South-east Asia’s capital markets vary considerably in size and sophistication – Myanmar is still developing while Singapore is encouraging fintechs and Hong Kong seeking derivatives – and each country’s strategies for financing companies are equally disparate, writes Brian Caplen. This report looks at their development and highlights the region’s major trends.

Asian companies range from tiny food stalls to international conglomerates. Just as diverse as these companies are the environments in which they operate, from the informal sector of a newly emerging market such as Myanmar, which has limited financing options, to an advanced city-state such as Singapore, with its deep capital markets and international investors.

In this special report, Building Asia’s Capital Markets, we look at different financing strategies in key locations across the region. The Banker’s editors have worked with our colleagues at sister publication Nikkei Asian Review to present this joint report to coincide with the 50th annual meeting of the Asian Development Bank (ADB) in Yokohama in May. This is the second year of our collaboration around the ADB meeting.

We have discovered that a huge amount is being done to upgrade public markets and broaden the investor base. For markets to grow to their full potential, they need access to the various financial instruments for hedging that international investors would expect to find in London and New York.

Developing derivatives

In Hong Kong, the opportunity is to become the derivatives hub for investment flows into China, making Hong Kong the Asian equivalent of Chicago. In Thailand a marketplace for shares will be launched in the third quarter of this year aimed at bringing in more overseas money. In Singapore the story is about developing fintech, while in Indonesia the focus is on growing the corporate bond market and in Malaysia about extending the scope of Islamic finance.

Meanwhile in India there has been an unusual development in that the Bombay Stock Exchange (BSE) – founded in 1875 – has listed on the National Stock Exchange of India, set up in 1992. The motive for this unorthodox move is highly conventional, however: the BSE’s need to modernise.

But start at the other end of the capital markets spectrum with the new kid on the block, Myanmar. The country only recently opened up to foreign investment after years of military rule. The Yangon Stock Exchange started trading last year and there are just four listed stocks.

Yet Myanmar is a hive of business activity and, with many of the country’s banks at the maximum end of their lending limits, new avenues of financing must be found. In our profile of the country, we look at the role of microfinance and how this was the route to success for a local flower farm. Microfinance is also key in Cambodia.

Financial technology (fintech) offers the means to bring connectivity to large disparate countries with low levels of financial inclusion, such as Myanmar and Indonesia. But the research and development needed to make these gains may be carried out in an advanced financial centre such as Singapore.

Last year, Singapore fintech was fuelled by $50.6m in venture capital investment. Some of the funding comes from government, and entrepreneurs cite a progressive approach to fintech by the regulator as one reason for being in Singapore.

Targeting growth

In between Myanmar’s microfinance and Singapore’s fintech, the main strategy for financing corporate Asia is to make public markets bigger, more efficient and more attractive. Thailand’s stock exchange is the most liquid in south-east Asia due to retail activity. To attract more institutional investment, a third platform will be launched later in the year. The new over-the-counter platform aims to match angel investors with start-ups.

While Malaysia is a global hub for Islamic finance, it has not stopped broadening its appeal. The country is exploring a new approach to sharia-compliant wealth management and emphasises its socially responsible investment credentials.

The biggest investment potential in Asia lies in the two giants of China and India, which already boast a number of global companies with many more set to follow. The ideal would be to attract international investors to local listings of these companies rather than force them to go to the big markets in the West. The BSE has set up the country’s first international exchange, the India INX, to help bring this about.

In Hong Kong the plan is to link up with China’s fixed-income markets through Bond Connect, following on from success on the equity side with Stock Connect. The investment flows so generated should naturally lead to the establishment of a whole suite of fixed-income and currency derivatives. Making investment in Chinese financial assets easier for new classes of investor is a big step forward in financing Chinese companies.


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