Infographic: the relentless rise of Asia's capital markets

Most economists would agree that having deep capital markets provides essential sustenance to  economic growth over the long-term.

Funding for companies through efficient and balanced capital markets improves productivity by ensuring capital is allocated more effectively and risk is better managed, increasing the capacity of economies to ride-out turmoil by having more diverse sources of funding than just bank lending.

According to research from New Financial, a UK-based think tank and the Global Financial Markets Association (GFMA), capital markets globally, but particularly in the Asia-Pacific region, have the potential to grow massively in the next two decades.

Top 10 Capital Markets Globally

As the above diagram illustrates, several key statistics stand out. The US dominates the rankings with over 44% of total capital markets activity,and had the largest market share in 22 of 25 sectors analysed in the research. 

The US comes second in only three sectors: IPOs, where it is second to China, and in foreign exchange trading and over-the-counter derivatives, where it is second to the UK.

 

China, Japan and India, in contrast, have capital markets that are large but underdeveloped relative to their GDP.

 

China, in particular, has the second-largest but only 13th-deepest capital markets, showing the massive untapped potential of its markets.

 

The research predicts that this state-of-affairs is likely to change rapidly over the next two decades, given the Asia-Pacific region has already overtaken the combined European, Middle Eastern and African (EMEA) regions and is fast catching up to the Americas.

 

Global Capital Markets Index by Region

 

 

 

As the above graph illustrates, Asia Pacific has already overtaken EMEA in terms of the average depth of its capital markets, but it still has a long way to go to catch up with the Americas.

 

That shift towards Asia is expected to accelerate over the next two decades, according to the report. 

 

The overall share of Asian markets will increase from an average of 31% today to 39% in 10 years' time and as much as 49% in 20 years, according to data from New Financial.

 

The Changing Face of Capital Markets

 

 

The biggest area of growth for Asian markets will be the annual flow of capital markets financing, which is estimated to nearly double from 24% of global activity today to 46% in 20 years.

 

And according to the data, the Americas will see its overall market share shrink over the next decade to 40% from 46%, while EMEA's will retreat to 22% from 25%.

 

So by around 2030, the Asia-Pacific region will overtake the Americas in terms of global market share, and by 2040 Asia will account for more than half of all global capital markets activity, the report predicts.

 

If correct, investment bankers in the region can look forward to a continued boom in business.