In APAC, the era of low interest rates is drawing to a close.

In early October, the Reserve Bank of Australia raised rates by 25 basis points to 2.6%, and the South Korean central bank opted to raise rates by half a percentage point to 3%. The Reserve Bank of New Zealand raised its official cash rate to 3.5% at the start of October, its eighth increase over the course of the last 12 months.

Rising rates are intended to rein in mounting inflation. There besides, higher rates globally—particularly in respect of decisions taken by the US Federal Reserve—will generate capital outflows and currency depreciation against the dollar for many Asian economies.

Credit markets enter cooling period

The impact on credit markets will inevitably be felt in the M&A arena, which is at the start of a cooling-off period: 1,240 APAC deals worth US$161bn in aggregate were announced in Q3, per Mergermarket data. Though robust compared to pre-pandemic quarterly figures, these totals are down 13% by volume and a massive 63% in value terms from Q2.

Declines in public listings can also be observed: through the first nine months of this year, APAC recorded 608 IPOs with proceeds worth just over US$100bn, according to EY figures, representing declines of 25% in volume and 22% in value compared to the same period last year.

Rather than distributing their resources across scores of smaller deals, banks are likely to focus on a narrower range of larger, more lucrative transactions.

Increasing focus on megadeals

As financing conditions tighten and the M&A and IPO markets decelerate, banks’ earnings are coming under strain. Amid a maelstrom of headwinds, investment banks will be more selective about the deals on which they choose to advise.

However, the markets for bids and listings will not dry up entirely. Megadeals, of which there have been 15 in Asia so far this year, worth a combined US$320.8bn (down only slightly from the US$351.8bn logged across Asia’s 31 megadeals last year) will remain highly profitable.

Rather than distributing their resources across scores of smaller deals—and all the valuation appraisals, capital raising, due diligence, and negotiations they would entail—banks are likely to focus on a narrower range of larger, more lucrative transactions.