APAC Capital Markets – Key Transformation Trends and Value Drivers

Major financial institutions are leveraging partnerships, launching innovative products and services, and strengthening their local presence to cater to APAC's growing pool of investors and high-net-worth individuals. Relatively robust economic growth in many APAC countries, rising demand for sophisticated financial solutions, and the desire of financial firms to diversify within APAC beyond China – due to geopolitical tensions and the comparatively sluggish economic growth in China – are some of the key drivers of change. 

Investment banks increasingly have the potential to earn higher advisory fees in Southeast Asia than in China for stock and bond issuances.¹ To help capitalize on these opportunities, financial institutions can:

• Reevaluate APAC strategy. Firms should reassess the feasibility and potential of various markets to enhance their regional footprint.
• Optimize operating model. Ensure the right location strategy, product mix and governance structure to stay competitive.
• Consider M&A and alliances. Strategic partnerships may offer a faster and more effective route to gaining an edge, compared to building capabilities from scratch. 

Beyond these diversification efforts, we explore four key trends shaping the future of investment banking and capital markets in the region.

 

GenAI has the potential to revolutionize the financial sector, with regulators offering support to ensure its responsible adoption. For instance, the Hong Kong Monetary Authority (HKMA) is monitoring GenAI applications in the banking industry and issuing regulatory guidance in key areas such as customer-facing applications to promote responsible use while mitigating risks.²  Similarly, the Monetary Authority of Singapore (MAS) is fostering AI adoption in Singapore’s financial sector and recently announced a commitment of up to S$100 million to support building quantum computing and AI capabilities.³

Banks are working to test and deploy a wide array of GenAI applications, including conversational and intuitive chatbots to help answer client queries, automated onboarding, fraud detection and risk management, and personalized customer solutions powered by large language models (LLMs). These innovations, such as an AI tool that was created with GPT-4 to automate thematic indexes and identify investment opportunities based on emerging trends, aim to drive efficiency, enhance productivity, and elevate customer experience across various functions.⁴ Some key applications for GenAI in capital markets include:

• Risk management and analysis. GenAI models can process and analyze historical market data, economic indicators, and geopolitical events, helping financial institutions to better anticipate market fluctuations and adjust their strategies accordingly.
• Algorithmic trading. In the fast-paced environment of capital markets, algorithmic trading has become essential. GenAI enhances trading strategies by analyzing market trends and generating trading signals in real time.
• Market research and sentiment analysis. GenAI can process vast volumes of unstructured data, such as news articles, social media posts, and financial reports, to gauge market sentiment and trends. This capability helps firms make informed investment decisions.
• Compliance fraud detection. GenAI can enhance fraud detection by analyzing transaction patterns and flagging anomalies that may indicate suspicious behavior.
• Customer engagement and personalization. Robo-advisors powered by GenAI can provide tailored investment strategies, helping clients achieve their financial goals while improving the overall customer experience.

In addition, as we discuss in a recent paper, by leveraging GenAI's capabilities to aggregate, analyze, and synthesize diverse datasets, “Financial firms can establish interconnected ecosystems that enhance decision-making and operational efficiency. AI-driven solutions can integrate data from multiple sources into a unified interface, enabling decision-makers to operate seamlessly across platforms.” ⁵

Despite its promising potential, the adoption of GenAI in capital markets faces several challenges for financial services. These include data privacy and security, regulatory compliance, talent shortage, and the integration with legacy systems. Mapping out the GenAI journey involves several steps:

• Define GenAI strategy. Identify organizational pain points and potential GenAI use cases to develop a clear transformation roadmap tailored to these objectives.
• Test and learn. Start with pilot projects or a Proof-of-Concept (PoC) to validate use cases and refine applications. Approach GenAI adoption pragmatically rather than following industry trends blindly.
• Build for scale. Ensure that the technology infrastructure, governance frameworks and workforce are equipped to scale GenAI initiatives rapidly as the demand grows.

Tokenization, the process of creating a digital representation of an asset on a blockchain platform, is gaining traction across the financial sector. It can be applied to a wide range of assets, including physical commodities, real estate, artwork, financial instruments such as stocks and bonds, cash and trade finance, and intangible assets such as intellectual property and digital art.

Investment banks are increasingly exploring opportunities to apply tokenization and blockchain technology to several key areas:

• Enhancing security and fraud prevention. Firms are utilizing blockchain's immutable ledger to enhance the security of transactions and reduce fraud. They are also implementing tokenization to secure verification processes, minimizing the risk of identity theft.
• Improving efficiency and cost reduction. Financial institutions are leveraging blockchain to streamline processes such as clearing and settlement. This automation reduces operational costs and timeframes. Additionally, smart contracts can be deployed to ensure compliance, automate agreement execution, and lower administrative overhead.
• Asset tokenization and liquidity. Blockchain enables tokenization of illiquid assets (e.g. real estate, art), allowing fractional ownership and improved market liquidity. For example, a leading bank in Singapore has recently launched bespoke tokenized bonds that can be structured to meet clients’ needs in terms of tenor and yield.⁶
• Cross-border transactions. Blockchain can facilitate real-time cross-border payments and settlements, improving transaction speed and reducing costs. Firms may also explore issuing stablecoins or digital currencies to simplify cross-border transactions.
• Regulatory compliance and reporting. Firms can use blockchain technology to create transparent and auditable transaction trails, simplifying compliance with regulatory requirements. They can also help implement secure, tokenized data sharing mechanisms with regulators to improve reporting accuracy and efficiency.

By focusing on these areas, banks in Asia can effectively harness the potential of tokenization and blockchain technology to innovate and enhance their services. However, to successfully integrate tokenization, financial institutions need to act in several areas:

• Evaluate the impact of tokenization on their broader digital strategy and determine its alignment with their strategic priorities.
• Assess the feasibility of developing the required capabilities, including the technical effort and organizational changes involved.
• Adopt a ‘test-and-learn’ approach that can help institutions to shortlist use cases, pilot programs, and measure their outcomes to decide on further expansion.
• Finally, investing in talent and training is critical to equip teams with the skills and knowledge necessary to drive tokenization initiatives forward.

APAC capital markets have been moving to embrace shorter settlement cycles (T+1 and in some instances even T+0) for some years now, driven by the need for risk mitigation, error minimization and efficiency. APAC markets have traditionally benefited from being several hours in front of the US. Following the transition to T+1 in the US last year, APAC fund firms initially faced challenges, such as requiring staff to work unconventional hours to meet the new settlement timelines.

However, the automation of processes across the trading value chain has helped mitigate these issues, reducing dependency on staff working irregular hours. Automation has not only minimized settlement failures but also ensured that firms are well-prepared for future T+1 transitions in other regions, such as that planned for the UK and Europe in 2027. 

Sustainable and transition finance continues to gain momentum in Asia. In the first half of 2024, Singapore emerged as the second largest issuer of Environmental, Social and Governance (ESG) bonds in the APAC region, with issuances totaling $4.6 billion.⁷ This growth is fueled by supportive policies from governments and regulators, who have introduced various guidelines and initiatives to promote green finance and sustainable development in line with international climate goals. 

For instance, the Monetary Authority of Singapore (MAS) has published guidelines on environmental risk management and launched sustainable bond and green and sustainability-linked loan grant schemes to incentivize the creation of sustainable finance products.⁸ Furthermore, Asia's substantial share of global GDP, energy consumption, and emissions highlights its critical role in addressing climate change. This has contributed to a pronounced momentum for transition finance in the region.

However, there is increasing divergence in ESG-related regulations around the world. This momentum in Asia contrasts with recent regulatory shifts in other regions, such as the United States, where certain ESG-related policies have been rolled back.⁹

Investment banks in APAC are actively expanding their sustainable investing capabilities, supporting clients in their transition towards sustainability. One area of focus is renewable energy projects, where banks are providing financing and advisory services for solar, wind, and hydroelectric power initiatives. In the Asia-Pacific region, investments in renewable energy generation are projected to double to $1.3 trillion by 2030 compared to the previous decade.¹⁰ Banks are also helping establish carbon trading platforms to facilitate the purchase and sale of carbon credits, allowing companies to offset emissions while incentivizing cleaner technologies. 

In addition, there is a trend for banks to work with corporations to improve supply chain sustainability through eco-friendly sourcing and waste reduction strategies. Banks play a crucial role in facilitating knowledge and access to sustainable financing options. By providing education, tailored products, advisory services, and support for compliance, they help companies better understand sustainability benefits, navigate regulatory requirements, and assess the impact of their initiatives. 

To further address the challenges and capitalize on the opportunities in sustainable investing, banks can: 

• Analyze the ESG value proposition and identify how differentiated it is from competitors, particularly in relation to the identification of priority sectors, relevant products, and assessment criteria for sustainable and transition finance. Consider initiatives to strengthen your offerings in this space. 
• Assess ability to manage and evaluate the increasing data requirements for ESG products, including analytics, reporting tools, and governance frameworks.
• Finally, examine the compatibility of ESG-focused products with existing technology infrastructure, and determine the necessary investments in talent development to support such transformations.

As APAC continues to play a leading role in the development of ESG investing, financial institutions that adopt a forward-looking and strategic approach will position themselves to thrive in what is a rapidly changing market.

References:

¹ Nikkei Asia: https://asia.nikkei.com/Business/Finance/ASEAN-becomes-more-lucrative-than-China-for-J.P.-Morgan-and-Citi
² Fintech Hong Kong: https://fintechnews.hk/30641/ai/hkma-generative-ai-guidelines
  Hauzen: https://hauzen.hk/hkmas-approach-to-regulating-ai-in-hong-kongs-banking-sector
³ Monetary Authority of Singapore: https://www.mas.gov.sg/news/media-releases/2024/mas-commits-up-to-s$100-million-to-support-quantum-and-artificial-intelligence-capabilities
⁴ J.P. Morgan: https://www.jpmorgan.com/insights/markets/indices/indexgpt
⁵ Capco: https://www.capco.com/intelligence/capco-intelligence/capital-markets-2025
⁶ OCBC: https://www.ocbc.com/group/media/release/2025/ocbc-is-first-bank-in-singapore-to-avail-bespoke-tokenised-bonds-via-asset-tokenisation-platform
⁷ The Business Times: https://www.businesstimes.com.sg/esg/singapore-ranks-second-apac-esg-bonds-issuance-h1-2024-msci
⁸ Monetary Authority of Singapore: https://www.mas.gov.sg/-/media/mas-media-library/development/sustainable-finance/gfap-infographic-28-july-2022.pdf
⁹ Capco: https://www.capco.com/intelligence/capco-intelligence/capital-markets-2025
¹⁰ Zero Carbon Analytics: https://zerocarbon-analytics.org/wp-content/uploads/2023/11/Report_-Asia-leads-global-race-in-renewables.pdf