21 May 2019
There has been a marked development of local bond markets in ASEAN, China and Japan, which has created better functioning capital markets. Photo:
There has been a marked development of local bond markets in ASEAN, China and Japan, which has created better functioning capital markets. Photo:

Asia flexes muscles post-1997 crisis

This past July marked the 20th anniversary of the Asian financial crisis, which sent shockwaves globally and across the region. Twenty years later, financial markets in Asia have undoubtedly changed for the better, and are well-placed for growth.

The summer of 1997, six years after I first arrived in Asia, was one that I will never forget. It began as an attack on the Thai baht by currency speculators and rapidly escalated into a region-wide financial crisis. The “contagion” spread globally and saw many Asian economies, including Hong Kong, Indonesia, Malaysia, Thailand and Singapore, shrink to unprecedented levels.

Asian financial markets, however, quickly responded, and recovered, and thereafter emerged as some of the world’s most resilient economies. A deep and functioning Asian capital market has developed based on liquidity, supervision and collaboration.

What are some of the lessons we learned, and what have we done to become stronger?

Greater liquidity, supervision and collaboration 

First, a healthier, more liquid and sustainable domestic capital market emerged in many of the Asian economies. As countries looked to move away from relying on borrowing foreign currency, there was an increase in local currency-denominated loans, and a much more active role for domestic banks emerged. Today, Asia banks dominate and lead the rankings of the world’s largest banks by assets.

There has also been a marked development of local bond markets in ASEAN, China and Japan, which has created better functioning capital markets. The launch of the Asian Bond Markets Initiative in 2002 with the Asian Development Bank is an example of this. According to statistics released by the Bank for International Settlements in December 2016, China’s domestic bond market has also become the third largest in the world at 56.3 trillion yuan (US$8.6 trillion).

Second, economies in the region have moved towards stability through increased regulation. Local regulators have strengthened the domestic banking sector through consolidation and other measures, such as working with banks to reduce non-performing loans and improve lending processes.

At the same time, some economies in the region have also worked towards a more transparent regulatory framework to encourage international market participation. A clear example is yuan internationalisation, which was a significant step for China to move away from a closed economy to gradual market liberalisation. Today, the renminbi ranks as the No. 6 world payment currency, and is used by more than 1,900 financial institutions across the globe, according to the SWIFT renminbi Tracker.

Third, tighter regional collaboration across capital markets has developed. The ASEAN Capital Markets Forum, for example, brings together representative capital markets regulators from all 10 ASEAN nations biannually to discuss the harmonisation of rules, regulations and integration. The introduction of plans for ASEAN fund passports and a regional standard for Green Bonds are some of the other relevant initiatives in place.

Collaboration is seen to be especially robust between capital markets in Hong Kong and China, especially as China’s liberalisation drive continues. For example, China and Hong Kong continue to work together in this area through the HK-China stock and bond connect schemes.

Asia becomes investment destination

The increased liquidity, sophistication and maturity of Asian capital markets have positioned the region as a more desirable investment destination for international investors looking to expand their portfolios and diversify risk geographically. This, in turn, has attracted an increased pool of international market participants including banks and non-bank institutions such as sovereign wealth funds, insurers, pension funds and family offices looking for asset and investment opportunities in the region.

At the same time, with the massive creation of homegrown wealth within the region, increasingly savvy Asian investors are also starting to look outbound for global opportunities. Examples of this can be seen in the purchase of Leadenhall Building (aka The Cheesegrater) by CC Land Holdings of Hong Kong, the second largest building acquisition in the UK since December 2014. In another landmark East-to-West deal, Chinese conglomerate Fosun International bought European resort staple Club Med in 2015.

According to data compiled by Dealogic, Chinese outbound M&A activity reached record levels in 2016. And the number of cross-border deals by China accounted for more than half of Asia Pacific’s outbound volume. These types of investments, and the fact that they are steadily growing in volume in the long run, clearly show the change in appetite of Asian investors, and the positive momentum and positioning of the Asia region following the crisis.

The inbound-outbound capital flow and investment activities for the past two decades have been phenomenal, and looks set to continue to increase. This would not have happened without the fundamental changes the region made to address the root causes of the Asian financial crisis 20 years ago.

– Contact us at [email protected]


Head of Real Estate Finance Asia, ING Bank

EJI Weekly Newsletter

Please click here to unsubscribe