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Asia-PacificSeptember 1 2011

Japan still integral to Asian and global economic progression

As Asia's behemoth economies continue to outperform their Western counterparts, moves to establish economic communities in Asia are gathering pace. Atsushi Saito, president and CEO of the Tokyo Stock Exchange Group, explains why Japan will be a leader in any such regionalisation, as well as providing a link between the US and Europe and the vibrant economies of Asia.
by John Beck
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Japan still integral to Asian and global economic progressionAtushi Saito

The balance of political, economic and financial power has begun shifting from the US and Europe to Asia in recent years, with the emergence of China, India and the developing countries in south-east Asia.

The rise of Asia

First, let us examine the economic situation which has led to changes on a global scale. Along with the economic development of China and India since 1990, the entire Asian economy has achieved rapid growth. Although it has experienced periods of temporary stagnation due to the Asian currency crisis in the late 1990s and the global financial crisis in 2008, Asia has enjoyed V-shaped economic recovery.

Additionally, despite a recent slowdown due to European financial crisis and monetary tightening policies, economic growth has been steadily expanding thanks to increased trade in goods, related to expanded consumption within Asia. For example, according to International Monetary Fund (IMF) estimates, China's gross domestic product (GDP) growth of 10.3%, 9.6% and 9.5% in 2010, 2011 and 2012, respectively, while the numbers for India's stand at 10.4%, 8.2% and 7.8%, with continued high growth expected beyond these years.

While global corporate fund-raising needs have been heading into a downturn, the number of initial public offerings in 2010 in Shenzhen totalled 291, in South Korea it was 92, and in Hong Kong it was 77. Likewise, in terms of the amount of funds raised, Hong Kong reached $57.9bn, Shenzhen $44.2bn and Shanghai $29.2bn.

These figures are representative of the Asian markets and demonstrate a momentum that greatly surpasses that of the US and European markets. Much of this trend can be attributed to Chinese companies, but there has also been a flurry of market expansion across all of Asia. With healthy consumer demand and an abundant workforce that makes up 60% of the world population, it is likely that Asia will continue to pull the world's economy as both the largest consumer base and the 'world's factory'.

The world's financial markets are now on the path of recovery from the global financial crisis, and much of that strength comes from the economic growth in Asia. Amid the fiscal problems of some European countries and the economic slowdown in the US coinciding with the end of the second quarter, it could be said that Asia's role in the world economy is expanding. How this Asian economic growth can be utilised to achieve sustainable growth in global economies is becoming an increasingly important point.

Vibrant markets

Next, let us view the securities markets of Asia. The base of today's Asian securities markets, except for Japan, was recreated under the strict market supervision of the IMF in the aftermath of the 1997 Asian currency crisis. By achieving regional financial stability through uniform restrictions on domestic and foreign capital flow, the Asian markets became vibrant and were able to avoid the serious adverse effects of the 2008 global financial crisis.

Although there are questions about the pros and cons of the IMF’s measures, the relatively stable conditions of today's Asian markets can be largely attributed to the fund. With the possibility of a financial crisis occurring in any region of the world, co-operative efforts across international borders are vital, and the importance of internationally trusted institutions such as the IMF is becoming clearer than ever.

However, from the perspective of capital market infrastructure, the scale of cash equity markets in Asia remains small, and it is vulnerable to inflows and outflows of foreign capital, with many issues to resolve. With a view to decreasing the risk of a currency crisis and facilitating the circulation of funds throughout Asia, fostering a bond market is of the utmost importance.

One move towards that goal is the Asian Bond Markets Initiative agreed to in 2003 to plan an east Asian economic community aimed at regionalising Asian countries. Furthermore, there has recently been a movement of regional co-operation of equity markets. In March 2009, the top representatives of five Association of South-east Asian Nations exchanges signed an agreement to create an electronic trading linkage between their markets.

Further efforts to regionalise the Asian economies have been made, while progress is seen in the plans of China, Hong Kong and Taiwan for a 'greater China'. In these ways, Asia is realising regionalisation in its politics, economies, finance and a variety of other fields. Despite the numerous issues which exist during this transitional period, it is highly likely that Asia will develop into a community with a large amount of international influence in the near future, in the way that the EU, the North American Free Trade Agreement and Mercosur have over the past few years.

Japan's leading role

Amid these developments, Japan has assumed a role of leadership in regionalisation and the creation of an east Asian community. Tokyo Stock Exchange (TSE) is also pursuing various initiatives aimed at working as a bridge connecting global markets and Asia. Specifically, TSE and NYSE Euronext (NYSEE) signed a memorandum of understanding in March 2011 related to discussion of a mutual network connection. If it is realised, access between the US and Europe would be drastically improved for Asia through a linkage of TSE's 'Arrownet' and NYSEE’s secure financial transaction infrastructure.

By facilitating a connection between the vibrancy of growing Asian companies and the abundant capital of the US and European markets, we can expect that global economies and financial markets will be greatly invigorated. Furthermore, TSE is involved in measures to introduce Asian corporations to the global financial market by taking advantage of its well-developed market. Such involvement includes establishing the Tokyo Alternative Investment Market, which offers a market for equities boasting more flexible regulations than existing markets, as well as one for listed bonds. Additionally, TSE serves as the secretariat of the Asian Oceanian Stock Exchanges Federation, where it has vast experience of leading co-operation and collaboration between securities market in the region.

Union progression

Much like the EU economic region, countries in Asia are experiencing a revolutionary period where a sort of unification of economies and financial markets is occurring. Though there are many difficulties, including history, economic disparities and a difference in national governance, regional integration is already progressing in some fields, and there are high hopes for the future. However, Asian securities markets still have many regulatory areas to develop and they could learn much from developed countries in the US and Europe.

If that can be realised, Asian markets will truly join their global peers and contribute to the stable development of the world's economy and financial markets. As the leading financial market in Asia, Japan shares a common perspective with the US and European markets on issues such as values and regulatory framework, and is equipped with the experience and expertise gained from fusing Asian and Western cultures over the years. Such is Japan's strength, which will serve to support Asian development.

Through such means, we will work towards Asia assuming a greater role in the global economy and capital markets. I am confident that Asia's progress will continue to be a focal point of the world's attention for years to come.

Atsushi Saito is the president and CEO of the Tokyo Stock Exchange

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