Capital Markets

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Capitalising on an integrated regional market

The repatriation of foreign funds to the West in the early weeks of August this year reintroduced greater volatility into the markets, causing many in the region to tumble. Sparked by the tapering off of the US’ quantitative easing (QE) programme and stronger signs of recovery, the so-called ‘hot money’ left ASEAN shores.

Not surprisingly, the event sparked a number of discussions concerning the issue of capital markets at the Network ASEAN Forum. Speaker after speaker talked about the need for broader and deeper ASEAN markets, about the need for ASEAN organisations to seek greater funding from ASEAN, and about the need to integrate the fragmented regulatory landscape.

“There needs to be a hard talk session between our governments on what they are willing to embrace in terms of capital market integration so we can all have realistic ambition about what will happen in 2015, and as practitioners we can plan,” said Nazir Razak, Group Chief Executive, CIMB Group, Malaysia and ASEAN Business Club council member.

Nazir, who also chaired the ‘Lifting the Barrier’ breakout roundtable session on the subject, added that his banking group, CIMB, has already encountered numerous regulatory setbacks despite its drive towards becoming an ASEAN-wide bank.

Persisting issues such as the non-recognition of prospectuses and documents issued by other countries, barriers to cross-listing of publicly traded entities and sudden changes to equity and ownership limits have created inefficiencies and obstructed the path towards market integration.

At the same time, said Toby Pittaway of Oliver Wyman banking consulting group who presented a research paper at the roundtable session, more development was required at a regional-level to improve market fundamentals including velocity, liquidity and the investor base.

“When we look at metrics like liquidity in the market, we find that it is a lot less than other markets, even in other parts of Asia,” Pittaway said during his presentation. “[Meanwhile], there is still very little investment in ASEAN markets, likewise on the retail side. We are more likely to find people buying shares in Google or Apple than into other major companies in ASEAN.”

A weak investor base, particularly from retail, was also cited as a structural issue. Retail’s lackadaisical approach to investing has been well documented in ASEAN; with one of the highest savings rates in the world, the question for ASEAN has always been, ‘How do we mobilise these savings into investments?’

Nazir suggested that ASEAN revisit the idea of a pan-ASEAN stock exchange which would list all the top companies in the region. This could theoretically inject some much-needed recognition into ASEAN companies, which would in turn boost investor confidence.

But participants at the roundtable did not hop on the bandwagon as enthusiastically as he would like. Large fund managers in attendance did not see the value of a pan-ASEAN market, whilst those with legal and accounting backgrounds were concerned about regulatory and risk management.

Nazir’s co-chair during the session, Cesar Consing, President of the Bank of the Philippine Islands, added that this was necessary to bring stability to the local markets: “The fact is, the savings rate in ASEAN is among the highest in the world and unless we can take advantage of this, we will continue to see volatility in our asset prices and in bond yields.”

The roundtable did manage to secure a win when Nazir drew an affirmation from the Malaysia Securities Commission Deputy Chief Executive, Dr Nik Ramlah Mahmood that ASEAN would be able to implement a mutual recognition framework by 2015. The framework would enable prospectuses issued from one ASEAN country to be recognised in another, thus reducing the amount of overlap.

However, it was clear that more engagement was required to address some of the other issues facing the region’s capital markets.

Sector Champion

Co-Conveners
Nazir Razak,
Group Chief Executive, CIMB

Cezar P. Consing,
President & CEO, Bank of Philippine Islands

Research Partner
Oliver Wyman
Dr. Christian Pedersen, Partner, Head of Finance & Risk Practice, Asia-Pacific
Toby Pittaway, Partner, Corporate & Institutional Banking APR Practice head
John Law, Senior Advisor, Asia Pacific Region

Moderator
Patrick Walujo, Managing Partner, Northstar Pacific Group




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