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Asia to gain largest share of global capital markets over next few decades: index

ASIAN markets have the greatest growth opportunity and could gain the largest share of global capital markets over the next few decades. The average global share of Asian capital markets is expected to increase from 31 per cent in 2017 to as much as 49 per cent in 20 years, with half the growth expected to come from China, according to a global capital markets index.

The biggest area of growth for Asian markets will be the annual flow of capital markets financing. The index suggests it will double from 24 per cent of global activity today to 46 per cent in 20 years, making Asia-Pacific growth three times faster than the Americas and Europe, the Middle East and Africa (EMEA).

The estimate assumes growth in GDP (gross domestic product) and market depth will continue at half the rate in the future than the rate of growth over the past few decades.

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When measuring the average share of total capital market activity across 25 sectors in 2017, Singapore was the 11th biggest capital market, contributing 1.5 per cent despite placing 35th in GDP size.

In terms of size of capital markets relative to GDP, that is depth of capital markets, Singapore came in second with a score of 248, behind Hong Kong’s 261.

“The New Financial Global Capital Markets Growth Index” developed by the Global Financial Markets Association (GFMA) and capital markets advisory firm New Financial also showed an over-reliance on banks for funding, particularly in regions outside North America. In the US, funding is split 26 per cent bank lending and 74 per cent bonds, while Asia and Europe economies were nearly three times more dependent on bank lending.

It concluded that this exposes economies to the cyclical nature of bank lending, which can quickly dry up after an economic shock.

In total, the index sampled 60 economies globally, which represent 93 per cent of global GDP, 71 per cent of the global population and between 95 and 99 per cent of capital markets activity.

The 13 Asia-Pacific economies sampled, which includes Singapore, account for 27 per cent of global activity.

Overall, Asia-Pacific has surpassed EMEA in capital market depth with a score of 72 to EMEA’s 64, and it is fast catching up with the Americas, which holds a score of 154.

The measured sectors are derived from eight broad groups: pools of capital, equity markets, bond markets, leveraged loans and securitisation, assets under management, corporate activity, private equity and venture capital, and trading.

The stock markets were dominated by the Americas region with a combined market value of US$37 trillion (43 per cent of the report’s sample size) at the end of 2017. While Asia-Pacific accounted for 34 per cent with US$29 trillion.

In contrast, Asia-Pacific took the lead for IPO (initial public offering) activity with a total issuance of US$87 billion in 2017, representing 44 per cent of global IPO activity. Just over 80 per cent of Asia activity came from emerging markets, with IPOs by Chinese companies accounting for just over half of all Asian activity.

The Americas accounted for 28 per cent and EMEA accounted for 27 per cent.