What investors and banks in Asia do next matters most

ASIA-PACIFIC'S (Apac) markets - previously seen as somewhat tepid by regional investors - have in the recent years prior to the pandemic, been reshaped by an influx of new economy companies to the region's markets. While Covid-19 dampened this activity for a period, Asia is emerging from the pandemic better than any other region. Investors, banks and companies alike are also now increasingly inclined to invest in advanced technologies themselves, helping create a virtuous circle powering the renewed vibrancy of Asia's markets.

Asia's capital markets have been an increasingly optimistic space as of late. In the first few months of 2021, initial public offerings (IPOs) in Asia have raised the most funds since 2011, bringing in US$23.4 billion in new funds for regional technology, e-commerce, and digital businesses.

Regardless of politics, global trends are bringing in constant listings to Hong Kong and mainland China, while Japan, India and South-east Asia are also seeing many exciting new firms come to market.

Homegrown startup firms, the fuel of the future for markets, are making their impact globally - Singapore's Tookitaki, for one, has become a leader in artificial intelligence (AI) technologies for anti-money laundering in the never-ending effort to ensure total compliance at global scale.

As more companies list publicly, retail fund flows are continuing to surge. Apac's active long-term mutual funds garnered net inflows of US$17 billion in January 2021, while passive mutual funds and exchange-traded funds (ETFs) also saw positive net flows.

This is partially attributed to rising interest in important themes like environmental, social, and corporate governance (ESG), as net inflows into locally domiciled ESG funds in Asia-Pacific skyrocketed to US$22.2 billion in 2020. Across Apac, long-term ESG funds are forecasted to show a compound annual growth rate (CAGR) of 31 per cent through 2025. Simply put, everyday people and professional traders want to be in on Asia.

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Even in private markets, demand is rising, with private debt becoming a strong segment in Asia too. Between 2014 and 2019, Apac private debt assets under management (AUM) swelled from US$27 billion to US$57 billion. Market volatility triggered by the pandemic has led many asset owners to reallocate part of their assets to alternatives for better yield.

The many opportunities that Asia's markets are providing have coincided with rising costs, regulatory and compliance requirements, putting pressure on performance across the industry. Overall, these trends are all for the good of markets - more transparency and faster access to shareholder information will benefit all participants in the long run.

The European Shareholders Rights Directive II (SRD II) officially effected on Sept 4, 2020, impacting any Asia intermediaries who hold shares in European Union-based issuers listed on regulated EU markets. This follows proactive efforts that have been made with the adoption of technologies like blockchain to streamline and improve proxy voting processes in Japan. More pressure and requirements can only be expected, particularly with listed company issues in markets with Singapore, and new requirements around appointing local approved auditors from this past February onwards.

What this all means in the short run is that almost every financial business in the region is considering where they invest in technology to improve performance and eliminate complexity. To fully realise the returns and growth provided by regional markets, banks and investors are increasingly looking at every opportunity available to avoid rising costs and preserve performance, while also creating new revenue streams.

Within the financial services sector, there are four standout next-gen technologies that firms are leveraging to significantly boost both performance and profitability, and to stay relevant in the new operating environment. These technologies are Artificial Intelligence, Blockchain, the Cloud and Digital - what Broadridge calls the ABCDs of Innovation.

INVESTING IN TECHNOLOGY

Spending by Apac financial firms on technologies such as digitalisation and the cloud is expected to increase in the next two years. According to Broadridge's Next-Generation Technology Adoption Survey, 75 per cent of Apac firms are looking to spend between 10 per cent and 40 per cent of their overall IT budget on next-gen technologies by 2023.

This represents an 18 per cent increase from current spending allocations. The survey, based on interviews with the leadership of over 300 sell and buy-side firms in Apac also found that leaders - firms with advanced adoption and multiple next-gen technology use cases - are spending a greater share of their overall IT budget on emerging technologies versus non-leaders.

This brings a competitive advantage for firms in day-to-day operations, and they report benefits such as improved employee productivity, more effective risk management and compliance, faster creation of new/enhanced products and stronger corporate reputations.

Over the next two years, 69 per cent of Apac firms surveyed will either continue or start to use machine learning. Machine learning as a category of AI will be a key next-gen technology investment for Apac firms as they seek to add value via sophisticated strategies in ever-changing market conditions. AI and machine learning can reduce manual processes, analyse large volumes of data and drive better decision-making, wich can expedite time-to-market and reduce costs.

Survey respondents also reported that leveraging next-gen technologies such as AI, blockchain, the cloud and digital can help them to create cost efficiencies, increase revenues, improve profitability, and generate greater shareholder value and transparency. The fastest firms to adopt emerging technologies are often companies who collaborate with and leverage the capabilities of the wider ecosystem of external providers. By leveraging innovative industry solutions and platforms created by fintech providers, firms can reduce both costs and risks. This mutualisation also allows senior executives to focus their resources on projects that set their firms apart.

Financial firms which have invested early in expanding their service offering using technology are quickly extending their lead with customers and reporting significant year-over-year financial returns on their investments. These technologies are also driving strategic benefits - according to survey respondents, emerging technologies are enabling better decision making, greater market share, increased ability to expand and scale, and a greater capacity to innovate.

Asia-Pacific will continue to be the region where the most dynamic companies are coming to market, leading to a surge in technological innovation, retail and institutional inflows alike. While regulators make ongoing compliance refinements to ensure long-term stability, the financial firms that are investing in technology themselves will continue to power the vibrancy and performance of the region's markets.

• The writer is chief operating officer, Apac, at Broadridge, a global fintech firm.