Opening Remarks by
Mme. Khempheng Pholsena
Vice-President (Finance and Administration)
Asian Development Bank

At the Seminar on "Capital Markets: What Does the Future Hold?"

4 May 2005
Istanbul, Turkey

Good afternoon, ladies and gentlemen.

On behalf of the Asian Development Bank, it is my great pleasure to welcome you to this seminar on the future of capital markets.

Capital markets play a vital role in providing liquidity and investment instruments as well as in maintaining global financial stability, particularly as the world has become more integrated. They are not only the markets where debt and equity funds are bought and sold, but also an essential source of financial innovation and opportunities.

At the same time, we have seen that many factors can influence the way the markets behave be they economic, social or political events, or purely investors' sentiment. Ups and downs in the markets are often unexpected, and sometimes even shocking. The Asian Financial Crisis of 1997 is one such example.

On a global scale, the volatility of markets over the last ten years demonstrates that nothing can be taken for granted.

For example, despite the Asian financial crisis, the Russian financial crisis and the sell-off in emerging markets, the five years between 1995 and 1999 was a period of spectacular gains for global capital markets, particularly the stock markets.

As we all know, the year 2000 marked the beginning of a reversal. The dotcom bubble burst due to concerns about valuation in the tech and telecom sectors, oil prices surged, and there were concerns about business restructuring, corporate governance, and pockets of political turmoil in Asia.

In 2001 and 2002, as the global economy weakened and the US recession deepened following the September 11 terrorist attack, global stock prices plummeted. Global bond markets, however, produced positive returns for investors during these years. In 2003, as uncertainties about the war in Iraq diminished, stocks staged a remarkable rally, while bonds generated moderate gains.

Although doubts about sustainability of global economic growth, persistence of greater geopolitical risk, and higher oil prices weighed heavily on market performance in mid 2004, international financial markets remained vibrant with both equity and corporate bond prices recovering most of their mid-year losses by the end of 2004.

Today, we are seeing continued abundance of global liquidity and improved credit quality in mature and emerging financial markets, including a rapid growth of assets in Asia. Many of these assets have found their way into global and regional capital markets, as investors seek the best prospects for returns. Yet, potential disruptions to market performance loom in the background. These include, among others, the persistence of high oil prices and continued global growth imbalances across industrial countries, which increases the risks of a disorderly adjustment of currency and capital markets.

Ladies and gentlemen,

The issues mentioned above have a direct impact on ADB and its developing member countries, or DMCs, since the ADB borrows funds from the markets for lending to its DMCs as part of its mission to fight poverty in Asia and the Pacific, and thus support sustained growth and improved standards of living across the region.

As we all know, Asia has tremendous investment needs, particularly in the area of infrastructure development, where about $1 trillion is needed over the next five years. In order to assist countries in attracting higher levels of investment, ADB takes a multi-pronged approach. On the one hand, we work with DMCs to strengthen their investment climate by addressing issues such as governance and institutions. On the other hand we promote private sector development and enhanced public-private partnerships in these countries.

Further, ADB is actively involved in the Asian Bond Market Initiative under the ASEAN+3 framework. Specifically, we provide technical assistance and policy advice, as well as issue local currency bonds with the objective of developing deep and liquid local bond markets that will enable the public and private sector to raise and invest long-term capital while minimizing currency and maturity risks. This Initiative will facilitate access to the market by a wider variety of issuers, while creating an environment conducive to the development of regional bond markets.

While we remain optimistic with the general economic development trend of the Asian and Pacific region, the direction of the global capital markets remains uncertain. Clearly, an enormous challenge is awaiting investors and market participants around the world. Therefore, today's seminar provides us a unique opportunity to invite world-renowned asset management experts to provide their insights on what investors could expect from the capital markets in the days to come.

In this regard, I am honored to welcome our distinguished speakers, Mr. David Fischer, Chairman of Capital Group International Inc. and Capital Guardian Trust Company; Mr. Jeremy Grantham, Chairman of Grantham Mayo van Otterloo & Company; Mr. Bill Miller, CEO and CIO of Legg Mason Capital Management; and Mr. Laurence Fink, Chairman and CEO of Blackrock Inc. as well as our esteemed moderator, Mr. William Pesek Jr, Asia-Pacific columnist of Bloomberg News. Let me wish you a very successful seminar.

Thank you.