Asia's cap markets need harmonisation - Asifma

A white paper from the group says the structural development of Asia's capital markets has not kept pace with the region's economic growth.
The report says there is a trade-off between protecting existing market structures and measures that could stimulate growth.
The report says there is a trade-off between protecting existing market structures and measures that could stimulate growth.

Asia needs common accounting standards and improved corporate governance to sustain the region’s economic development, according to a white paper from the Asia Securities Industry & Financial Markets Association (Asifma).

The paper –  “Asia's Capital Markets: Strategies for Sustained Growth” – states that the evolution of  capital markets in the region, outside of Japan, has not kept pace with its economic growth.

As a result, Asifma outlines several areas in need of improvement, with regional harmonisation principal among them.

“The historical tendency to compete between the region’s jurisdictions may no longer serve the best interests of market development,” the reports says.

Asifma’s white paper, released on Friday, calls for greater collaboration between countries “in a region that has no overarching governmental or pan-regional organisation to drive such a process”.

It says that national jurisdictions need to ensure more cross-border flexibility to stimulate investor interest, while removing restrictions on market access in favour of a more open approach.

“Asia needs to speak with one voice, otherwise it might get discounted by the US and Europe," Mark Austen, chief executive of Asifma, told FinanceAsia. "It's crucial."

Calls for a stronger regional voice have grown louder recently with Cesar Purisima, the Philippine finance minister, and former French prime minister Dominique de Villepin both arguing for a pan-Asian credit ratings agency.

This, they said, would instal greater confidence in Asian investors at a time when the ratings handed out by the three dominant US agencies – Standard & Poor’s, Moody’s and Fitch – have been questioned.

The incoming Basel III regulatory regime has also attracted criticism among the region’s banks for being a one-size-fits-all set of rules that does not take into account country-specific differences. As it is, the implementation of the new rules is expected to be patchy since they rely on individual country regulators to interpret them and push them through.

"Asia needs regional solutions, especially with new regulation coming down the line," said Austen. "Since the Asian financial crisis the currency markets have developed but the capital markets are somewhat behind."

Broadly, Asifma’s white paper says Asian policymakers are in a strong position because of a shift of economic power to the region.

It suggests Asian markets could benefit from some of the incoming new rules, so long as they are able to create efficient structures for intra-regional transactions – something that requires a more coordinated approach.

“Better transparency in reporting and disclosure, along with convergence in accounting standards, will ensure regulators are operating in a more unified fashion based on shared data,” the report states.

The report says that there is a trade-off between protecting existing market structures and measures that could stimulate growth, and that this is something policymakers should think hard about.

It notes that many Asian economies implemented capital controls following the Asian financial crisis of 2007-08, citing the potential market disruptions due to “hot money”. However, “attempting to block high volume flows through capital controls only serves to hinder the growth of long-term investment in Asia,” the report says.

Asifma breaks down its recommendations into five market categories: equities, fixed income, foreign exchange, commodities and derivatives.


The paper states that effective equity markets are “an essential element for Asia’s continuing success” and key to the real economy.

It acknowledges that Asia’s equity markets differ from each other, ranging from developed markets, emerging markets and frontier markets.

As such, “continued efforts are required to provide international investors with confidence in and access to open, efficient and attractive equity markets”.

Fixed income

Asifma says several factors would help Asia's bond markets to develop at a faster pace, including improved access to retail markets, harmonised legal documentation and improved bankruptcy, insolvency and resolution regimes.

Foreign exchange

The report says Asian FX markets should attempt to adopt international standards and practises, and address current roadblocks to the market's growth, including excessive regulation, “unnecessary margin requirements”, and the relatively slow development of electronic trading.


Asifma’s report says that price discovery in the region lags behind Western exchanges and that volumes are lower than is justified by the region’s significance as a commodities producer and consumer, resulting in higher volatilities and costs to users.

It suggests countries should implement a consistent framework, improve regional market infrastructure and implement a consistent and harmonised tax regime.


The white paper says derivatives markets in Asia are relatively underdeveloped compared to those in the US and Europe.

It calls for the region to address legal uncertainties, strengthen contract enforceability and prevent the fragmentation of counterparties, while accelerating the development of credit derivatives markets.


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