Global financial markets and economies are showing signs of stabilisation.

The year 2008 can best be described as one that most investment bankers would want to forget. With zero appetite for deals, huge reputable banks brought to their knees and equity markets collapsing, it was certainly a daunting period in the history of financial markets.

But with the dawn of 2009, hope began to emerge.

Global financial markets and economies are showing signs of stabilisation, as evidenced by the narrowing of interest rate spreads and the reduction in market volatility. Malaysia’s economic data are pleasantly pointing that way too.

Are times changing for the better?

Would it be too dangerous to have hopes for a better tomorrow?

“Late last year we were knee deep in the financial crisis. It was a tumultuous year. It was what we called the ‘lost year’ for banks. There was a tremendous amount of upheaval, and it was completely unprecedented,” says Maybank Investment Bank Bhd (MIBB) chief executive officer Mohammed Rashdan Yusof.

“Malaysia was affected, but we were much more robust because we had the balance sheet. This was seen in our dwindling capital market issuance. Right now, it’s the budding of the green shoots,” he adds.

Rashdan says that July 1 marks the beginning of MIBB’s financial year ending FY10. He sees more opportunities, especially since the securities market has perked up since April.

“With the worst over in the US, we see a much better year ahead. The debt market looks promising. There is a pick up in terms of interest and we anticipate a relatively busier year. We see a good pipeline of issuance coming into the debt market,” he says.

ECM Libra Investment Bank Bhd deputy chief executive officer Shahin Jammal also appears upbeat and sees more initial public offerings (IPOs) this year.

“A lot of banks are looking to launch a few IPOs, involving both foreign and local companies. One of the things that have been driving the interest to list companies now is the improvement in the equities market that we have seen of late. That as well as new capital market regulations announced by regulators recently,” he says.

Rashdan is especially excited about the new equity framework introduced by the regulators. He particularly sees potential in the introduction of the Special Purpose Acquisition Companies (SPAC) to promote and facilitate private equity activities, spur corporate transformation and encourage corporate mergers and transactions.

“We see huge appetite for mergers and acquisitions (M&A). The SPAC will also increase such activities. People are exceptionally hungry for that, especially now with valuations being exceptionally low,” says Rashdan.

Shahin sees more M&As, both across borders and domestically, as there is already an increase in activities.

“There are also opportunities for Malaysian companies to acquire assets abroad due to depressed economies globally. Hence, there are Malaysian companies currently on the lookout to acquire assets abroad,” says Shahin.

He adds that the loan syndications market has picked up, although the private debt securities market is still inactive due to greater focus on credit quality and highly rated papers.

“However, the Government has stepped up efforts to boost this market with the setting up of Danajamin, which will help to promote the market. I think the fixed-income market would come back strongly as well, going forward,” he says.

Rashdan sees a gross domestic product (GDP) contraction of 3.8% in 2009 and a modest GDP rebound of 4% next year.

He says a potential risk to be mindful of is what may happen in China and the United States should the governments there continue with their fiscal stimulus packages.

Rashdan sees pressure in 2010, as the degree of freedom for governments may be reduced. This is due to the “crowding out” effect, where too much investments can actually crowd out private sector debt, hence, the economy does not grow.

Nonetheless, he notes that the worst is definitely over and the global economies are on a recovery path.

“With unemployment in the US close to 10%, and with the US savings rate now rising, there is no longer the US consumer spending that the world has historically relied on. This is a structural change.

“Thus, the biggest promise lies with Asia and its strong balance sheet,” he says.

The focus moving forward

Rashdan says MIBB is aiming to create a name in the investment banking space with its growth driver coming from Indonesia.

“We’re now very aggressive and doing lots of ‘suitcase banking’. We’re starting from a low base and putting things in place. We’ve also gotten a new senior management team.

“On the research front, we want to take our research team to the next level, more so to increase our brand value. Eventually, we plan to have a foreign research team, for example, in Indonesia,” he says.

Rashdan is cautiously optimistic and thinks this may be a good time for locals as there are now opportunities to fill the void left by foreigners.

“With many of the foreign banks pulling out and downsizing due to the financial crisis, their ability to serve South-East Asian customers has been truly diminished. This presents opportunities for us. Indonesia is screaming for this sort of IB (investment banking) service,” he says.

MIBB’s focus will be to increase its advisory clientele inside and outside Malaysia, strengthening its equities capabilities, and ensuring its brokerage services are provided in other markets.

“We need to venture out. Our market, with a population of only 27 million, is just not large enough. A major growth opportunity lies in Indonesia. That’s a real jewel. Despite the global crisis, Indonesia is still posting positive growth. It just needs to sort itself out politically,” he says.

Rashdan says that with the acquisition of Bank Internasional Indonesia, MIBB is now exporting its investment banking expertise to the republic.

“We want to participate in the securities and debt securities markets, as well as in the potential of wealth creation there. We also need to have a presence in Singapore, Hong Kong and the Philippines. Physically, we are already present in these markets.

“For now we are keeping our options open. We are also looking to grow in inorganic ways. We are talking to some partners,” he says.

On this note, Rashdan says MIBB is quickly building up its teams, aggressively hiring and looking for industry specialists.

“We especially see opportunities in Islamic financing. This is an area where we can truly be globally competitive,” he says.

Since ECM Libra is a lot smaller and also at a more infant growth stage, Shahin says it will continue to focus on certain sectors and products with emphasis on talent
Development.

“One of the key sectors that we are looking at, and would be a big push for us, is property, which has a lot of potential and would lead to a large pipeline of transactions.

“We are also looking at launching property funds. Another area would be the oil and gas sector and, to some extent, the plantation sector,” says Shahin.

“We are looking at equity market products, be they IPO, rights issue, raising money through the setting up funds, private equity funds, listed funds as well as structured financing,” he says.

Shahin sees Malaysian banks differentiating themselves, especially in the domestic scene, by creating more innovative financial instruments.

On the emergence of foreign IPOs, Shahin sees some activity, but sees them as a growth driver.

“There are a lot of steps taken to encourage foreign listings in Malaysia but in terms of valuations, historically we see valuations achieved in Hong Kong and Singapore are better.

“Malaysia may not be the number one destination for listings in the short term. It is also a question of market liquidity compared with other larger markets in Asia,” he says.

Rashdan says getting foreign IPOs could be a double-edged sword and it would be very selective.

“Yes, it will give the market more breadth and depth, but there are also risks to consider.

“These companies are physically so far away. It will be tough to conduct due diligence analysis. In the current climate, anything can happen. The fundamentals of a company itself need to be thoroughly researched,” he says.

However, in some product areas, Shahin thinks Malaysia still has a long way to go, for example, structured products and derivatives.