New era for Asian exchanges<\/p>\n
By Sahala Sianipar<\/p>\n
JAKARTA (JP): The movement of capital across national borders
\nhas increased significantly thanks to the acceleration of the
\nfree trade area in the Asia Pacific region. Last November,
\nleaders of the Asia Pacific Economic Cooperation (APEC) reached
\nagreement in Osaka on several economic areas although the process
\nwill be done according to each member's capability.<\/p>\n
Following the APEC summit, members of ASEAN met in Bangkok to
\ndiscuss on the future of ASEAN Free Trade Agreement or AFTA.
\nASEAN has set the course to achieve a free trade area in the
\nregion by the Year 2003, an ambitious target date for such a
\ndiversified group. The objective of AFTA is to prepare its member
\neconomies for the target dates of 2020 where countries in the
\nregion will have to dismantle their protective measures.<\/p>\n
The point here is that countries in the Asia Pacific region
\nare currently challenged to evaluate their current and future
\nposition in the regional market. At the heart of the changes in
\ntoday's global market is the capital market industry. The capital
\nmarket industry serves as an alternative entry door for both
\ndomestic and foreign investment in a country. Policymakers in the
\nregion have to address the issues regarding their economies'
\ncompetitiveness that will essentially help to provide a conducive
\nenvironment for investment activities.<\/p>\n
The intensified process toward the free trade area in the
\nregion contributes to the recent drives by regional exchanges to
\nreposition themselves in the global market. One example is the
\nmeasures introduced by the Stock Exchange of Singapore (SES) and
\nKuala Lumpur Stock Exchange (KLSE) aiming to attract more
\npotential overseas firms. The SES introduced new regulations to
\nease the listing process for overseas firms and infrastructure
\nprojects in the foreign board. Furthermore, in late 1995 Minister
\nof Finance of Malaysia Anwar Ibrahim issued several deregulation
\nmeasures aiming to position KLSE as the financial center in the
\nAsia Pacific region that would attract fund managers, brokers,
\nand banks from Singapore and Hong Kong.<\/p>\n
In the last three years, we have witnessed a strong surge of
\nprivate capital flow into emerging markets such as Kuala Lumpur,
\nBangkok, and Jakarta in the form of portfolio investment.<\/p>\n
According to the report prepared by the International Monetary
\nFund (IMF) in 1995, the private capital flows in the form of
\nportfolio investment reached US$37.1 billion, a tremendous
\nincrease of 7,320% from $0.5 billion in 1990. True, foreign
\ndirect investment (FDI) still dominated the type of flows into
\nAPEC developing economies with $39.5 billion in 1995 which was an
\nincrease from $12.1 billion in 1990 (226%). While FDI takes place
\nthrough sovereign borders and government, the movement of capital
\nin the form of portfolio investment does not recognize any
\nsovereign borders. Information technology along with the
\nincreasing competition for capital between emerging exchanges
\ncontribute to the rapid growth of portfolio investment among
\nemerging economies of APEC.<\/p>\n
The new era faced by Asia Pacific exchanges is characterized
\nby the continuous and unrestricted flow of capital across
\nnational borders thanks to the information technology products
\n(e.g. Internet, teleconference system) that help to accelerate
\nthe flow of information among decision makers worldwide.
\nFurthermore the establishment of the World Trade Organization
\n(WTO) that will oversee the implementation of free and non-
\ndiscriminative trade and investment practices worldwide helps to
\nshape the new era.<\/p>\n
What does the new era bring to emerging exchanges? One thing
\nfor sure is the need for emerging exchanges to improve upon their
\ncompetitiveness as investment vehicles in their respective
\nnations. In developed nations where the majority of people invest
\nin the capital market either through unit trusts, pension funds,
\nor mutual funds, the drive to increase the market's
\ncompetitiveness as an investment vehicle can result in more
\ncomplex products (i.e. futures funds, index funds) without
\nspending too much effort on educating the public about the
\ncapital market. This is not the case in many developing countries
\nwhere the majority of people have not embraced the idea of
\nallocating their savings to the capital market. Essentially the
\nminimum involvement of domestic investors contributes to the slow
\ngrowth of emerging markets unless there is a heavy intervention
\nfrom foreign funds.<\/p>\n
As mentioned previously, the flow of portfolio capital across
\nnational borders does not recognize national borders which
\ncontributes to the uncertainty and volatility in many emerging
\nmarkets. It is highly imperative to have strong support from
\ndomestic investors as a prerequisite for sustainable growth among
\nemerging exchanges. However in many emerging exchanges, there is
\na gap in terms of knowledge and perception of the capital market
\namong the public in developing countries.<\/p>\n
Therefore it is a challenge to shift people's savings mode
\nfrom traditional time deposits to mutual funds or other
\ninvestment vehicles in the capital market. Realizing the great
\ndifficulty in mobilizing domestic resources, government of
\ndeveloping countries have taken the initiative to introduce
\nvarious incentive schemes aiming to boost the domestic capital
\nmarket. An example of the well-focused strategy to boost the
\ndomestic market is Malaysia and Singapore.<\/p>\n
Besides the compulsory employment provident funds, domestic
\ninvestors can allocate their savings through unit trusts and
\nmutual funds. In fact, one of the world's largest investment
\nbanks, Morgan Stanley, has recently introduced a mutual funds
\naiming at retail investors in Singapore where the funds will
\nbasically be invested in selected markets in the region. Mutual
\nfunds or unit trusts in Malaysia and Singapore began with an
\naggressive educational and marketing campaign using the mass
\nmedia. Permodalan Nasional Bhd, a Malaysian government agency in
\ncharge of unit trust, launched its first unit trust in the late
\n1960s with a comprehensive educational campaign covering both
\nurban and rural areas in Malaysia. As the result, in 1992,
\nPermodalan Nasional Bhd, managed more than M$ 14 billion. One of
\nthe funds called Amanah Saham Nasional had 2.460.977 unit holders
\nin 1990.<\/p>\n
The key to success in Malaysia and Singapore lies on the
\neffective collaboration between the government and capital market
\nplayers in developing the domestic market. The privatization
\nprogram of state-owned enterprises prioritizes the domestic
\nmarket through various incentive schemes given the existence of
\nunit trusts and mutual funds in both countries.<\/p>\n
So what is the challenge in the new era for emerging exchanges
\nin the Asian Pacific region? The challenge is to embrace an
\neffective cooperation between market participants to mobilize
\ndomestic resources as the prerequisite for sustained domestic
\nmarkets. At the same time, information needs to be disseminated
\nto encourage greater level of awareness and participation in the
\ndomestic market. Today's information technology products should
\nhelp to accelerate the learning process among domestic investors.<\/p>\n
A comprehensive communications campaign should be embraced to
\ndisseminate information effectively to the public. All market
\nparticipants should cooperate to execute the campaign that
\nincorporates the mass media and information technology products.
\nAt the same time, the role of the government will be more
\ncritical in providing the conducive investment atmosphere for
\nexisting and potential investors. This is the homework for many
\nemerging exchanges in the region if they wish to emerge as
\nwinners in the year 2020.<\/p>\n
The author is a graduate from the International Business and
\nCommunications from Ohio University, Athens, Ohio, United States.<\/p>\n
Window: Therefore it is a challenge to shift people's savings
\nmode from traditional time deposits to mutual funds or other
\ninvestment vehicles in the capital market.<\/p>",
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