Asia Summit—Global Capital Markets: Taking Stock of Recent Developments

September 25, 2015

The Long View Is Better Than the  Short-Term Glance

Investors rattled by the economic turmoil resulting from China’s slowdown should take a deep breath and stay focused on the long-term growth prospects of the world’s second-largest economy.

Even with China’s stock market plunge and currency devaluation, the global economy is forecast to grow, propelled by growth of 6 to 7 percent in China itself. “What’s happening is not all that bad,” said David Bonderman, founding partner at the private investment firm TPG, which manages more than $74 billion in assets.

Bonderman and fellow investors and business leaders discussed the role of Asia in the global economy during the panel discussion “Global Capital Markets: Taking Stock of Recent Developments” at the Milken Institute Asia Summit in Singapore. Much of the conversation focused on China. Its recent market fluctuation and currency devaluation don’t reflect the soundness of the Chinese economy, said Michael ByungJu Kim, partner and founder of the Seoul, South Korea-based investment firm MBK Partners.

“The stock market has decoupled from the real economy,” Kim said. “The economy is still growing at 6 to 7 percent and, more importantly, domestic consumption is growing at 10 percent. That, in our view, is going to be the driver of the China economy. So, China will be fine.”

Investors and consumers around the world have been shaken by a number of developments across the globe, including Europe’s immigration crisis and the declining demand for natural resources, said Milken Institute Chairman Michael Milken. He noted that individuals and corporations are holding onto cash as a result of uncertainty and low interest rates. Apple Inc., for example, has more than $200 billion in cash, up from $15 billion in 2007, before the Great Recession.

“The overriding factor is, what is the risk of non-investing today? You have to achieve some rate of return,” he said. “You are forced to figure out what you are going to invest in. It’s for only so long that you can invest in things that remain at zero.”

Kim argued that Asia, with its young and growing population of middle-class consumers, was the best place for investors to look. Joshua Harris of Apollo Global Management disagreed, pointing to lingering problems in some countries with transparency and cultural challenges. Apollo, he said, is investing in Asia, but “it’s going to be a smaller part of our business.”

Apollo is looking at opportunities to become involved in debt financing in China but also is optimistic about investing in the expanding U.S. economy.

 “I think you want to have a broad vision of it all and be comparing across regions,” he said.

A greater reliance on credit markets is an important step toward making capital more readily available across Asia, Milken said. In many Asian countries, a few banks have too much control over who can borrow.

“Asia is still bank-centric, so most of the money in China is deposited in a handful of banks, and who they decide to lend to or not will decide the growth of the economy,” he said. A move to markets can create jobs and “change the course of history.”