Lawyers in the Asia Pacific are cautiously optimistic about 2021, although much will depend on the successful eradication of COVID-19.
The global distribution of COVID vaccines and the promise of a new U.S. government that would bring normalcy and predictability back to Sino-American relations are expected to send positive signals to the market, prompting transactions to pick up, especially in the private equity investment sector. And with more transactions, law firms are likely to expand staffing in related practices such as M&A and financing.
“Most of our top firm clients have been very busy in Asia. And firms are understaffed because of the hiring freezes that were put in place earlier,” said Evan Jowers, a Hong Kong-based legal recruiter.
Indeed, as parts of Asia recover from the pandemic, deals are already starting to pick up. But with the U.S. and European markets continuing to experience surges in COVID cases, firms are not yet getting the green light to hire Asia recruits, he said.
Across the region, much is riding on whether the pandemic gets under control globally and whether the world’s economies appear on track to recover.
Our reporters in Asia and Australia talked to lawyers about their expectations for 2021.
In China, where there hasn’t been a major COVID outbreak since the spring, there’s still a high level of uncertainty, said Shawn Chen, a managing director at SSQ who advises firms on recruitment and expansion in China.
“The next three months are key,” he said, noting that if market confidence is restored over that period of time, more hiring might occur, even making up for the losses of the past year.
Even when the market is strong, however, global law firms in China will continue to be cautious about expansion. “I wouldn’t be surprised if more firms want to scale back or leave, although they will still be in the minority,” Chen said. “Most firms are committed to this market.”
For the legal community, the short-term challenges will not affect longer-term market trends, such as gaining access to Chinese law capability via the Free Trade Zone joint operations program in Shanghai. The pandemic has slowed the pace of applications: only one license was handed out in 2020. But global firms, including U.S. firms, are still interested in taking advantage of the program, according to Chen. “It’s been years in the making. And there will be more than just a couple. But it will take some time,” he said.
On the other hand, Chinese firms have benefited from expanding in Hong Kong, taking advantage of a strong capital markets sector. In light of the continuous stimulus packages released by the world’s central banks to combat a COVID recession, Hong Kong’s stock market will likely retain its strength in 2021, especially given the high expectation that more U.S.-listed Chinese companies will seek secondary listings in Hong Kong. They will veer toward Hong Kong because a new law in the U.S., passed in December, makes it possible to delist foreign companies, including those from China, if their auditors cannot comply with U.S. investor protection laws.
But there is a catch. In November, the Hong Kong Stock Exchange proposed raising profitability requirements of listing applicants. The change is intended to guarantee that only good quality companies list in Hong Kong, but it will inevitably prevent smaller companies from listing, and smaller companies are where most Chinese firms focus their Hong Kong law practice.
“This will have a huge impact on everyone: the pie is smaller,” said Fu Siqi, a partner in charge of Chinese firm Tian Yuan’s Hong Kong practice. Fu said his firm has racked up a good list of deals and is confident that Tian Yuan will be successful despite the new rules. But, he said, the market will become much more competitive and most Chinese firms will likely be more cautious about expansion.
In Hong Kong, a place that has seen its share of disruption and turbulence, the past year brought more business disruption than ever before. The COVID-19 pandemic sent a city already reeling from months of political and social unrest into possibly its worst-ever recession. Meanwhile, the city has been caught in the middle of growing tensions between China and the United States, with the Trump administration stripping Hong Kong of its special trade status and threatening sanctions on financial institutions, thereby throwing into question the city’s future as an international business and financial hub.
“As we head into 2021, we are cautiously optimistic that business sentiment will improve as the pandemic recedes and geopolitics returns to a more predictable trajectory.”
“Without a doubt, 2020 has been a challenging year in Hong Kong,” said Steven Sieker, managing partner of Baker McKenzie’s Hong Kong and Mainland China offices. “As we head into 2021, we are cautiously optimistic that business sentiment will improve as the pandemic recedes and geopolitics returns to a more predictable trajectory.”
Sieker expects the Greater Bay Area to be a major area of focus for clients, especially those in the financial services, technology, health care and real estate sectors. In recent years, Chinese authorities have accelerated initiatives promoting the greater economic and financial integration of the Greater Bay Area, which consists of Hong Kong, Macau and nine cities in mainland China. In August, a three-year pilot program was established to open up the entire Greater Bay Area to Hong Kong and Macau lawyers who pass a special qualification exam.
“This should provide law firms with plenty of opportunities across the board, but with the biggest growth likely to arise from cross-border M&A, banking and finance, and capital-raising transactions,” Sieker said.
Some firms will be reevaluating their Hong Kong strategies in favor of other markets where there are fewer risks. But Keith Brandt, managing partner of Dentons Hong Kong, said firms with a longer-term perspective will continue to flourish in the city, especially those that can capitalize on new opportunities emerging from the city’s recent crises.
In particular, Brandt believes litigators and international arbitration lawyers will continue to see greater demand for their services, following on from strong demand in 2020 as a result of pandemic-related disputes. With distress and liquidity challenges also expected to increase over the course of 2021, restructuring and insolvency will inevitably be front and center for most practices in Hong Kong.
Neil Torpey, Hong Kong chairman at Paul Hastings, said although Hong Kong’s legal sector has consolidated over the years, there may be more tie-ups in 2021 as firms look to accelerate the execution of their business strategies on the back of the pandemic. Meanwhile, struggling firms with vulnerable balance sheets will seek to plug holes in their practice offerings by merging with other firms.
In addition, the pandemic is likely to have a lasting legacy on work arrangements. While law firms implemented remote working in 2020 because of COVID-19, many are now rethinking their long-term plans so that flexible working arrangements become permanent, in part due to greater pressures to lower costs.
In Southeast Asia, lawyers are expecting a gradual bounce back in dealmaking in Q2 and Q3 of 2021, but the recovery will not be immediate or abrupt, as investors are going to want to test the waters before returning with gusto.
Lawyers on the ground are also predicting more intra-Asia transactions rather than a reliance on investments from outside of Asia. ASEAN cooperation will be key. The 10 member states have established several mechanisms to help aid recovery from the pandemic, and those efforts will spur confidence in economic recovery within the region, they say.
But nothing will be more effective than the vaccine itself. Managing partners of law firms in emerging markets such as Cambodia and Vietnam acknowledge their revenue took a sizable hit during the pandemic. They attribute a slower recovery to the fact that many of their clients have not digitized, making face-to-face meetings and negotiations paramount to deal success. The inability to travel and meet clients has seriously curtailed their businesses.
In India, Cyril Amarchand Mangaldas managing partner Cyril Shroff expects that M&A, restructuring and private equity practices will be busy in 2021. He also expects more domestic deals as India adopts a “self-reliance policy,” a move that will create more challenges for foreign investors. Shroff also expects litigation will take a back seat to arbitration as the preferred dispute resolution platform.
Omni Bridgeway agrees. The Australia-based litigation funder is planning to open an office in India in 2021 but will only focus on cross-border arbitration involving Indian corporates. The funder expects more disputes to arise as a result of the pandemic, particularly involving major infrastructure and oil and gas projects.
Law firms, meanwhile, are expecting that lawyers who lost their jobs due to the pandemic will soon find new homes with regional firms that survived the pandemic. Both Cambodia’s DFDL and Vietnam’s YKVN believe there is room to grow organically and they are planning to hire from the pool of talent that has become available. In 2021, both firms said they will also focus on building stronger referral relationships with international firms in order to win more work.
“Smaller firms will realize that technology is a multiplier that can allow them to compete on a scale beyond their physical size.”
The pandemic has forced law firms to look at their profitability and consider whether they should shed weight in practice areas that are not core to their regional strategies. Firms that did not invest in tech pre-pandemic have scurried to get on board. And like firms in other parts of the world, firms in Southeast Asia are considering flexible working arrangements. Cyril Amarchand became the first firm in the region and one of the first in the world to launch a permanent remote working policy option. Firm leaders say they expect to see more follow suit.
Meanwhile, legal tech has dominated industry discussions in the region. Law firms will continue to evaluate their success in adopting technology and in offering legal tech as a service. Singapore-based Josh Lee, chairman of the Asia-Pacific Legal Innovation & Technology Association, is predicting a rise in systems that allow for better performance tracking, both in terms of staff productivity and client conversion rates.
While many predict that the inability of smaller operations to adopt and offer legal tech will result in the shuttering of offices, Lee argues that the rise of legal tech will actually help smaller firms grow in competitiveness. “Smaller firms will realize that technology is a multiplier that can allow them to compete on a scale beyond their physical size. What will be more important is the willingness to adopt innovative solutions, and the ability to integrate these into overall workflows. These are factors that do not differentiate between small and large firms.”
Lee also expects to see more market consolidation in the legal tech space, although new entrants hoping to ride the wave of interest will continue to refresh the industry, he said.
Australian law firms saw profits increase in 2020 and many are expected to continue their strong performance in the first half of 2021.
However, Adrian Tembel, chief executive partner of Thomson Geer, said that Australia has been living in an “artificial world,” thanks to the large amount of government stimulus that supported the economy through the COVID-19 pandemic. He is less confident about the second half of the year.
Also, Australia is in the midst of a bitter trade dispute with China, with a wide range of Australian exports such as wine, sugar, wool, copper and coal being blocked by Chinese customs or facing punitive tariffs. “Given the China developments, that’s going to be less of a source of activity for Australian lawyers,” Tembel said.
Genevieve Collins, chief executive partner at Lander & Rogers, foresees an uptick in work for lawyers this year thanks in part to the introduction of new anti-money laundering, modern slavery and cybersecurity legislation, which will increase clients’ focus on regulation.
Collins also expects to see a pickup in mergers and acquisitions and an increase in insolvency work as the government stimulus runs out in the first half of the year.
Norton Rose Fulbright’s Australian managing partner, Alison Deitz, said she, too, expects to see an increase in M&A, particularly in the infrastructure, renewables and technology sectors. She also anticipates more regulatory investigations, some stemming from the COVID pandemic, in areas such as cyber-risk and financial crime.
No region of the world truly lives in a bubble, something that became clear during the global pandemic. And the change in government in the U.S. will have an impact as far away as Australia.
Deitz said the Biden administration’s policies will likely result in more open trade, which could lead to foreign investment in Australian projects. And if the world can really vanquish COVID-19, even practice areas that relate to such industries as construction and tourism could rebound, she said.
Lisa Shuchman contributed to this report.