October 30, 2024
Shifting Sands: The New Era of Global Finance and Eastern Ascendancy

Historically, families from the East —be it China, Indonesia or the Persian Gulf countries—dreamed of securing their fortunes in Switzerland, London, or the USA. However, a complete reversal in dynamics is now evident: a substantial number of Europeans and those with old money are flocking to Dubai, Hong Kong, and Singapore.

Western banks established branches in these regions long ago, yet they’ve struggled to lead the market, often lagging behind their Eastern counterparts in terms of technological advancement. This market shift is noticeable, and those who utilize these services can likely attest to the changes.

The financial centers in Asia and the Middle East are brimming with capital, yet there seems to be no robust strategy for its allocation —posing a significant challenge in the market. Although there’s an abundance of money in these regions, the local financial markets lack sufficient technology to absorb these funds effectively. This is why we are witnessing a bubble inflation in the U.S. markets, which still attract about 50% of the world’s money flows and account for 40% of global market capitalization.

Why have European and American capitals turned to the East? The answer is straightforward: stringent regulations and high taxes deter capital; family offices, banks, and funds seek new havens where they can pay less to governments for holding and investing their capital. For example, tax rates on capital income can range from 25 to 50% in Europe or the States, while in Hong Kong or Singapore, they vary between 5 to 15%, and in Dubai, personal income is currently not taxed at all—a billionaire’s dream!

However, these financial hubs face certain limitations:

1. Real estate is exceedingly expensive.

2. Stock markets are underdeveloped and highly volatile.

3. Few local businesses can absorb large amounts of money.

4. These regions are not yet technology development centers.

That’s why these Eastern hubs are now hiring extensively and enhancing talent development programs. We see a boom in IPO placements and small companies entering the market, hoping to become the next Amazon, Google, or Tesla. Success will depend largely on local management and the wisdom of rulers, as well as global processes. There is ample money in these hubs, and whether it finds effective use will soon become apparent. To date, only China and Dubai have successfully utilized international investments to foster spectacular infrastructure growth and a booming population, while other countries are still developing through internal resources.

Conclusion:

The new global centers offer an exciting and comfortable setting as infrastructure is built for the modern individual. Will these become the new world centers over the next 50 years? Time will tell. Being part of this development is essential, and it’s hard to imagine a better place for growth. More and more brilliant managers and politicians are emerging in these locations! To give you an idea: just India and China account for 3 billion people, plus the CIS and the Gulf add another billion+; their per capita income is more than half that of the West, suggesting immense room for growth. Singapore, Hong Kong, and Dubai thrive on this potential. Trillions of dollars are parked here, ready to be channeled into the economy.

Andrey Syrchin, CEO of Cresco Capital