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Asias second financial hub: Opportunities in Hongkong exodus?

Although Kuala Lumpur has stolen some of its thunder, Singapore is in no danger of losing its  unofficial  title of Southeast Asia's answer to Hongkong. The question is whether Singapore can join New York, London, and Hongkong as a truly global, full-service financial center. More to the point, will Singapore's government surrender enough control to let the island republic fulfill its potential?
The fact that Singapore is known as the "Switzerland of the East" is testimony to the machinelike efficiency with which it has pursued success. Entrepreneurial flair has never been a selling point. Even so, what Singapore does, it does exceptionally well. It is unquestionably the world's most user-friendly financial hub: The quality of its physical infrastructure, telecommunications capabilities, and work force is simply unparalleled. As a result, the Lion City has been a magnet for investment banks and commercial banks alike. This, together with the growing interest in emerging market currencies, has enabled Singapore to challenge Tokyo as Asia's top forex center. And it is already the region's premier derivatives hub, as strong in over-the-counter products as it is in exchange-traded ones. The fact that the Barings debacle originated on the Simex floor has done little to dent Singapore's repution or dampen its appeal. But Simex is itself a reflection of
Singapore's cautious approach. Although the exchange does a brisk business in eurodollar, euroyen, and Nikkei stock index futures, not one   Singaporean product is traded. Similarly, while the Singapore   dollar could well serve as a safe-haven currency, the government has resisted calls to
internationalize it. Nor does it display the least desire to innovate in even the most innocuous areas. For example, the government has ignored suggestions that it follow Hongkong's lead and try to establish a yield curve by issuing long-term bonds. On the other hand, there plainly isn't much need for a bond market Singapore runs big budget surpluses and most major companies are also cash-rich.
Regulation is a source of concern, as well. To be sure, Singapore has no shortage of rules; the 1985 Pan-Electric scandal, which closed the stock market for four days and put a number of brokers out of business, saw to that. But bankers complain that the Monetary Authority of Singapore, the central bank, doesn't always explain what is permissible and what is not. Requests for clarification often go unanswered for months. The financial services industry thus operates in a climate of fear, particularly since the MAS tends to deal  swiftly  and harshly with most infractions. "There is such a history of strong control here that reducing it is difficult," says one Singapore-based ana-
lyst. "They are determined to manage the liberalization process."
Competition may induce the government to relax. As much as they fear the idea of a freewheeling financial sector, Singaporeans are more fearful of losing market share to regional rivals. Indeed, now that Malaysia has declared its desire to make Kuala Lumpur a fund management center, Singapore is taking steps to boost its allure. The recently announced 1998 budget was notable mainly for tax breaks and other concessions directed at the investment community.
And even if the authorities refuse to loosen their grip, circumstances may yet lift Singapore. Now that Hongkong is under Chinese rule, any misfortune that it suffers will clearly benefit Singapore. The city-state is the escape route of choice for nearly every major investment and commercial bank that presently makes Hongkong its Asian hub. Bob Mckee of Independent Strategy, the London-based research boutique, expects to see more than a few banks set up shop in Singapore over the next decade. "In our view, the decisive factor in Singapore's favor is that Hongkong is going to be taking a few steps back," Mckee says. "Hongkong eventually will

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