The New Silk Road: Weaving Together the Financial Markets of Asia and Europe [Sponsored Seminar - Australia and New Zealand Banking Group]
2 May 2014, 12:00 pm - 1:30 pm, Congress Hall 4
Nearly fifteen years have passed since China entered the WTO and came to fundamentally and irrevocably alter the real side of the global economy. As China liberalises her capital account, a similar supply side shock will occur to the financial sector as China's vast internal pool of savings becomes unrestricted by borders. To absorb China's vast pool of savings, Asia's financial markets will have to significantly deepen along with the sequence of China's capital account liberalization.
South-South patterns of trade and financial integration, which were an immediate feature of the post-crisis global economy, will once again be displaced by North-South trade and deepening financial integration. As trade patterns along the new silk road deepen, so too should financial integration.
- Tectonic shifts in the traditional "epicenters" of the global economy and financial markets are now underway.
- Asia is undergoing an historic transformation and will account for nearly 40% of global GDP by 2025 and over 50% of global GDP by 2050. The Asian Century moniker is a well-deserved one.
- Following the 1997-98 Asian Financial Crisis, Asia's capital markets decoupled from the renewed economic rise of Asia, with economies outsourcing financial intermediation to North Atlantic financial centers.
- One-and-a-half decades into the "Asian Century", Asia has a significant infrastructure and investment deficit and shallow financial markets which are not efficiently able to autonomously finance the enormous economic development that lays ahead.
- To escape the middle income trap Asia needs to, and will in our view, increasingly finance Asia. Greater flow of funds through the region as capital account restrictions fall will enable this process.
- Asia's near term challenges, as the global cost of capital continues to rise, highlight the vulnerabilities that come with externally dominated financial systems.
- Asian capital markets need to deepen and become more integrated to absorb potentially large pools of previously locked-up domestic savings, particularly in the case of China.
The structure of Asia's markets must also change as they deepen, with bank-centric financing giving way to a more balanced mix of bank lending and equity and debt market origination.
As participation across global markets increase, Asia will need to become more integrated with the capital markets of Europe and North America, with regulatory requirements harmonized and aligned.
Head of Global Markets Research, ANZ