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Assets for Stability
ADB Review [ August 2005 ]

Capital markets are a vital source of financial innovation and opportunity, ADB Vice-President tells seminar

By Nicolas C. Llave, (nllave@adb.org)
Senior SRP Investment Officer

As the world becomes more integrated, capital markets are playing a vital role in providing liquidity and investment instruments as well as in maintaining global financial stability, Asian Development Bank (ADB) Vice-President Khempheng Pholsena told a seminar at the 38th Annual Meeting of ADB’s Board of Governors in Istanbul.

“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,” Ms. Pholsena said. She was speaking at a seminar on Capital Markets: What Does the Future Hold?, held on the opening day of the ADB Annual Meeting.

Ms. Pholsena said there is a 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,” she said.

However, she said that potential disruptions to market performance loom in the background. These include stubbornly high oil prices and continued global growth imbalances across industrial countries, which increase the risks of a disorderly adjustment of currency and capital markets.

The seminar brought together four prominent players in the asset management industry who are collectively responsible for managing more than $1.5 trillion in stocks, bonds, and other assets. They provided their insights on what investors could expect from the capital markets in the years to come.

“The Annual Meeting offered an important opportunity to discuss the challenges facing institutional investors, and I was pleased to participate in what was a dynamic exchange of perspectives and ideas with my fellow panelists and the members,” said Laurence Fink, Chair and CEO of BlackRock Inc., a New York-based asset management company.

David Fisher, Chair of the Board of Capital International Inc. and Capital Guardian Trust based in Los Angeles, said it is an attractive time for investing in emerging markets even after four years of outperformance. “Given their attractive growth rates, emerging markets will continue to represent a larger share of the global capital markets,” he said.

But Jeremy Grantham, Chair and Chief Investment Officer (CIO) of Grantham Mayo Van Otterloo, a Boston-based global money manager, was more cautionary. In his presentation, Skating on Thin Ice: Surviving in a World of Overpriced Assets, Mr. Grantham looked at, among others, inflated house prices in Australia, United Kingdom, and United States (US), and the increased role that housing price increases have played in sustaining the expansion of credit and consumption.

On the other hand, Bill Miller, Chair and CIO of Legg Mason Capital Management, a US equity manager based in Baltimore, Maryland, said, “I have never seen such angst amid such opportunity as we see it right now.” Mr. Miller talked about US investment in a global economic context. He said that this year’s decline in US stock prices was closely correlated with the resumption of the rise in the price of the world’s largest and most important commodity—oil.

William Pesek, Jr., Asia-Pacific columnist of Bloomberg News, moderated the seminar.

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