Finance

Arm, the U.K.-based company controlled by Japanese investment giant SoftBank, listed on New York’s Nasdaq on Thursday at an IPO price of $51 per share for a valuation of almost $60 billion.
The initial buzz has since fizzled, with the stock suffering successive daily declines to close the Tuesday trading session at $55.17.

Cathie Wood, CEO of Ark Invest, speaks during an interview on CNBC on the floor of the New York Stock Exchange (NYSE) in New York City, February 27, 2023.
Brendan McDermid | Reuters

Ark Invest CEO Cathie Wood said she did not participate in Arm’s blockbuster initial public offering last week because she finds the chip designer was overvalued relative to its competitive position.
Arm, the U.K.-based company controlled by Japanese investment giant SoftBank, listed on New York’s Nasdaq on Thursday at an IPO price of $51 a share for a valuation of almost $60 billion. The shares jumped almost 25% on the first day of trading to close at $63.59.

The initial buzz has since fizzled, with the stock suffering successive daily declines to end the Tuesday trading session at $55.17.
Speaking on CNBC’s “Squawk Box Europe” on Wednesday, Wood said the recent frenzy around AI-exposed companies was justified and that “innovation is undervalued given the enormous opportunities that we see ahead, catalyzed very importantly by artificial intelligence.”
“As far as Arm, I think there might be a little bit too much emphasis on AI when it comes to Arm and maybe not enough focus on the competitive dynamics out there,” she added.

Arm CEO Rene Haas and executives cheer, as Softbank’s Arm, chip design firm, holds an initial public offering (IPO) at Nasdaq Market site in New York, U.S., September 14, 2023.
Brendan Mcdermid | Reuters

“So we did not participate in that IPO, and we also compare it to the stocks in our portfolios. Arm came out, we think, from a valuation point of view on the high side, and we see within our portfolios much lower-priced names with much more exposure to AI.”
Arm declined to comment.

The top holdings in Wood’s flagship Ark Innovation ETF include Tesla, Shopify, UiPath, Unity, Zoom, Twilio, Coinbase, Roku, Block and DraftKings.
After taking a beating during the recent cycle of aggressive interest rate hikes from the U.S. Federal Reserve, the Ark ETF resurged this year, as investors flocked to stocks with AI exposure. Wood said that the anticipation of interest rates peaking would further this trend.
“The appetite for innovation is stirring here, and I think one of the reasons is because many investors and analysts are starting to look over the interest rate hike moves we’ve seen, record breaking in the last year or so, and to the other side,” she said.

With inflation coming down across major economies and with central banks expected to begin unwinding their aggressive monetary policy tightening over the next year, Wood suggested the coming period “should be a very good environment for innovation and global megatrend strategies.”
Ark Invest acquired British thematic ETF issuer Rize ETF late Tuesday for £5.25 million ($6.5 million), marking the company’s first venture into the European passive investment market.
Wood said that Europe has not had access to actually invest in the company’s U.S.-based ETFs until now, despite accounting for around 25% of demand for the company’s research since Ark’s inception in 2014.
“The cost of technology, especially with artificial intelligence now, is collapsing, and therefore it’s going to be much easier to build and scale tech companies anywhere in the world. This is no longer just the purview of Silicon Valley,” Wood said. “We are very open-minded about technologies flourishing throughout the world, including Europe.”
Correction: This story has been updated to reflect the date of Ark Invest’s acquisition of Rize ETF. More

Apple was exploring the launch of an iPhone feature that would let users buy and sell stocks, according to three sources familiar with the plans.
The offering would have been in partnership with Goldman Sachs, which has worked with Apple on other financial products. 
The iPhone maker decided the timing wasn’t right as markets slumped, and the company put the plan on pause, sources say.

Apple CEO Tim Cook holds a new iPhone 15 Pro during the ‘Wonderlust’ event at the company’s headquarters in Cupertino, California, U.S. September 12, 2023. 
Loren Elliott | Reuters

As equities soared in 2020 and consumers flocked to trading apps like Robinhood, Apple and Goldman Sachs were working on an investing feature that would let consumers buy and sell stocks, according to three people familiar with the plans.
The project was shelved last year as the markets turned south, said the sources, who asked not to be named because they weren’t authorized to speak on the matter.

The effort, which has not been previously reported, would have added to Apple’s suite of financial products powered by Goldman. Apple first teamed up with the Wall Street bank to offer a credit card in 2019, and then added buy now, pay later (BNPL) loans and a high-yield savings account. The company said last month that the savings account offering had climbed past $10 billion in user deposits.
Representatives for Apple and Goldman declined to comment.
Apple was working on the investing feature at a time of zero interest rates during Covid, when consumers were stuck at home and spending more of their time and their record savings in trading shares, including meme stocks like GameStop and AMC, from their smartphones.
Apple’s conversations with Goldman began during that hype cycle in 2020, two sources said. Their work progressed, and an Apple investing feature was meant to roll out in 2022. One hypothetical use case pitched by executives involved the ability for iPhone users with extra cash to put money into Apple shares, one person said.
But as markets were roiled by higher rates and soaring inflation, the Apple team feared user backlash if people lost money in the stock market with the assistance of an Apple product, the sources said. That’s when the iPhone maker and Goldman switched directions and pushed the plan to launch savings accounts, which benefit from higher rates.

The status of the stock-trading project is unclear after Goldman CEO David Solomon bowed to internal and external pressure and decided to retrench from nearly all of the bank’s consumer efforts. One source said the infrastructure for an investing feature is mostly built and ready to go should Apple eventually decide to move forward with it.

Source: Apple

The Apple Card launched with much fanfare three years ago, but the business brought regulatory heat and racked up losses as its user base expanded. Earlier this year, Goldman rolled out a high-interest savings account for Apple Card users, offering a 4.15% annual percentage yield.
Goldman was also central to Apple’s BNPL offering. The product, called Apple Pay Later, can be used for purchases of $50 to $100 “at most websites and apps that accept Apple Pay,” according to the support page. Borrowers can split a purchase into four payments over six weeks without incurring interest or fees.
Before Goldman’s pivot away from retail banking, the company examined ways to expand its partnership with Apple, sources said. More recently, Goldman was in discussions to offload both its card and savings account to American Express.
Had plans for the trading app progressed, Apple would have entered a market with stiff competition, featuring the likes of Robinhood, SoFi and Block’s Square, along with traditional brokerage firms such as Charles Schwab and Morgan Stanley’s E-Trade.
Stock trading has become another way for financial firms to keep customers and drive engagement on their platforms. Apple was pursuing the same approach, one source said. It’s a move that could capture the interest of regulators, who have scrutinized Apple for its App Store practices. Robinhood has also been grilled by regulators for what they described as “gamifying” markets.
Other tech companies have been pushing into the space. Elon Musk’s X, formerly known as Twitter, is working on a way to let users buy stocks and cryptocurrencies through a partnership with eToro. PayPal had plans to launch stock trading after hiring a key industry executive in 2021. But the company abandoned those plans, and said on an earnings call that it would cut spending and refocus on its core e-commerce business.
WATCH: Goldman’s Apple Card faces mounting credit losses More

On a monthly basis, the headline consumer price index (CPI) rose by 0.3%.
Economists polled by Reuters expected the headline figure to come in at 7% annually and up 0.7% month-on-month amid a slight uptick in prices at the pump.

A shopper browses fruit and vegetables for sale at an indoor market in Sheffield, UK. The OECD recently predicted that the UK will experience the highest inflation among all advanced economies this year.
Bloomberg | Bloomberg | Getty Images

U.K. inflation surprised with a dip to 6.7% in August, below expectations and sparking increased bets on a pause in interest rate hikes from the Bank of England on Thursday.
On a monthly basis, the headline consumer price index (CPI) rose by 0.3%.

Economists polled by Reuters expected the headline figure to come in at 7% annually and up 0.7% month-on-month amid a slight uptick in prices at the pump. July saw a 6.8% annual rise and a 0.4% month-on-month decline.
“The largest downward contributions to the monthly change in both CPIH and CPI annual rates came from food, where prices rose by less in August 2023 than a year ago, and accommodation services, where prices can be volatile and fell in August 2023,” the Office for National Statistics said.
“Rising prices for motor fuel led to the largest upward contribution to the change in the annual rates.”
Core CPI — which excludes volatile food, energy, alcohol and tobacco prices — came in at 6.2% in the 12 months to the end of August, down from 6.9% in July. The goods rate rose slightly from 6.1% to 6.3% but was more than offset by the services rate slowing significantly from 7.4% to 6.8%.
Raoul Ruparel, director of Boston Consulting Groups’ Centre for Growth, said this unexpected fall in core inflation would be particularly welcomed by policymakers, along with signs that retail prices are beginning to ease for consumers.

“This, combined with nominal wage growth, suggests real wages will continue to pick up towards the end of the year. Together, this will be a relief for households, but it is also a further sign that the economy looks to be slowing,” Ruparel said in an email on Wednesday.
“We believe the Bank of England will still raise rates tomorrow, but today’s data will embolden those pushing for this to be the final rate hike. However, it also highlights the challenge for the Bank of England with the economy now showing signs of cooling and the full impact of the rate rises not being felt.”
The Bank of England will announce its next monetary policy decision on Thursday, as policymakers continue efforts to pull inflation back down towards the Bank’s 2% target.
The market has broadly priced in another 25-basis-point hike to interest rates, which would take the main bank rate to 5.5% — its highest level since December 2007.
In light of the downside inflation surprise on Wednesday, market pricing for a pause from the Bank of England jumped from 20% to almost 50% at around 7:40 a.m. London time.
Caroline Simmons, U.K. chief investment officer at UBS, told CNBC that the central bank will still most likely hike on Thursday.
“We do believe that’s going to be their last hike, however, because we do have these downward forces on inflation,” she added.
“I think the recent rise in the oil price made people nervous that the print this morning might not continue to fall, which is why people sort of had more upside risk to their numbers, but I think the general trend is down.” More

There’s virtually no chance the U.S. central bank will choose to raise its benchmark borrowing rate when its two-day meeting concludes Wednesday.
The meeting will feature the Fed’s quarterly update on what it expects for a bevy of key indicators — interest rates, gross domestic product, inflation and unemployment.
There’s widespread belief the Fed will make sure the market knows that it shouldn’t make assumptions about what’s next.

Federal Reserve Board Chairman Jerome Powell speaks during a news conference following a Federal Open Market Committee meeting, at the Federal Reserve in Washington, DC, on July 26, 2023. 
Saul Loeb | AFP | Getty Images

As often has been the case, this week’s Federal Reserve meeting will be less about what policymakers are doing now than what they expect to be doing in the future.
In the now, there’s virtually no chance the U.S. central bank will choose to raise its benchmark borrowing rate. Markets are pricing in just a 1% chance of what would be the 12th hike since March 2022, according to CME Group data.

But this week’s meeting, which concludes Wednesday, will feature the Fed’s quarterly update on what it expects for a bevy of key indicators — interest rates, gross domestic product, inflation and unemployment.
That is where the suspense lies.
Here’s a look at what to expect.

Interest rates

The Fed won’t be tinkering with its key funds rate, which sets what banks charge each other for overnight lending but also spills over into many forms of consumer debt.
Historically, and in particular during the era under Chair Jerome Powell, the Fed doesn’t like to buck markets, especially when anticipation is running so strongly in one direction. The funds rate is a lock to stay in its current target range of 5.25%-5.5%, its highest level since the early part of the 21st century.

There’s widespread belief, though, that the Fed will make sure the market knows that it shouldn’t make assumptions about what’s next.

“There’s likely to be a pause here, but a clear possibility that the November meeting is, as they say, a live meeting. I don’t think they’re ready to say, ‘We are now done,'” Roger Ferguson, a former vice chair of the Fed, said on CNBC’s “Squawk Box” in an interview this week.
“This is the time for the Fed to proceed very cautiously,” he added. “In no way should they say we are completely done, because I don’t think they really know that just yet, and I think they want to have the flexibility to do one more if need be.”

The dot plot

One way for the central bank to communicate its intentions is through its dot plot, a grid that anonymously lays out individual members’ expectations for rates ahead.
Markets will be looking for subtle shifts in the dots to understand where officials see things headed.
“I think that they will keep that bias towards higher rates in there and indicate that they are willing to raise the funds rate further if the data start to show that either inflation is not slowing as they expect it to, or if the labor market remains too tight,” said Gus Faucher, chief economist at PNC Financial Services Group.
One key “tell” market participants will be focusing on: the “longer run” median dot, which in Wednesday’s case will be the projection beyond 2026. At the June meeting, the median outlook was for 2.5%.
Should that shift higher, even by a quarter percentage point, that could be a “tacit” signal the Fed will be content to let inflation run higher than its 2% target and possibly rattle markets, said Joseph Brusuelas, chief economist at RSM.
“We’re laying the groundwork to prepare our clients for the inflation targets we think [will] be going up,” he said.

The SEP

Each quarter the Fed updates its Summary of Economic Projections, or the outlook for rates, inflation, GDP and unemployment. Think of the SEP as the central bank laying a trail of policy breadcrumbs — a trail, unfortunately, that often has left something to be desired.
Particularly over the past several years, the projections have been notably wrong as Fed officials misread inflation and growth, leading to some dramatic policy adjustments that have kept markets off balance.
In this week’s iteration, markets largely expect the Fed to show a sharp upgrade in its June projection for GDP growth this year, along with reductions in its outlook for inflation and unemployment.
“The Fed is going to have to almost double its growth forecasts,” Ellen Zentner, chief U.S. economist at Morgan Stanley, said Tuesday on CNBC’s “Worldwide Exchange.”

The statement

While the SEP and dot plot will attract the most attention, potential tweaks in the post-meeting statement also could be a focal point.
Zentner suggested the Fed could change some of its characterizations of policy as well as its view on the economy. One potential adjustment from the July statement could be in the sentence, “In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
Removing the word “additional,” she said, would send a signal that members of the Federal Open Market Committee are at least considering that no more rate hikes will be needed.

A second potentially potent change would be if in the sentence, “The Committee remains highly attentive to inflation risks,” the Fed were to removed the word “highly.” This could indicate the Fed is growing less concerned about inflation.
“These are tiny little tweaks that shouldn’t be taken lightly, and they would be baby steps toward stopping the hiking cycle,” Zentner said.

The press conference

Following the release of the statement, the dot plot and the SEP, Powell will take the podium to take questions from reporters, an event that generally lasts about 45 minutes.
Powell uses the conference to amplify what the FOMC has already done. He also sometimes has a somewhat different spin from what comes out of the official documents, making the events unpredictable and potentially market-moving.
Markets are betting the Fed has finished this rate-hiking cycle, assigning just a 30% chance to a November increase. If the chair does anything to disabuse the market of that sentiment, it would be meaningful.
Zentner, though, expects the central bank to fall in line with market thinking.
“We do believe that the Fed is done here,” she said. “They just don’t know it yet.” More

An empty parking lot is pictured in front of a Planet Fitness gym and fitness club in Alhambra, California, on May 12, 2020, after stay-at-home orders in Los Angeles County were extended until July amid the Covid-19 pandemic.
Frederic J. Brown | AFP | Getty Images

Check out the companies making headlines in midday trading.
Starbucks — Shares fell 2% in midday trading following a downgrade to market perform from TD Cowen. Analyst Andrew Charles noted concern over macroeconomic headwinds in China that could hit consumer spending at Starbucks stores.

Instacart — The grocery delivery stock roared out the gates as it debuted on the public market midday Tuesday, with shares popping about 12.3% and closing at $33.70. The company had priced its initial public offering at $30 a share Monday, the high end of the expected $28 to $30 range.
Disney — The entertainment stock slumped 3.3% after Disney revealed that it plans to nearly double its spending on its parks and cruises businesses to roughly $60 billion.
Super Micro Computer — Stock in the computer technology company climbed 1.6% after Barclays initiated coverage of shares at an overweight rating. Analyst George Wang said the stock could benefit from a still-growing artificial investment trend.
Deere — The industrial stock fell nearly 3% on Tuesday after Evercore downgraded the shares to in line from outperform. The Wall Street firm said the trends and early color from its contacts suggest revenue declines and agriculture production cuts for Deere’s next fiscal year.
Planet Fitness — Shares of the gym franchise slid 4.2% after JPMorgan downgraded the stock to a neutral rating from overweight. The investment bank cited the recent surprise ousting of CEO Chris Rondeau and an uncertain macroeconomic future as reasons for the downgrade.

Arm Holdings — Shares of the semiconductor company, which recently went public, dropped 5.4%. Redburn Atlantic Equities initiated coverage of the company as neutral and said it is overvalued right now.
Array Technologies — The solar tracker solutions provider increased 4.3% during the day’s trading session after Bank of America added the company to the US1 list, saying Array is a “diamond in the rough.”
Rocket Lab — Shares of the aerospace manufacturer tumbled 7.4% after Rocket Lab’s first launch failure in more than two years Tuesday morning. Rocket Lab’s uncrewed 41st Electron rocket launch failed about two minutes and 30 seconds after it lifted off in New Zealand.
Lazard — The stock fell 1.2% after Goldman Sachs downgraded the investment bank to sell from neutral, saying its outlook is too “challenging.”
Royal Caribbean — Shares of the cruise company gained 2.4% after being upgraded to buy from hold by Truist, which said forward-looking trends for 2024 and 2025 seem “exceptionally strong.” The Wall Street firm also upgraded Carnival to hold from sell, sending shares nearly 0.5% higher.
Rackspace Technology — The cloud computing company popped Tuesday, gaining about 36%. Raymond James earlier upgraded Rackspace to outperform from market perform and said it likes the company management’s execution.
— CNBC’s Brian Evans, Jesse Pound, Samantha Subin, Yun Li, Lisa Kailai Han and Michelle Fox contributed reporting. More

Seven hundred years ago, maritime trade routes that stretched from the coast of Japan to the Red Sea were peppered with Arab dhows, Chinese junks and Javanese djongs, ferrying ceramics, precious metals and textiles across the region. At its centre, a trading post known as Singapura flourished. The enormous intra-Asian commercial network was disrupted only by the arrival of sailors from rising European empires and the emergence of farther-flung markets for Asian goods.Today another reconfiguration is under way. The “Factory Asia” model of the late 20th century, in which the continent produced products for American and European consumers, provided an astonishing boost to the prosperity of China, Japan, South Korea and Taiwan. In 1990 just 46% of Asian trade took place within the continent, as enormous volumes of goods flowed to the West. Yet by 2021 that figure had reached 58%, closer to European levels of 69%. Greater regional trade has prompted an increase in capital flows, too, binding countries tighter still. A new era of Asian commerce has emerged—one that will reshape the continent’s economic and political future.image: The EconomistIts emergence began with the growth of sophisticated supply chains centred first on Japan in the 1990s, and then later China. Intermediate goods—components that will eventually become part of finished products—soon started to move across borders in greater numbers. They were followed by foreign direct investment (fdi). Asian investors now own 59% of the stock of fdi in their own region, excluding the financial hubs of Hong Kong and Singapore, up from 48% in 2010. In India, Indonesia, Malaysia, South Korea and Japan the share of direct investment from Asia rose by more than ten percentage points, to between 26% and 61%.After the global financial crisis of 2007-09, cross-border banking also became more Asian. Before the crisis hit, local banks accounted for less than a third of the region’s overseas lending. They now account for more than half, having taken advantage of the retreat of Western financiers. China’s huge state banks led the way. Overseas loans by the Industrial and Commercial Bank of China more than doubled from 2012 to last year, rising to $203bn. Japan’s megabanks have also spread, in order to escape narrow margins at home, as have Singapore’s United Overseas Bank and Oversea-Chinese Banking Corporation.The presence of Western governments has also diminished. In a recent survey of South-East Asian researchers, businessfolk and policymakers by the iseas-Yusof Ishak Institute in Singapore, some 32% of respondents said that they thought America was the most influential political power in the region. Yet just 11% of respondents named it the most influential economic power. State-led investment from China to the rest of the continent under the Belt and Road Initiative has captured attention, but official assistance and government-facilitated investment from Japan and South Korea are also growing.These trends are likely to accelerate. In the face of deteriorating relations between America and China, companies in the region that rely on Chinese factories are looking to alternatives in India and South-East Asia. At the same time, few bosses expect to desert China entirely, meaning two Asian supply chains will be required, along with some doubling-up of investment. Trade deals will speed this along. A study published last year suggested that the Regional Comprehensive Economic Partnership, a broad but shallow pact inked in 2020, will increase investment in the region. By contrast, as a result of America’s abandonment of the Trans-Pacific Pact trade deal in 2017, there is little chance of Asian exporters gaining greater access to the American market.The need to establish new supply chains means that transport and logistics are another area where intra-Asian investment will probably increase, notes Sabita Prakash of adm Capital, a private-credit firm. Matching investors searching for reliable income with projects looking for finance—the mission of such private-credit companies—has been a lucrative pastime in Asia, and is likely to become a more attractive one. The size of the private-credit market in South-East Asia and India rose by around 50% between 2020 and mid-2022, to almost $80bn. Other big investors are also turning to infrastructure. gic, Singapore’s sovereign-wealth fund, which manages a portion of the country’s foreign reserves, is spending big on the building required for new supply chains.Changes to Asian savings and demography will also speed up the economic integration. China, Hong Kong, Japan, Singapore, South Korea and Taiwan have climbed the ranks of overseas investors, becoming some of the world’s largest. These richer and older parts of the continent have exported striking volumes of capital into the rest of the region, with cash following recently established trade links. In 2011 richer and older countries in Asia had about $329bn, in today’s money, invested in the younger and poorer economies of Bangladesh, Cambodia, India, Indonesia, Malaysia, the Philippines and Thailand. A decade later that figure had climbed to $698bn.Silk flowsIn India and South-East Asia, “you’ve still got urbanisation happening, and capital follows those trends,” says Raghu Narain of Natixis, an investment bank. Not only do bigger cities require more infrastructure investment, but new companies better suited to urban life can thrive. Asian cross-border merger-and-acquisitions (m&a) activity is changing, according to Mr Narain, becoming more like that found in Europe and North America. Even as deals into and out of China have slowed considerably, m&a activity has become more common elsewhere. Japanese banks, facing low interest rates and a slow-growing economy at home, are ravenous for deals. Over the past year Sumitomo Mitsui Financial Group and Mitsubishi ufj Financial Group have snapped up Indonesian, Philippine and Vietnamese financial firms.Meanwhile, rising Asian consumption makes local economies more attractive as markets. Whereas in Europe 70% or so of consumption goods are imported from the local region, just 44% are in Asia. This is likely to change. Of the 113m people expected next year to enter the global consumer class (spending over $12 a day in 2017 dollars, adjusted for purchasing power), some 91m will be in Asia, according to World Data Lab, a research firm. Even as Chinese income growth slows after decades of expansion, other countries will pick up the pace. The five largest economies in asean, a regional bloc—namely, Indonesia, Malaysia, the Philippines, Singapore, and Thailand—are expected to see imports grow by 5.7% a year between 2023 and 2028, the most rapid pace of any region.image: The EconomistThese regional trading patterns would represent a return to a more normal state of affairs. The globe-spanning export model that delivered first-world living standards to large parts of Asia, and encouraged investment from far afield, was a product of unique historical circumstances. The amount of goods that travel from the continent’s industrial cities to America is far higher than would be predicted by the relative size of their respective export and import markets, and the distance between them. Indeed, a paper by the Economic Research Institute for asean and East Asia suggests that machinery exports from North-East and South-East Asia to North America in 2019 were more than twice as high as such factors would suggest.Closer commercial links will bind the business cycles of Asian economies even more tightly together. Despite the enduring use of the dollar in cross-border transactions and Asian investors’ continuing penchant for Western listed markets, a study by the Asian Development Bank in 2021 concluded that Asian economies are now more exposed to spillovers from economic shocks to China than America. This has been on display in recent months, as China’s faltering trade has hit exporters in South Korea and Taiwan. More trade, not just in intermediate parts but in finished goods for consumption, means the continent’s currencies and monetary-policy decisions will increasingly move in sync.This will have political ramifications. America will retain influence over Asian security, but its economic importance will deplete. Local businessfolk and policymakers will be more interested in and receptive to their neighbours, rather than customers and countries farther afield. With local factories still being built, consumption growing and a deep pool of savings from Asia’s increasingly elderly savers desperate for projects to finance, the high point for regional integration is yet to be reached. The new era of Asian commerce will be more locally focused and less Western-facing. So will the continent itself. ■ More

Seven hundred years ago, maritime trade routes that stretched from the coast of Japan to the Red Sea were peppered with Arab dhows, Chinese junks and Javanese djongs, ferrying ceramics, precious metals and textiles across the region. At its centre, a trading post known as Singapura flourished. The enormous intra-Asian commercial network was disrupted only by the arrival of sailors from rising European empires and the emergence of farther-flung markets for Asian goods.Today another reconfiguration is under way. The “Factory Asia” model of the late 20th century, in which the continent produced products for American and European consumers, provided an astonishing boost to the prosperity of China, Japan, South Korea and Taiwan. In 1990 just 46% of Asian trade took place within the continent, as enormous volumes of goods flowed to the West. Yet by 2021 that figure had reached 58%, closer to European levels of 69%. Greater regional trade has prompted an increase in capital flows, too, binding countries tighter still. A new era of Asian commerce has emerged—one that will reshape the continent’s economic and political future.image: The EconomistIts emergence began with the growth of sophisticated supply chains centred first on Japan in the 1990s, and then later China. Intermediate goods—components that will eventually become part of finished products—soon started to move across borders in greater numbers. They were followed by foreign direct investment (fdi). Asian investors now own 59% of the stock of fdi in their own region, excluding the financial hubs of Hong Kong and Singapore, up from 48% in 2010. In India, Indonesia, Malaysia, South Korea and Japan the share of direct investment from Asia rose by more than ten percentage points, to between 26% and 61%.After the global financial crisis of 2007-09, cross-border banking also became more Asian. Before the crisis hit, local banks accounted for less than a third of the region’s overseas lending. They now account for more than half, having taken advantage of the retreat of Western financiers. China’s huge state banks led the way. Overseas loans by the Industrial and Commercial Bank of China more than doubled from 2012 to last year, rising to $203bn. Japan’s megabanks have also spread, in order to escape narrow margins at home, as have Singapore’s United Overseas Bank and Oversea-Chinese Banking Corporation.The presence of Western governments has also diminished. In a recent survey of South-East Asian researchers, businessfolk and policymakers by the iseas-Yusof Ishak Institute in Singapore, some 32% of respondents said that they thought America was the most influential political power in the region. Yet just 11% of respondents named it the most influential economic power. State-led investment from China to the rest of the continent under the Belt and Road Initiative has captured attention, but official assistance and government-facilitated investment from Japan and South Korea are also growing.These trends are likely to accelerate. In the face of deteriorating relations between America and China, companies in the region that rely on Chinese factories are looking to alternatives in India and South-East Asia. At the same time, few bosses expect to desert China entirely, meaning two Asian supply chains will be required, along with some doubling-up of investment. Trade deals will speed this along. A study published last year suggested that the Regional Comprehensive Economic Partnership, a broad but shallow pact inked in 2020, will increase investment in the region. By contrast, as a result of America’s abandonment of the Trans-Pacific Partnership trade deal in 2017, there is little chance of Asian exporters gaining greater access to the American market.The need to establish new supply chains means that transport and logistics are another area where intra-Asian investment will probably increase, notes Sabita Prakash of adm Capital, a private-credit firm. Matching investors searching for reliable income with projects looking for finance—the mission of such private-credit companies—has been a lucrative pastime in Asia, and is likely to become a more attractive one. The size of the private-credit market in South-East Asia and India rose by around 50% between 2020 and mid-2022, to almost $80bn. Other big investors are also turning to infrastructure. gic, Singapore’s sovereign-wealth fund, which manages a portion of the country’s foreign reserves, is spending big on the building required for new supply chains.Changes to Asian savings and demography will also speed up the economic integration. China, Hong Kong, Japan, Singapore, South Korea and Taiwan have climbed the ranks of overseas investors, becoming some of the world’s largest. These richer and older parts of the continent have exported striking volumes of capital into the rest of the region, with cash following recently established trade links. In 2011 richer and older countries in Asia had about $329bn, in today’s money, invested in the younger and poorer economies of Bangladesh, Cambodia, India, Indonesia, Malaysia, the Philippines and Thailand. A decade later that figure had climbed to $698bn.Silk flowsIn India and South-East Asia, “you’ve still got urbanisation happening, and capital follows those trends,” says Raghu Narain of Natixis, an investment bank. Not only do bigger cities require more infrastructure investment, but new companies better suited to urban life can thrive. Asian cross-border merger-and-acquisitions (m&a) activity is changing, according to Mr Narain, becoming more like that found in Europe and North America. Even as deals into and out of China have slowed considerably, m&a activity has become more common elsewhere. Japanese banks, facing low interest rates and a slow-growing economy at home, are ravenous for deals. Over the past year Sumitomo Mitsui Financial Group and Mitsubishi ufj Financial Group have snapped up Indonesian, Philippine and Vietnamese financial firms.Meanwhile, rising Asian consumption makes local economies more attractive as markets. Whereas in Europe 70% or so of consumption goods are imported from the local region, just 44% are in Asia. This is likely to change. Of the 113m people expected next year to enter the global consumer class (spending over $12 a day in 2017 dollars, adjusted for purchasing power), some 91m will be in Asia, according to World Data Lab, a research firm. Even as Chinese income growth slows after decades of expansion, other countries will pick up the pace. The five largest economies in asean, a regional bloc—namely, Indonesia, Malaysia, the Philippines, Singapore, and Thailand—are expected to see imports grow by 5.7% a year between 2023 and 2028, the most rapid pace of any region.image: The EconomistThese regional trading patterns would represent a return to a more normal state of affairs. The globe-spanning export model that delivered first-world living standards to large parts of Asia, and encouraged investment from far afield, was a product of unique historical circumstances. The amount of goods that travel from the continent’s industrial cities to America is far higher than would be predicted by the relative size of their respective export and import markets, and the distance between them. Indeed, a paper by the Economic Research Institute for asean and East Asia suggests that machinery exports from North-East and South-East Asia to North America in 2019 were more than twice as high as such factors would suggest.Closer commercial links will bind the business cycles of Asian economies even more tightly together. Despite the enduring use of the dollar in cross-border transactions and Asian investors’ continuing penchant for Western-listed markets, a study by the Asian Development Bank in 2021 concluded that Asian economies are now more exposed to spillovers from economic shocks to China than America. This has been on display in recent months, as China’s faltering trade has hit exporters in South Korea and Taiwan. More trade, not just in intermediate parts but in finished goods for consumption, means the continent’s currencies and monetary-policy decisions will increasingly move in sync.This will have political ramifications. America will retain influence over Asian security, but its economic importance will decline. Local businessfolk and policymakers will be more interested in and receptive to their neighbours, rather than customers and countries farther afield. With local factories still being built, consumption growing and a deep pool of savings from Asia’s increasingly elderly savers desperate for projects to finance, the high point for regional integration is yet to be reached. The new era of Asian commerce will be more locally focused and less Western-facing. So will the continent itself. ■ More

Seven hundred years ago, maritime trade routes that stretched from the coast of Japan to the Red Sea were peppered with Arab dhows, Chinese junks and Javanese djongs, ferrying ceramics, precious metals and textiles across the region. At its centre, a trading post known as Singapura flourished. The enormous intra-Asian commercial network was disrupted only by the arrival of sailors from rising European empires and the emergence of farther-flung markets for Asian goods.image: The EconomistToday another reconfiguration is under way. The “Factory Asia” model of the late 20th century, in which the continent produced products for American and European consumers, provided an astonishing boost to the prosperity of China, Japan, South Korea and Taiwan. In 1990 just 46% of Asian trade took place within the continent, as vast quantities of goods flowed to the West. Yet by 2021 that figure had reached 58%, closer to European levels of 69% (see chart 1). More regional trade has led to an increase in capital flows, too, binding countries tighter still. A new era of Asian commerce has begun—one that will reshape the continent’s economic and political future.Its emergence began with the growth of sophisticated supply chains centred first on Japan in the 1990s, and later on China as well. Intermediate goods—components that will eventually become part of finished products—soon started to move across borders in greater numbers. They were followed by foreign direct investment (fdi). Asian investors now own 59% of the stock of fdi in their own region, excluding the financial hubs of Hong Kong and Singapore, up from 48% in 2010. In India, Indonesia, Japan, Malaysia and South Korea the share of direct investment from Asia rose by more than ten percentage points, to between 26% and 61%.After the global financial crisis of 2007-09, cross-border banking also became more Asian. Before the crisis hit, local banks accounted for around a third of the region’s overseas lending. They now account for more than half, having taken advantage of the retreat of Western financiers. China’s huge state banks led the way. Overseas loans by the Industrial and Commercial Bank of China more than doubled from 2012 to last year, rising to $203bn. Japan’s megabanks have also spread, in order to escape narrow margins at home, as have Singapore’s United Overseas Bank and Oversea-Chinese Banking Corporation.The presence of Western governments has also diminished. In a recent survey of South-East Asian researchers, businessfolk and policymakers by the iseas-Yusof Ishak Institute in Singapore, some 32% of respondents said they thought America was the most influential political power in the region. Yet just 11% of respondents called it the most influential economic power. State-led investment from China to the rest of the continent under the Belt and Road Initiative has captured attention, but official assistance and government-facilitated investment from Japan and South Korea are also growing.These trends are likely to accelerate. In the face of deteriorating relations between America and China, companies in the region that rely on Chinese factories are considering alternatives in India and South-East Asia. At the same time, few bosses expect to desert China entirely, meaning two Asian supply chains will be required, along with some doubling-up of investment. Trade deals will speed this along. A study published last year suggested that the Regional Comprehensive Economic Partnership, a broad but shallow pact signed in 2020, will increase investment in the region. By contrast, as a result of America’s abandonment of the Trans-Pacific Partnership trade deal in 2017, there is little chance of Asian exporters gaining greater access to the American market.image: The EconomistThe need to establish new supply chains means that transport and logistics are another area where intra-Asian investment will probably increase, notes Sabita Prakash of adm Capital, a private-credit firm. Matching investors searching for reliable income with projects looking for finance—the mission of such private-credit companies—has been a lucrative pastime in Asia, and is likely to become a more popular one. The size of the private-credit market in South-East Asia and India rose by around 50% between 2020 and mid-2022, to almost $80bn. Other big investors are turning to infrastructure, too. gic, Singapore’s sovereign wealth fund, which manages a portion of the country’s foreign reserves, is spending big on the building required for new supply chains.Changes to Asian savings and demography will also speed up economic integration. China, Hong Kong, Japan, Singapore, South Korea and Taiwan have climbed the ranks of overseas investors, becoming some of the world’s largest. These richer and older parts of the continent have exported striking volumes of capital into the rest of the region, with cash following recently established trade links. In 2011 richer and older countries in Asia had about $329bn, in today’s money, invested in the younger and poorer economies of Bangladesh, Cambodia, India, Indonesia, Malaysia, the Philippines and Thailand. A decade later that figure had climbed to $698bn.Silk flowsIn India and South-East Asia, “you’ve still got urbanisation happening, and capital follows those trends,” says Raghu Narain of Natixis, an investment bank. Bigger cities require not only more infrastructure investment, but also new companies better suited to urban life. Asian cross-border merger-and-acquisitions (m&a) activity is changing, according to Mr Narain, becoming more like that found in Europe and North America. Even as deals into and out of China have slowed considerably, m&a activity has become more common elsewhere. Japanese banks, facing low interest rates and a slow-growing economy at home, are ravenous for deals. Over the past year Sumitomo Mitsui Financial Group and Mitsubishi ufj Financial Group have snapped up Indonesian, Philippine and Vietnamese financial firms.image: The EconomistMeanwhile, rising Asian consumption makes local economies more attractive as markets. Whereas in Europe 70% or so of consumption goods are imported from the local region, just 44% are in Asia. This is likely to change. Of the 113m people expected next year to enter the global consumer class (spending over $12 a day in 2017 dollars, adjusted for purchasing power), some 91m will be in Asia, according to World Data Lab, a research firm. Even as Chinese income growth slows after decades of expansion, other countries will pick up the pace. The five largest economies in asean, a regional bloc—namely, Indonesia, Malaysia, the Philippines, Singapore and Thailand—are expected to see imports grow by 5.7% a year between 2023 and 2028, the most rapid pace of any region (see chart 3).These regional trading patterns would represent a return to a more normal state of affairs. The globe-spanning export model that delivered first-world living standards to large parts of Asia, and encouraged investment from far afield, was a product of unique historical circumstances. The amount of goods that travel from the continent’s industrial cities to America is far higher than would be predicted by the relative size of their respective export and import markets, and the distance between them. Indeed, a paper by the Economic Research Institute for asean and East Asia suggests that machinery exports from North-East and South-East Asia to North America in 2019 were more than twice as high as such factors would suggest.Closer commercial links will bind the business cycles of Asian economies even more tightly together. Despite the enduring use of the dollar in cross-border transactions and Asian investors’ continuing penchant for Western-listed markets, a study by the Asian Development Bank in 2021 concluded that Asian economies are now more exposed to spillovers from economic shocks in China than in America. This has been on display in recent months, as China’s faltering trade has hit exporters in South Korea and Taiwan. More trade, not just in intermediate parts but in finished goods for consumption, means the continent’s currencies and monetary-policy decisions will increasingly move together.This will have political ramifications. America will retain influence over Asian security, but its economic importance will decline. Local businessfolk and policymakers will be more interested in and receptive to their neighbours, rather than customers and countries farther afield. With local factories still being built, consumption growing and a deep pool of savings from Asia’s increasingly elderly savers desperate for projects to finance, the high point for regional integration has yet to be reached. The new era of Asian commerce will be more locally focused and less Western-facing. So will the continent itself. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More