ASEAN capital market linkage faces regulatory hurdles

Subject

The challenges facing ASEAN capital market integration ahead of the ASEAN Economic Community.

Significance

ASEAN states are liberalising regional capital flows, anticipating the ASEAN Economic Community (AEC) in late 2015. On January 27, ASEAN agreed the Principles for Product Transparency and Disclosure on Cross-Border Trade Settlement. However, inconsistent policies are hampering emergence of this single market, and mobilisation of sufficient funding for ASEAN’s development needs. On December 26 Malaysia instructed government-linked companies (GLCs) temporarily to concentrate investments domestically, intending to stem capital outflows and boost domestic consumption. Such edicts exacerbate concerns over politics and state-owned enterprises in ASEAN capital markets.

Impacts

• Capital markets will account for an increasing share of business financing, but growth will be slow.
• As long as significant development gaps remain among ASEAN countries, most capital will flow to the larger economies.
• Less-developed ASEAN countries will look to external funding partners rather than ASEAN-based equities to finance development projects.