Conference Presentation, Panel
Asia Summit 2014 - Strengthening Asian Markets: Allocating Capital, Refining Policy
Milken InstituteChristine Tan, David Bonderman, Piyush Gupta, Lim Chow Kiat, Michael Milken, Jonathan Nelson
- A capital shortfall of approximately half a trillion dollars in the Asian banking system is projected to occur over the next decade, driven by inadequate financing sources and an infrastructure/intermediation gap rather than a savings gap.
- Investors anticipate the region will eventually become self-financing and capable of funding global needs, with potential timelines ranging from five to fifteen years, though the exact growth trajectory remains unknown.
- Future capital markets are expected to grow multiple times their current size to match the region's economic scale, potentially reaching the magnitude of the United States market if sufficient human capital is acquired.
- Current allocation to emerging markets is estimated at roughly 25% of portfolios, significantly higher than the 3% or 4% typically found in public markets, as private capital fills the gap between available opportunities and the willingness to seize them.
- Significant regulatory and structural barriers include the absence of a corporate bond market, lack of transparency, weak creditor rights, unpredictable tax regimes (including retroactive taxes), and high costs associated with hedging foreign exchange risk.
- Market harmonization efforts, such as those by the ASEAN Capital Markets Forum, are described as moving at a glacial pace with no agreement reached on basic standards like English prospectuses over a seven-year period.
- Existing businesses may actively resist new competitors by lobbying regulators, while traditional insurance companies are discouraged from long-term infrastructure financing due to punitive solvency requirements under the Basel regime.
- Despite these hurdles, investors note extraordinary high-yield issuance activity in the Chinese property sector over the last 12 months and expect Singapore to be accepted more quickly than China for specific financial structures.
- Innovations such as crowdsourcing models or financial sector leapfrogging similar to mobile banking in Kenya are predicted to emerge, potentially reducing the cost of capital, though full system development will take a long time.
- Economic growth in Asia is contingent on financial market development keeping pace with the economy to achieve middle-class status, with some observers noting that relative market levels may not be reached until after the current careers of investors.