KUALA LUMPUR: CIMB Group chairman Datuk Seri Nazir Razak said Asean needs to focus on more substantive real obstacles to intra-Asean capital flows in both debt and equity markets, such as withholding taxes and settlement processes, and not just high-profile and easier initiatives. At the same time, Asean needs to step up its efforts to promote intra-Asean investment, as most Asean investors tend to instinctively look at developed markets for diversification.
“It’s not all about liberalising, but equally about safeguards and inclusion. The Asean Capital Market agenda now is more realistic. The vision is no longer to have deep, liquid and integrated capital market but separate but interconnected, inclusive and resilient ones.
“If we don’t make the Asean economies of scale worth for Asean interest, we will wake up with corporate Asean being conquered by the Amazons and the Alibabas, the Ubers and not the Grabs. That should be Asean’s call to action in all economic aspects, and not least the capital markets,” said Nazir, speaking at a roundtable discussion titled “Deepening Capital Markets in Asean: Opportunities and Challenges” organised by CIMB Asean Research Institute (CARI) here yesterday.
The discussions highlighted that allowing issuers to raise affordable capital at scale and providing investors with viable and diverse options to deploy short and long term domestic savings, are a couple of measures that will help Asean unlock US$50-US$100 billion (RM214.5-RM429 billion) in additional financing that can help address critical funding gaps.
This is a prerequisite to address the disparity in maturity of capital markets across the region and promote better Asean capital market integration.
During the roundtable, McKinsey launched a report titled “Deepening Capital Markets in Emerging Economies”, which assessed capital markets in Asia using its Asian Capital Markets Development Index.
The index measured how accommodative each capital market is in allowing issuers to fundraise at scale and creating investment opportunities, as well as pricing efficiency.
The index ranked Singapore’s capital market as the deepest in Asean with a score of 3.4 out of 5, followed by Malaysia at 3.25, Thailand at 2.8, Philippines at 2.25, Indonesia at 2.2 and Vietnam at 1.2.
McKinsey & Company senior partner and Asia-Pacific Banking Practice managing partner Joydeep Sengupta said building capital markets requires policymakers in Asean to diagnose performance at a granular level, design markets for sustainable rather than fast development and implement a nationwide change-management approach.
He said Asean policymakers can consider introducing a series of measures to develop a liquid government debt securities market; promote the development of a deep and broad investor base for the supply of capital through pension funds and insurance companies; build cornerstone institutions such as credit enhancement agencies to be a catalyst for rapid development of priority sectors and offer tax incentives for promoting the development of priority assets like infrastructure, while removing tax policies that hamper development.
On the Asean capital markets’ performance benchmarking, he pointed out that there is a lack of avenues to deploy domestic savings and mediocre risk-reward profile, as well as poor pricing efficiency, leading to inferior resource allocation.
“Deepening of capital markets is critical to support economic expansion of Asean from US$2.6 trillion today to US$5.2 trillion by 2025 and meet annual infrastructure investment of US$160 billion,” said Joydeep.