Asian equity markets: growth, opportunities, and challenges

Abstract

Asian equity markets have grown significantly in size since the early 1990s, driven by strong international investor inflows, growing regional financial integration, capital account liberalization, and structural improvements to markets. The development of equity markets provides a more diversified set of channels for financial intermediation to support growth, thus bolstering medium-term financial stability. At the same time, as highlighted by the May-June 2006 market corrections, the increasing role of stock markets potentially changes the nature of macroeconomic and financial stability risks, as well as the policy requimacfemnts for dealing with these risks.equity markets, Asian financial markets, financial integration, financial stability, international capital markets,

Understanding Asian Equity Flows, Market Returns and Exchange Rates

“…All in all, our paper is perhaps the most similar to Richards (2005) in terms of coverage (emerging Asian markets), data frequency (daily), data source (public data from stock exchanges) and the focus on the non-crisis period. However, in our longer sample, both the bear-market phase (2000)(2001)(2002) and the subsequent bull-market phase ( -2006( , not covered by Richards (2005) are represented. Our paper also let the exchange rate play a bigger role.…”

“…For instance, international investors who are interested in diversifying into emerging market equities (possibly in response to the "push" factors mentioned above) are likely to make purchases in multiple markets, instead of investing in only one particular market. Purfield et al (2006) mention diversification as one explanation for the large influx into multiple Asian markets in recent years. By the same token, when international investors wish to reduce their exposure to emerging markets or to a region, they may opt to cut back across the board.…”

“…Even in the more active markets, foreign investor turnover is typically less than 0.3% of market value. However, as pointed out in a survey of Asian equity markets byPurfield et al (2006), scaling turnover by total market value may underestimate foreign investors' importance because some of these markets have a significant portion of non-free-floating shares.12 More broadly, in relation to overall portfolio capital flows (balance of payments data), non-resident net equity securities flows are also considerably larger in absolute magnitude than non-resident net debt securities flows in Korea, Taiwan and Thailand (similar data breakdown is not available for India).13 Gradual adjustment in multiple steps may be partly explained by the informational disadvantage of foreign investors, as suggested by a number of previous studies (see section 2). Alternatively, gradual adjustment could also be a result of constraints such as illiquid markets.…”

“…FX turnover is the average daily traditional foreign exchange turnover of the respective domestic currency in April 2004, from the 2004 Triennial Central Bank Survey of Foreign Exchange and Derivative Market Activity 5. As of end-2005; fromPurfield et al (2006); for Taiwan, from the Taiwan Stock Exchange.Sources: Datastream; CEIC; national stock exchanges; authors' calculations.…”

Does Finance Lead to Economic Growth? An Empirical Assessment of 12 Asian Economies

“…Studies (Purfi eld et al, 2006) show that Asian equity markets are sizable and fast growing. Since 1990, Asia's capitalisation has more than doubled in US dollar terms to $ 13.7 trillion, 30 per cent of world capitalisation.…”