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Speech by Mr Raymond Lim, Minister for Prime Minister's Office, 2nd Minister for Finance and Foreign Affairs, at 2nd Asean Finance Ministers Investor Seminar, 21 September 2005, 5.00 pm at Royal Lancaster Hotel, London, UK

21 Sep 2005

Towards An ASEAN Asset Class


Excellencies, Distinguished Guests, Ladies and Gentlemen:

1. It is a privilege to address you today at this important gathering, as we discuss investment opportunities in ASEAN. Let me use this occasion to talk about the significant growth we have witnessed in the ASEAN capital markets and the regional initiatives taken to enhance the region's growth potential.


2. As you would have heard in the first panel discussion, ASEAN is building itself into an attractive investment and financing destination. Today, ASEAN is one of the fastest growing regions in the world. With its diverse endowments and comparative advantages, an integrated ASEAN is expected to boost the region's GDP by 10% while reducing operational costs by up to 20%.[1]

3. Strong and robust capital markets play an important role in facilitating economic growth and development. We are all familiar with how the Asian Financial Crisis had adversely impacted Asian economic growth in the late 90s. Since then, ASEAN finance and central banking officials have worked closely with our other Asian colleagues to strengthen our capital markets, and offer a more resilient investment environment to investors. There are two key pillars in this effort:


4. Many ASEAN countries have undertaken significant restructuring of their respective corporate and banking systems in order to strengthen their resilience against future shocks. For example, in countries such as Indonesia, Malaysia and Thailand, significant corporate debt restructuring and bank recapitalization exercises have resulted in improved balance sheets in the corporate sector, and stronger capitalisation in the banking and financial sectors[2] This is evident in the sharp drop of non-performing loan ratios and improved risk-weighted capital adequacy ratios of banks in ASEAN.

5. ASEAN countries have also strengthened regulatory and supervisory frameworks. Improving corporate governance has been a key cornerstone in the capital market reforms. This has included strengthening the rights of shareholders, improving disclosures, transparency and accounting standards, and enhancing the roles and responsibilities of board of directors.

6. At the same time, regional Finance Ministers have also created new support mechanisms to strengthen regional financial stability. In particular, under the Chiang Mai Initiative (CMI), ASEAN+3 members have entered into a series of bilateral swap arrangements to provide liquidity support to a fellow member facing temporary liquidity difficulties. So far, a total of 17 bilateral swap agreements (BSA)[3] have been signed, creating a safety net amounting to USD 52.5 billion. This is supplemented by a multilateral lending facility amongst ASEAN members, called the ASEAN Swap Arrangement, which has recently been doubled to USD2 billion.


7. This second key pillar aims to facilitate cross-border flows within the ASEAN region. We have long recognised that ASEAN markets are relatively small and fragmented, compared to large developed markets. The aim is therefore to tap on various liquidity pools in the region in a way that would speed up the pace of capital market development.

8. ASEAN Finance Ministers have therefore set up a Linkages Task Force which aims to create an interlinked regional securities market by 2010. This task force will explore ways to set up various co-trading links amongst ASEAN exchanges that will allow exchanges to tap on liquidity pools outside their domestic home markets. For instance, the Singapore Exchange and Bursa Malaysia are already in talks to set up a trading linkage that will allow investors in Singapore and Malaysia to access products traded on both exchanges. I believe we will see more such linkages being established over the next few years.

9. In addition, ASEAN securities regulators have also been working together to explore ways of harmonizing securities rules and regulations in ASEAN. This is obviously a mammoth task that will involve many years of hard work, but as a start, our securities regulators have been working on four key areas (a) disclosure standards, (b) accounting rules, (c) distribution of products and (d) professional qualifications. This will ultimately pave the way to facilitate cross-border distribution of investment products within the region.


10. Efforts to strengthen and develop ASEAN capital markets have seen clear results. On the equity market front, ASEAN stock markets have seen healthy growth post-Asian crisis. Stock indices of the 5 ASEAN Exchanges[4] have risen an average of about 73% in the last year alone. Today, the total market capitalisation of the ASEAN exchanges is close to USD 800 billion, with more than 2,900 companies listed across the region, including more than 100 prospective large-cap premier companies with market capitalisation in excess of USD 1 billion each. The healthy increase in ASEAN stock indices reflects newfound optimism and confidence on the back of stronger growth both domestically and globally, and arising from determined efforts by ASEAN governments to undertake necessary measures to strengthen their economies.

11. We are also seeing strong growth in ASEAN bond markets. Finance and central bank authorities have put in great efforts to develop our respective government and corporate bond markets. These initiatives include boosting issuance, establishing liquid benchmark yield curves, and establishing repo and bond futures markets. In many instances, efforts to develop a liquid and well-functioning government securities market has paved the way for strong growth in corporate bond issuance.

12. In Singapore, our initiatives to develop the bond market has seen significant results. In January 2005, the Singapore Government Securities market crossed another milestone when SGS became part of the widely followed Citigroup World Government Bond Index (WGBI). We understand the Malaysian MGS market is also due to be incorporated into the index soon, and more may follow suit. This development augurs well for the future of ASEAN bond markets, as we begin to feature on the radar of international bond investors.

13. ASEAN corporate debt markets have also grown significantly. In Singapore, new issuance of Singapore dollar-denominated debt totalled S$22 billion in 2004, while the non-Singapore dollar debt market increased to S$57 billion. The amount of outstanding Singapore dollar debt securities rose to S$58 billion, while outstanding non-Singapore dollar bond issuance increased to S$65 billion, bringing the size of the market to S$123 billion.

14. But strong growth is only part of the story. ASEAN capital markets are also seeing the introduction of more sophisticated products. For example, Malaysia, Singapore and Thailand have made regulatory changes to introduce new guidelines to launch Real Estate Investment Trusts (REITs) in their local markets. Since the listing of the first Asian REIT on the Singapore Exchange in 2002, we have seen about 10 REITS listed on the various ASEAN exchanges. We understand that Indonesia and Philippines are also reviewing the development of REITS.

15. On the debt market front, we are also seeing the growth of structured debt. For instance, structured debt accounted for about 60% of Singapore-dollar debt issues. The growing sophistication of the investor base and search for improved returns have led to the growth of equity-linked notes, convertible bonds, credit-linked notes and asset securitization transactions. With a more diverse range of more sophisticated equity and debt products, we are optimistic that international investors looking at yield-enhancing instruments will be able to find interesting investment options in ASEAN.

16. 2005 will mark an interesting milestone in the development of ASEAN capital markets. This will be the year where we are seeing the emergence of an ASEAN asset class. Later this morning, you will hear from my Malaysian colleague Tan Sri Yakcop about how ASEAN finance and stock exchange officials have come together to create an ASEAN equities index. You may also have heard about how East Asian central banks have also worked together to launch the Asian Bond Fund Initiative. This comprises the ABF 2 Pan-Asian Index Fund, which will allow international investors interested in Asian local currency bonds to invest in a pool of selected Asian investment grade sovereign and quasi-sovereign bonds. For bond investors with specific country interests, the Asian Bond Fund initiative also offers eight country sub-funds, including those of ASEAN 5 countries (which include Indonesia, Malaysia, the Philippines, Singapore and Thailand). It is notable that, notwithstanding the larger domestic bond markets in Northeast Asia, ASEAN 5 bond markets comprise over 50% of the ABF Index. It is not inconceivable that we could soon have an ASEAN bond index.

17. The idea to develop an ASEAN asset class is a unique one. Many of you are familiar with the MSCI Asia ex-Japan, and there are few Asian-centric bond indices to speak of. But while international investors may find it convenient to treat Asia as a single investment bloc, the reality is that Asia is diverse, and as Asian economies and financial markets develop, it will present a very rich set of investment opportunities for international investors. Developing an ASEAN asset class will allow investors the opportunity to gain exposure to a unique region, with a sizable population equal to Europe of 500 million people and wide diversity of natural resources, with member economies at various stages of development, but whose governments have come together to commit to a common vision of an integrated economic and financial free trade area by 2020. The ASEAN asset class is not an announcement that we have arrived, but is a strong signal of our commitment to enhance regional capital markets in a way that would support the 2020 vision.


18. In conclusion, ASEAN capital markets have developed significantly over the last 5 years. Besides the determined efforts countries to develop their individual capital markets, we are also seeing regional financial cooperation on an unprecedented scale that would enhance the long-term growth potential of financial markets and our economies. Nevertheless, much work needs to be done before the region as a whole will reach international standards of transparency, corporate governance, as well as offer levels of liquidity, robust and secure market infrastructure that international investors expect.

19. ASEAN finance ministers are committed to capital market development and in looking at ways to further grow the capital markets. The long term prospects look promising. There are abundant savings in the region, and there are scores of development, infrastructure and other projects requiring both domestic and international financing. ASEAN capital markets have a critical role to play in channelling surplus funds efficiently. We invite international investors like yourselves to take a closer look at the region, and to participate actively in the wonderful myriad of investment opportunities that abound for now and into the future.

20. I will now pass you to my colleague H.E. Madam Li Thi Bang Tam of Vietnam, to bring you through some of the specific issues faced in Vietnam, and we will be happy to take questions thereafter.

Thank you.

[1] The 2003 ASEAN Competitiveness Study by McKinsey Consultants

[2] These agencies include the Corporate Debt Restructuring Committee, Danahata and Danamodal in Malaysia, the Thai Asset Management Corporation in Thailand and the Indonesian Bank Restructuring Agency (IBRA) in Indonesia.

[3] In 2004, there were 15 BSAs amounting to USD 33.5 billion under the CMI.

[4] Numbers in parenthesis indicate % increases in the respective stock indices from 2003 to 2004: Indonesia (152%), Malaysia (38%), Philippines (73%), Singapore (57%), Thailand (45%). Source: ASEAN website.