This new phase, which comes as Japan is growing at one of its fastest rates in more than a decade, will be driven by the private sector but will be facilitated by governments in the region, MAS Managing Director Heng Swee Keat said in a speech yesterday at an Asia Equity Forum arranged by Nomura.
ôAs trade and investment links between Japan and Asia intensify, these will extend to new destinations, especially Vietnam and India,ö he notes. ôSecond, JapanÆs manufacturing investments in the region have and will continue to move up the value chain; and third, the partnership between Japan and Asia has broadened beyond manufacturing to new areas in services, especially in financial services and asset management.ö
Japanese companies such as leading auto parts producer Denso and power equipment manufacturer Meiden, are also using Singapore as a base to tap into the Middle East, he added.
As part of the deepening relationship, Japan is expected to implement a Comprehensive Economic Partnership Agreement with the ASEAN 6 by 2007 and the newer members by 2012, which will build on its existing Free Trade Agreement with the whole of ASEAN.
Having initially treated ASEAN as a place to set up low-cost manufacturing plants, Japanese firms are increasingly transferring higher value-added production and even entire product lines to the region. One example is ToyotaÆs aim to increase the ASEAN content of its vehicles to 100%.
Japanese manufacturers are also establishing more R&D facilities in the region and have broadened their investments to operational headquarters and services such as information technology and logistics.
ôASEAN with its more than 560 million people offers a growing consumer market, while the abundant raw materials, labour and high quality of production facilities provide Japanese investors with an important avenue for risk diversification,ö Heng says.
With regard to the latter, Heng noted the growth of SingaporeÆs REIT market since its launch in July 2002 to 11 listed real estate investment trusts at present with a combined market capitalisation of more than $8 billion (compared with a total $40 billion in Asia). The city-state also continues to offer innovative products with the last few months having seen the listing of its first infrastructure fund as well as its first shipping trust.
A global depository receipt (GDR) programme recently introduced by the Singapore Exchange also gives Asian corporates access to global funds in Singapore, he comments.
According to MASÆ latest annual survey of the asset management industry, total assets under management in Singapore recorded a fifth year of double-digit growth in 2005, expanding by 26% to S$720 billion.
Over 80% of those assets are sourced outside of Singapore, while the proportion of funds invested in Asia also increased and accounted for 53% of the total AUM, Heng said as he revealed the results of the survey at the Nomura forum.
The growth is being underpinned by several key trends including the rising wealth accumulation in Asia, the strong global investor interest in the region's growth prospects, increasing pace of pension reform in Asia and a diversification need of investors in other parts of the world, including the Middle East.
ôOn the Middle East, I am pleased to highlight that our fund managers registered a 30% increase in funds sourced from the Middle East in 2005 and following changes that we have made recently to our regulatory and tax regimes, financial institutions in Singapore are increasing their range of financial products catering to Middle East investors, including Shari'ah compliant products,ö he says.
About 80 new asset management companies were set up in Singapore last year, bringing the total number of asset managers to 384.
The increased integration between Japan and the rest of Asia over the past four to five years, following significant structural reforms in both regions, is evidenced by the fact that Japanese imports from East Asia grew at an average rate of 12% per year during that period, compared to 8% annual growth during the 1990s.
East Asia has also become a more important market for Japanese goods and currently accounts for 47% of the countryÆs total exports, up from 40% five years ago, according to Heng.
In the 2004/2005 fiscal year, Foreign Direct Investment (FDI) from Japan into East Asia surged 46% to the highest level since the Asian financial crisis. Japanese FDI into ASEAN alone rose by 17% to $2.7 billion.
According to a 2005 survey by JapanÆs Ministry of Economy, Trade and Industry, Japanese operations in Indonesia, Malaysia, Thailand and the Philippines accounted for almost 50% of Japanese corporate profit growth in Asia ex-Japan, while China accounted for 29%.
The same survey revealed that Japanese corporates have continued to make large capital investments into these four ASEAN economies, even as investments into China expanded rapidly.
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