Capital markets in Asia are set to rise in prominence as the global financial crisis of 2008-09 has turned future world economic development into a tale of two halves.
The half of the advanced markets is set to grow much more slowly, with the half of the emerging markets enjoying substantially faster expansion. This will open up opportunities for Asian capital markets to take away some of the business and roles of advanced markets.
The slow but calculated move to raise the international usage of the Chinese yuan is a case in point. It will define the future of Hong Kong and other centres. In the long run, the yuan could even become the core currency around which other Asian currencies revolve. The more Asian countries become part of the same supply chain with China, the stronger the role of the yuan.
Beyond currency, there are other key drivers for more rapid capital market development in Asean. What are they?
First, the move toward the Asean Economic Community will lead to more intra-regional trade in goods and services. A lot of financing will be required, and it will have to expand beyond the banking channel into the capital market channel.
Second, we must encourage Asean economies to invest more in each other. In the past, countries invested surplus savings in advanced markets only to see them recycled into countries with deficits. Asean investors need to get more comfortable with Asean financial products.
Third, the Asian Crisis of 1997-98 showed that capital markets can be much better than banks in allocating scarce imported capital to deserving projects. Because bank lending is a secret between a bank and its customer, it can easily lead to overinvestment and overcapacity.
About the author
Thirachai Phuvanatnaranubala (born 21 December 1951) is a Thai economist, the Secretary-General of the Securities and Exchange Commission of Thailand (a post he has held since December 2003) and Chairman of the ASEAN Capital Markets Forum (ACMF). Prior to this, he was a Deputy Governor of the Bank of Thailand.