ASEAN markets breaking down barriers for cross-border investors
Updated: 2013-01-08 07:31
By Alexander Flatscher(HK Edition)
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Although the ASEAN region still goes somewhat unnoticed outside of Asia, a lot is brewing for investors in the region - comprising 10 nations, including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. As part of their capital market integration efforts, Southeast Asia stock markets have taken a big leap forward as investors in Malaysia, Singapore, and Thailand can now trade easily among the three markets.
The foundation was laid in 2004 when the ASEAN member countries created a forum of market regulators, namely the ASEAN Capital Markets Forum (ACMF). During a presentation at a recent conference held in Bangkok, Jamie Allen, secretary general of the Asian Corporate Governance Association (ACGA), explained that ACMF initially focused on harmonization of rules and regulations before shifting towards more strategic issues to achieve greater integration of the region's capital markets under the AEC Blueprint 2015, which is an implementation plan described as a "coherent master plan" for the ASEAN Economic Community 2015.
The goal is to achieve significant progress in building a regionally integrated market where capital can move freely, with issuers free to raise capital anywhere, and investors can invest anywhere. For example, an investor in Bangkok can now buy stocks in Malaysia without having to deal with a Malaysian broker that could pose communications difficulties with a Thai market participant. Now this investor can instruct a Thailand broker to buy the stocks at the Bursa Malaysia. The broker in Bangkok then routes the order through an elaborate system to a broker in Kuala Lumpur, who will execute the order and arrange the trade settlement. Trades are settled in the local currency, which will be Thai baht in our example here.
Decision makers of participating stock exchanges are optimistic about the benefits that can be expected through securities market integration in the ASEAN region.
But all these benefits do not come without challenges, including capital controls, exchange restrictions, differences in tax regimes, uneven development, portfolio restrictions on institutional investors, differences in product range, differences in regulatory regimes, and differences in market infrastructure. Integration does require strong political will to reach the desired goals.
Allen also identified several important corporate governance issues. Differences in corporate governance standards may have an impact on the investment culture in the ASEAN region. For example, while listed companies in the Philippines, Singapore, Thailand, and Malaysia have to effectively disclose holdings of 5 percent and more, there is no such requirement in Indonesia. At the same time, although investors in Indonesian stocks enjoy strong pre-emption rights, this is not the case in Malaysia, the Philippines, Singapore and Thailand. A further harmonization of corporate governance practices may well be expected as capital markets continue to become more integrated.
Currently, only three out of the seven stock markets in the ASEAN region have decided to join the regional trading platform as the Philippine Stock Exchange, Bursa Efek Indonesia, and Vietnamese stock exchanges in Ho Chi Minh City and Hanoi are planning to join later. Going forward, much can be expected of the development of the ASEAN securities markets.
The author is director of CFA Institute codes and standards for the Asia-Pacific region. The views expressed here are entirely his own.
(HK Edition 01/08/2013 page2)