The Association of Southeast Asian Nations (Asean) Capital Markets Forum was created in 2004, and was quickly directed to increase cross-border issuance in the region.
Since then a variety of initiatives have been launched, including a trading link that makes it easier for brokers in one country to place orders on a foreign stock exchange, a set of common disclosure standards, and the introduction of a green bond framework in March.
But the level of development in Asean capital markets varies drastically — and, as in many aspects of the now 50-year-old bloc, real integration remains a distant dream.
“The Asean bloc offers potential but so far Southeast Asia capital markets remain fragmented,” said a senior banker in Singapore. “For equity markets, regulation is very specific to each country and there’s still considerable work to be done to align regulation across Asean borders.”
The situation is slightly different in debt capital markets, where several countries have “carved out their own niche”, another said, noting Malaysia’s vibrant market for Islamic finance, Thailand’s ability to tap retail investors, and the continuing appeal of Singapore as a venue for offshore dollar bond investors.
Such individual strengths open up the possibility of multiple regional hubs emerging, each offering something unique to issuers and investors. But there is little hope of that happening any time soon.
Singapore, Malaysia, and Thailand have led the charge. Not only were these three countries behind the Asean trading link, they were also the only signatories to the common prospectus template introduced in 2015 for debt and equity issuers, following an earlier agreement on common disclosure standards. Yet these efforts have so far struggled to bear fruit.
The only Southeast Asian company to have simultaneously listed on two different exchanges is Malaysia’s IHH Healthcare, which raised around $2 billion from a Malaysia and Singapore listing in 2012. But even that was not the result of any Asean effort as the deal came three years before the common prospectus plan and a year before regulators agreed common disclosure standards.
There has been more movement on the bond side. Singapore has attracted a plethora of Southeast Asian borrowers, particularly from Malaysia. Thailand’s Krung Thai Bank turned to Malaysian ringgit investors for Basel III capital in July 2015, following a similar deal from CIMB Thai. The Credit Guarantee Investment Fund — established by Asean countries together with China, Japan, Korea, and the Asian Development Bank — has also played a major role in developing linkages between these markets by providing partial guarantees to cross-border deals.
But these developments — while welcome — have done little to create anything approaching a unified regional capital market. Cross-border issuance remains piecemeal and investors are more likely to look outside of the region than within it, while issuers show little hunger to ramp up their borrowing in non-domestic Asean currencies.
The benefits of an integrated financial and capital market are clear. As Lim Hong Hin, deputy secretary general of the Asean for the AEC, puts it, the region’s banks would be able to help companies in the region expand across borders. “Asean integration as well as economic growth would also benefit from the integration of the capital market as it helps the mobilisation of surplus savings more efficiently by channelling them to productive investment such as infrastructure projects in the region,” he said.
But at this point, financial market integration in the Asean bloc appears to have stalled — or at the very least slowed to a crawl. And those firms the bloc hopes to see expand across its borders do not, at this point, appear to exist on a large scale.
Will power
The scarcity of Asean corporate champions is perhaps the biggest hurdle to further integration.
AirAsia stands out as one corporation that has spread across the region, but even that company faces problems. Aireen Omar, chief executive of the Malaysian arm, told FinanceAsia that limited cooperation on ‘open skies’ in the Asean was a hurdle. Tony Fernandes, its founder, has previously said that he “didn’t wait for the Asean community” to catch up with his ambition to create a region-wide airline.
Southeast Asia is covered by a series of corporations that have national-level dominance but little else. And where the corporations go, the banks follow. So banks mulling expansion in neighbouring countries are likely to see retail loan growth as their only big opportunity at the moment. That does not appear enough to entice them.
Those banks that do have broader ambitions — Singapore’s biggest lenders, for instance — are putting more emphasis on North Asia than the Asean region. In the midst of China’s inexorable rise, Asean integration takes a backseat for executives at corporations and banks alike.
But there are also questions about how far countries in the region “think on two levels”, to use a phrase cointed by Sinnathamby Rajaratna, Singapore's foreign minister at the time of Asean's founding. Given the lack of unity over the South China Sea, it should perhaps come as little surprise that the region has failed to strike more rigid agreements on economic and finance.
“Political will has always been lacking in Asean,” said Thinitan Pongsudhirak, associate professor at the Institute of Security and International Studies in Bangkok. “They’ve always had very ambitious, paper-driven projects, going back to the Asean Free Trade Area. But the driver of integration cannot just be inter-governmental paperwork.”
Carlos 'Sonny' Dominguez, the Philippines’ finance minister, defends the slow and steady approach of Asean policy makers. Although he says there is still plenty of room for more integration, he argues the bloc’s consensual approach — and the sensitivity of its members to points of disagreement — is as much a source of strength as it is a weakness.
The Asean was borne out of a desire to avoid conflict. In that sense it has been an unreserved success. But the reliance on bilateral agreements, the obsession with unanimity, and the apparent inability of many countries to put regional priorities first has meant progress has been achingly slow.
This need not always be the case. Dominguez admits there is still a long way to go for the Asean. But although he says the bloc will always be a “few steps back” from EU-style integration, he sounds a note of optimism about the potential for the Asean in the next 50 years.
“We’re still on training wheels here,” said Dominguez. “But we’re definitely moving forward.”
