SG Private Banking has had a long history of over one hundred years of experience in wealth management. Since its establishment in Asia in 1998, I understand it has achieved an average annual growth of 30% in AUM. I'm happy that Singapore continues to play an important role for SG Private Banking, serving as its regional hub in Asia Pacific.
Why Private Banking is Growing
3. SG's growth in Singapore, like that of the private banking industry at large, reflects a few fundamentals. First and foremost is the emergence of Asia as the big story in the global economy. It is a story still in the making. China and India have taken off, but are still economies in transformation, with the larger part of their populations still engaged in low-productivity agricultural activity. ASEAN too shows promise of continuing to grow faster than other emerging regions over the medium to long term. Global investors have good reason to believe Asia will continue to outperform other regions for at least another two decades to come.
Impact of the US Subprime Crisis
4. The current turbulence in financial markets does not alter this basic story of an ascendant Asia. It introduces significant near term uncertainty, both for the markets and for economic growth, but it does not alter the picture of an increasingly dynamic and resilient Asia in the coming years and decades.
5. The developments in the last two months reflect how integrated global financial markets have become and how Asian markets, with the exception of China, are linked inextricably with the US and global markets. The reasons for the increased volatility in Asian markets appear to have little to do with the exposure of Asian institutions to the sub-prime problem. Asian banks and investors are generally believed to have limited exposure to US sub-prime, either directly or indirectly through hedge funds, special conduits, CDOs and contingent financing facilities. However, Asian markets have been affected by the general uncertainty surrounding the location of risk in global markets, itself a result of the general failure of markets in recent years to identify and price risk. Second, as liquidity dries up elsewhere, investors have in many instances sold Asian assets to raise cash.
6. Third, as the crisis moves beyond its initial phase, there is now the concern over the impact that a tightening market and falling asset values will have on consumer confidence and economic growth in the US.
7. To put the matter in perspective, the fallout in Asia has so far been limited. Asian markets have been volatile, but MSCI Asia ex-Japan is only down 1.6% since mid-July when the sub-prime problem erupted and is still up 24% on the year. Excluding China, the Asian markets are still up 22% since the start of the year, and 45% since the middle of last year. Likewise, the credit squeeze in the US and Europe has thus far not been evident in Asia. Credit bond spreads have widened, but the correction has been healthy and spreads remain below their historical levels. (Average credit spreads in Asia have recently risen by 100 basis points over US treasuries, to reach about 234 bps currently. But they remain well below the 400 bps seen over 2000-2003.) Bank lending too, which remains the main channel of intermediation in Asia, has not been tightened significantly.
8. The repricing of risk in financial markets is probably not over. There is also increased uncertainty in the near term outlook for the US economy, which could impact on the outlook in Asia. Economic forecasts for the US economy are being scaled down, compared to expectations just two months ago. It is too early to say what the economic impact on Asia will be. Should the US economy slow down sharply, Asia will certainly feel the drag.
9. However, there has been no downgrading Asia's economic prospects over the medium term, and no reason for any such downgrading. Asian producers will continue to move up the productivity ladder, and Asian consumers will increasingly provide the region with an independent engine for growth. Global investors will therefore continue to seek out higher returns in Asia. There is also every reason to expect the continued rapid growth of a sophisticated class of Asian investors who want to diversify globally, and into new asset classes like private equity. These fundamentals will continue to drive the private banking industry in Singapore, as a leading centre for the industry in Asia.
Greater Breadth and Depth of the Financial Markets in Singapore
10. Besides these positive economic fundamentals in Asia, the growth of private banking in Singapore has also reflected with the increased breadth and depth of our financial markets.
11. Besides Singapore's role as one of the top 4 Forex Centres in the world, we are playing a lead role in the trading of OTC commodity derivatives in Asia - particularly in energy and increasingly in metals. In 2006, approximately US$600 billion of OTC trades were done out of Singapore, accounting for 8% of global trades.
12. The Singapore exchange has also seen tremendous growth with a market capitalization of over S$720 billion, up 69% from 2005. Singapore is the largest REIT market in Asia ex-Japan with 17 listed REITs and a market capitalization of S$29 billion. We have also seen our first property trust this year.
13. The asset management industry has fared well too with total assets managed by Singapore-based asset managers reaching S$900 billion as at end 2006.
Singapore's High Regulatory Standards
14. The growth of financial activity in Singapore has been built on a strong reputation for integrity, rigorous supervision and strict enforcement. This high repute is of utmost importance to our financial centre and we guard it jealously. Singapore has always and will continue to be vigilant in its supervisory role, underpinned by high standards of financial regulation and strict supervision.
Cultivating and Attracting Talent for the Industry
15. But at the end of the day, success in the financial industry depends on people and expertise. To ensure Singapore's continued growth and competitiveness as an international financial centre, the MAS works closely with industry and government agencies to develop deeper pools of manpower with up to date knowledge and leading edge capabilities. We are making good progress in developing Singapore as a hub for financial training, education and research.
16. Besides developing a broad base of financial talent, it is critical that we meet the increasing demand for specialist skills. In partnership with the industry and our universities, we are deepening our specialist capabilities in fields such as economics, risk management, financial engineering and actuarial science, through targeted scholarship programmes, such as the Finance Scholarship Programme and the Doctorate Scholarship Programme. A number of financial institutions have also set up wealth management campuses in Singapore to train their staff for local and regional operations.
17. We also have to keep up our efforts to make Singapore the most congenial city in Asia to live and work in. Ac cording to the latest 2007 Mercer Quality of Living Survey, Singapore has been consistently voted as the Number One place to reside and work in Asia.
18. One Raffles Quay, or ORQ (as it is commonly referred to), is one of the forerunners of Singapore's efforts to position itself as a dynamic financial city. The financial buzz in this area will grow with the addition of Marina Bay Financial Centre in 2010, when Phase One of the project is scheduled to be completed. Other developments, such as the Marina Bay Sands Integrated Resort, the Singapore Flyer, the Marina Barrage and the Gardens by the Bay, would also help to build a beautiful and vibrant metropolis in Singapore.
19. It is exciting times ahead as we continue to build Singapore as a distinctive global city - steeped in Asian culture yet cosmopolitan in its outlook, and committed to global business. We look forward to further contributions by SG Private Banking to the development of the industry, and wish you every success here in Singapore and globally.