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Asia’s Financial Connection with the World

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As economies in East Asia and the Pacific (EAP) have developed, they have also become important in international financial transactions, both as sources and destinations of cross-border bank lending, foreign direct investment (FDI), and portfolio investments. But, as we document in a new paper (Didier, Llovet, and Schmukler 2017), the composition of these financial connections has been changing in recent years on at least two fronts: (i) the partners with which EAP countries interact, and (ii) the type of financial transactions conducted.

Traditionally, economies in the North (the Group of 7 countries, excluding Japan, and 15 Western European economies) have been the most important counterparts of the EAP’s inter-regional financial transactions. Although economies in the North still capture the bulk of the region’s inward and outward investments, the EAP’s connectivity with the South (non-EAP and non-North economies) has grown relatively faster and has become more relevant for the EAP. For example, during 2003–2014, investments to and from the South grew at an annual average rate of 23% for portfolio investments, 30% for syndicated loans, 86% for mergers and acquisitions, and 9% for greenfield investments. In contrast, cross-border investments involving North economies grew at an annual average rate of 10% for portfolio investments, 14% for syndicated loans, and 17% for mergers and acquisitions; and decreased at a rate of 3% in the case of greenfield investments. The rising importance of the South for the EAP can be traced to expansions not only in the value of financial connections (the intensive margin) but also in the number of active connections (the extensive margin).

EAP countries also have strong connections among themselves. That is, EAP economies are important sources and destinations for intra-EAP cross-border financial investments. Although EAP economies are more financially integrated with global markets than with regional ones, intra-regional investments are actually larger than those with the South, and, in the case of FDI, they are as large as those with the North. Moreover, the EAP stands as the most regionally integrated region in both the intensive and extensive margins when compared to Latin America and the Caribbean, Europe and Central Asia, South Asia, Sub-Saharan Africa, and the Middle East and North Africa.

Another notable feature of the EAP’s international financial integration is the differences in how it connects with different types of countries. EAP economies are relatively more connected intra-regionally and with the South via FDI, whereas they are more connected with the North in arm’s length investments (portfolio investments and syndicated loans). These existing differences in financial integration patterns across investment types can be related to the relatively less developed financial markets in the EAP and the South vis-à-vis those in the North.

Differences in the degree of financial and economic development can also help explain the heterogeneous financial integration patterns across EAP economies. The more developed EAP economies (as measured by their gross domestic product per capita) integrate in a way that is similar to that of the North (having a larger role in the EAP’s arm’s length investments), whereas less developed EAP economies integrate similarly to economies in the South (having a larger participation in the EAP’s FDI financing). For example, during 2003–2014, developed EAP economies accounted on average for 92% of the EAP’s inter-regional syndicated loans, whereas this share was only 47% for greenfield investments. The rest was captured by the less developed EAP economies. Similarly, the more developed EAP economies accounted for 71% of the EAP’s intra-regional portfolio investments but only 49% of intra-regional greenfield investments.

The recent trends come with benefits but also possible risks. On the one hand, the EAP can benefit from greater financial diversification, which reduces the concentration and dependence on North economies. Moreover, as far as economies in the region are more familiar with the institutions and cultures of other EAP economies, greater regionalization can foster financial inclusion by serving smaller and less informationally transparent segments. On the other hand, the EAP could also bring imported volatility from the newly connected economies. In addition, increasing regionalization can imply a higher exposure of an economy to shocks originating within the region and a faster spread of foreign shocks once they hit an economy in the region.

Furthermore, to the extent that financial institutions in the South and the EAP are less tightly regulated than those in the North, the latest developments can negatively affect the stability of the overall financial system. Therefore, a call for more intensive cross-border cooperation would be desirable for global financial stability.

Differences across financial instruments suggest that as the EAP continues to grow and become richer, its patterns of financial integration will more closely resemble those of the North, with less relative emphasis on FDI and more on portfolio and bank investments. Although this type of arm’s length financing arises naturally in more developed countries and is a conduit for more sophisticated transactions, it can have an impact on financial stability as FDI is perceived to be more resilient when negative shocks occur.

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About the Author 

This article was written by , and  of Asian Pathways, blog of the Asian Development Bank Institute which was established in 1997 in Tokyo, Japan, to help build capacity, skills, and knowledge related to poverty reduction and other areas that support long-term growth and competitiveness in developing economies in the Asia-Pacific region.

Entrepreneurship

Women on Top in Tech – Daphne Ng, CEO of JEDTrade

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(Women on Top in Tech is a series about Women Founders, CEOs, and Leaders in technology. It aims to amplify and bring to the fore diversity in leadership in technology.)

Daphne Ng is the CEO of JEDTrade, a blockchain technology company focused on trade, supply chain, and financial inclusion projects in ASEAN. She is also the Scretary-General at ACCESS and Exco. of Singapore Fintech Association

What makes you do what you do?
I was introduced to blockchain technology in 2016 after I left my corporate banking career after 10 years. It was my mentor who first got me interested in this technology, which I then went on to delve further into, on its potential applications in the lending and trade finance space – domains where I came from.

How did you rise in the industry you are in?
Being in the space for 2 years and actively involved in the ecosystem, I was able to bring on the projects, network and a good degree of thought leadership in this vertical. Early on in the startup journey, our team faced many challenges. And to me, the key to rising above failures are two essential factors – resilience and support. While resilience is innate, I received a lot of help be it in terms of connections or advice. ‘Nobody succeeds without help’ rings very true for me.

Why did you take on this role/start this startup especially since this is perhaps a stretch or challenge for you (or viewed as one since you are not the usual leadership demographics)?
From the start, I focused on my domain expertise in trade finance and the application construct of how blockchain and DLT can be applied to these use cases. Also, my strategy from the start was to build a technology company made up of 80% tech and engineers, which is also our key competitive advantage today. At the end of the day, deliverables are about strategy and execution, which includes building and leading an ‘A’ team.

Do you have a mentor that you look up to in your industries or did you look for one or how did that work?
I have many mentors, which includes our company advisors (all of whom are well-known in this industry) and mostly informal mentors I meet via my connections, and on various occasions and circumstances. Creating opportunities also means putting myself in the right place, at the right time. And in my case, these were mostly organic and genuine friendships formed from the initial connection.

How did you make a match if you and how did you end up being mentored by him?
To me, a match in values is very important. It also takes humility to ask for help and be willing to listen to advice, which is important in order for mentorships to be successful – be it formal or informal.

Now as a leader how do you spot, develop, keep, grow and support your talent?
I love this question! I am passionate about building strong teams and helping my people grow. I abide by the 3Rs when identifying talents: resourcefulness, resilience and right values. And then I invest in the ‘potential’ and this means giving them room to lead, make decisions and take risks.

Do you consciously or unconsciously support diversity and why?
My support of diverse talents, skillsets and characters can be seen in the make-up of our core team – all helming specific roles and each bringing their own value to the table. We need the sum of all parts to build a great company.

What is your take on what it takes to be a great leader in your industry and as a general rule of thumb?
Great leaders emerge in times of failures and challenges, never abandoning the team, and always putting the team’s interests before her own. And I consciously live by these mottos every day.

Advice for others?
My advice to other entrepreneurs: be resolute and dare to be different. If you are going to follow others, then you will end up on the same path as them. No right or wrong; but I would rather chart my own path. This June, we are officially launching our blockchain project, Jupiter Chain (www.jupiterchain.tech), which have garnered much interest in the industry, even before we made it public. We believe this project is the epitome of marrying innovation with practical implementation, and we want to be the first to truly operationalize blockchain for our ecosystem projects in this region.


If you’d like to get in touch with Daphne Ng, please feel free to reach out to her on LinkedIn: https://www.linkedin.com/in/daphne-ng-%E9%BB%84%E7%91%9E%E7%8E%B2/

To learn more about JEDTrade, please click here.

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Callum Connects

Jace Koh, Founder of U Ventures

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Jace Koh believes cash flow is the lifeblood of your business. Understanding it will enhance your ability to run and manage your business.

What’s your story?
My name is Jace Koh and I am the Founder of U Ventures. I’ve always been inclined towards investment and entrepreneurship. I’ve played a hand in starting businesses across these industries – professional services, cloud integration, software and music. I believe that succeeding in business is tough, but that’s what makes the rewards even sweeter.

What excites you most about your industry?
Everything excites me. These are my beliefs:

  • Why is accounting important?
    The accounting department is the heart. Cash flow is like blood stream, it pumps blood to various parts of the body like cash flow is pumped to various departments and/or functions in a business. It is vital to the life and death of the business.
  • Is accounting boring?
    Accountants are artists too. They paint the numbers the way they want them to be.
  • What makes a good accountant?
    A good accountant can tell you a story about the business by looking at the numbers.
  • Why is budgeting and projection important?
    Accountants are like fortune tellers, they can predict the numbers and if you wish to understand your business and make informed decisions, feel free to speak to our friendly consultants to secure a meeting.

What’s your connection to Asia?
I was born and raised in Singapore, and here’s where I want to be.

Favourite city in Asia for business and why?
Singapore is my favourite city. We have great legal systems in place, good security and people with integrity. Most importantly, we have a government that fosters a good environment for doing business. I recently went for a cultural exchange programme in Hong Kong to learn more about their startups. I found out that the Hong Kong government generally only supports local business owners in terms of grants. They’ve recently been more lenient and changed the eligibility to include all businesses that have at least 50% local shareholding. But comparing that to Singapore, the government only requires a 30% local shareholding to obtain government support. In the early days of starting a business, all the support you can get is precious. It’s great that we have a government that understands that.

What’s the best piece of advice you ever received?
The best time ever to plant a tree was 10 years ago as the tree would have grown so big to provide you with shelter and all. When is the next best time to plant a tree? It is today. Because in 10 years time, the tree would have grown big enough to provide you shelter and all.

Who inspires you?
Jack Ma. His journey to success is one of the most inspiring as it proves that with determination and great foresight, even the poorest can turn their lives around. I personally relate to his story a lot, and this is my favourite quote from him, “If you don’t give up, you still have a chance. Giving up is the greatest failure.”

What have you just learnt recently that blew you away?
I’ve faced multiple rejections throughout my business journey, and recently came across a fact on Jack Ma about how he was once rejected for 32 different jobs. It resonated very deeply and taught me the importance of tenacity, especially during tough times.

If you had your time again, what would you do differently?
Nothing. I live a life with no regrets. Everything I do, regardless of whether it is right or wrong, happy or sad, and regardless of outcome, it’s a lesson with something to take away.

How do you unwind?
I love to pamper myself through retail therapy and going for spas. I also make a conscious effort to take time off work to have a break outside to unwind as well as to uncloud my mind. This moment of reflection from time to time helps me see more clearly on how I can improve myself.

Favourite Asian destination for relaxation? Why?
Taiwan! Good food with no language barriers and the people are great!

Everyone in business should read this book:
I don’t really read books. Mostly, I learn from my daily life and interactions with hundreds of other business owners. To me, people tell the most interesting stories.

Shameless plug for your business:
We’re not just corporate secretaries, we’re “business doctors.”
U Ventures is a Xero certified advisory firm that goes beyond traditional accounting services to provide solutions for your business. You can reach us on our website: http://uventures.com.sg/

How can people connect with you?
Converse to connect. You can reach me via email at [email protected] or alternatively, on LinkedIn here: https://www.linkedin.com/in/jacekoh/

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started,
built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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