Equities Markets in Asia: Magnet for Foreign Capital Inflows

by Neil Katkov, PhD,  Prathima Rajan, March 18, 2008

Abstract

Bangalore, India 18 March 2008

Asia-Pacific countries are in the limelight lately due to economic growth rates that have surpassed other developed countries. Higher returns and favourable regulatory changes are attracting capital investments from overseas.

A new Celent report, , examines the ever-increasing foreign capital flows into the Asia-Pacific region. Countries like China, Hong Kong, India, Taiwan, South Korea, and Singapore are acting like magnets for foreign capital by taking advantage of the favourable economy. The major global brokerages active in the region have responded to increased buy side demand by building up their operations in the Asia-Pacific region to better serve these institutional clients.

Most of the target markets have seen sustained foreign portfolio investments over the past few years, one of the key global financial trends in recent times. The US and Europe (primarily the UK) account for 50-75% of the net foreign inflows in each of these countries.

In the secondary markets, foreign institutional investors invested a net of US$49 billion in 2006. The investments total around US$62 billion, the highest for any emerging economic region.

"Global investors will likely continue to show their interest in Asian equities over the next three to five years, propelled by economic growth, high returns, technological developments, favourable regulatory changes, and the scope for development in these regions," says Prathima Rajan, analyst at Celent and co-author of the report.

Technology is emerging as a key differentiator for brokerages competing for business from institutional investors, "Whereas five years ago, e-trading had just started in Asia, brokerages and buy side firms are now using sophisticated proprietary systems and vendor systems," says Neil Katkov, managing director of Celent's Asia Research group and co-author of the report. "Brokerages are poised to introduce sophisticated e-trading capabilities even in emerging markets such as China and India."

The report highlights the factors driving this kind of growth in the Asia-Pacific region by analysing parameters like economic growth, high returns, regulatory changes, and technological advancements. Then we examine the trends pertaining to such growth in both primary and secondary markets. Each of the selected countries is studied as a potential investment market.

The 42-page report contains 33 figures and seven tables. A table of contents is available here.

Members of Celent's Institutional Securities & Investments research service can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.  

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Bangalore, India 18 March 2008

Executive Summary 04
Introduction 06
Drivers of Capital Investments 09
  Accelerated Economic Growth 09
  Underdeveloped Capital Markets 10
  High Returns 12
  Portfolio Diversification 13
  Regulatory Changes 13
  Technological Advancement in Capital Markets 16
Market Trends 18
  Growth in IPO Issues 18
  Local Firms Dominate the Primary Market 18
  Growth in Secondary Market 19
  Brokerages Strengthening Their Asia Operations 22
  Buy Side Firms Also Expanding Their Asia Presence 22
  Increasing Role of Hedge Funds 22
  Alternative Market Access Products 23
  The Rise of Electronic Trading in Asia 23
Market Analyses 25
  Mainland China 25
  Hong Kong 27
  India 29
  Taiwan 32
  South Korea 34
  Singapore 38
Conclusions 42

 

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