Deloitte says improved mechanisms needed to support capital flow in Asia

Publish date: 14 January 2013

The ability of Asia as a region to mobilize capital is essentially on a par with other regions although there is a high degree of fragmentation, measured by current market capitalization, among the largest exchanges within the region. As such, it is necessary to improve mechanisms to facilitate capital flows in the region, which can be achieved by diversification through opening of listing rules, currency flows and core financial services, according to professional services firm Deloitte Touche Tohmatsu.

These are the suggestions made by Deloitte in its two latest editions of "Measuring Value" (MV), a regular external newsletter that aims at addressing topical business and economic issues. These two editions are dedicated to the Asian Financial Forum in which Deloitte is the Diamond Sponsor for the fourth consecutive year. The first MV piece discusses the role of capital markets in the integration of Asia, while the second paper examines the sector profile of markets and potential future trends.

"Our general view is that markets gain stability through diversity – both diversity in listed companies and diversity in supporting services. We would expect a healthy development trajectory of a globally competitive market to see some material relationship between growth of market capitalization and listings with various measures of diversification," said Dr. Ken DeWoskin, Director, Deloitte China Research and Insight Centre.

According to the papers, openness to listings from outside a market's domestic geography is a key form of diversification that supports sustainable growth. Even for stock bourses which appear to be relatively less diversified by industry measures or geographic reach are gearing towards geographical and product diversification. One of the examples is Toronto which has been the specialist for listings of mining companies. Figures indicated that by October of 2012, 173 new companies had been listed in Toronto, including 28 of them from offshore markets, including the U.S., Latin America, Africa, Australia and Hong Kong. There is also the emergence of new tradable products and assets, such as capital pool companies, exchange traded funds and structured products.

Despite this geographical and product diversification, the papers said equity markets are trending towards more specialization, based upon their individual core competencies and many other elements of competitive advantage. For both regulators and financial services providers, following this aspect of development will be critically important to fuel growth of the markets.

Mr. Chaly Mah, CEO and Regional Managing Director, Deloitte Asia Pacific said "Asia's major markets will trend towards specialization and will expand their role as primary contributors to Asia's integration. Specialization will help reshape the financial service ecosystem in the region, helping to harmonize and integrate financial, legal, reporting, and consulting services."

Commenting on the position of Hong Kong, Mr. Eric Tong, Global Financial Services Industry Leader, Southern Region, Deloitte China said "the city does play a role in supporting Asia's integration by leveraging its unique role to bridge China with the rest of the network in the region and beyond. The special relationship with China has enabled Hong Kong to play a special role in Mainland's financial intermediation. In addition, Hong Kong has a long history of experience in dealing with diverse business cultures, which are seen as strong challenges for the optimal workings of equity markets."