FINAL REPORT: SWOT ANALYSIS ON THE CAPITAL MARKET INFRASTRUCTURE IN THE ASEAN+3 COUNTRIES AND

ITS POLICY IMPLICATIONS

FINAL REPORT:
SWOT ANALYSIS ON THE CAPITAL MARKET
INFRASTRUCTURE IN THE ASEAN+3 COUNTRIES
AND ITS POLICY IMPLICATIONS

PENELITIAN DAN PELATIHAN EKONOMIKA DAN BISNIS (P2EB)| FEB UGM

 RESEARCH BACKGROUND
ASEAN+3 economies have been recovering from the global financial crisis, and posting
steady growth in 2012.

Policy uncertainty, private deleveraging, fiscal drag, and impaired credit

intermediation continue to weigh on global growth prospects.

ASEAN+3 region remain vigilant of the unintended negative side effects stemming
from an extended period of global monetary easing on the region as well as on the
risk of global financial markets sentiment

ASEAN+3 Strategy for enhancing market integration and regional financial stability:
Chiang Mai Initiative Multilateral (CMIM), ASEAN+3 Macroeconomic Research Office
(AMRO).

Capital market development in the ASEAN+3 region is vary.

This study proposes to analyse the recent development of capital markets

infrastructure and its policy implications in the ASEAN+3, and provide
recommendations on how to enhance capital markets integration and financial
stability in the region.
 FINAL REPORT: SWOT ANALYSIS ON THE CAPITAL MARKET INFRASTRUCTURE IN THE ASEAN+3 COUNTRIES AND
ITS POLICY IMPLICATIONS

ASEAN+3
CURRENT ECONOMY DYNAMICS

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 Figure: ASEAN Countries GDP Growth Constant Price, 1998-Q3/2013 (YoY,%)
Economic Growth of key economics in the region show lower than expected

Source: IMF, CEIC (2013)

ASEAN member economics yet meet their full potential economic growth;
Philippines impress not only ASEAN but also Asia at-large with their respectively recorded growth
averaging 7% along 2013;
ASEAN region becoming a refugee place by foreign investors from the continuing after-effects of
global financial meltdown.
 Figure: China, Japan, South Korea GDP Growth Constant Price, 1998-Q3/2013 (YoY,%)
Economic Growth of key economics in the region show lower than expected

Source: IMF, CEIC (2013)

Chinas as the worlds second largest economy recorded performance in 2013 as the slowest pace
expansion on economy ever recorded in 14 years;
Japan economy at the first half of 2013 seems to show signs of weakening but fortunately it
limitedly saved by the Abenomics;
South Korea record confident economic growth supported by front-loaded government spending
and positive contribution from private sector.
Table: ASEAN+3 Stock Market Index Growth, 2009-2013 (YoY, %)
Regional stock market record positive trend of growth

Source: Bloomberg (2014)

The growths which happen in regional stock market is showed as the optimism for regional
economic prospectus through the eyes of foreign investors.
The flood of foreign capital inflow then resulted to the rapid growth in real estate prices,
increasing domestic consumption and accumulating household debt .
Table: ASEAN+3 Exchange Rate Development, 2009-2013 (YoY, %)
Global trade uncertainty highly affect the regional exchange rate fluctuation

Source: Bloomberg (2014) *= During this year Myanmar having currency adjustment

The declining in the trade of balance on the most countries in the region then turn into the
weakening of regional currency compare to United States Dollar (US$).
This pressure in regional currency potentially to be further since the Federal Reserve of US
and Bank of Japan plan to having quantitative easing program
 FINAL REPORT: SWOT ANALYSIS ON THE CAPITAL MARKET INFRASTRUCTURE IN THE ASEAN+3 COUNTRIES AND
ITS POLICY IMPLICATIONS

ASEAN+3
FINANCIAL SECTOR DEVELOPMENT

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 ASEAN+3 FINANCIAL SECTOR COOPERATION
The ASEAN Economic Community (AEC) blue print liberalization measures of the financial
services sector should allow members to ensure orderly financial sector development and
maintenance of financial and socio-economic stability.

Two principles of financial liberalization: First, the Liberalization is through ASEAN minus X
formula where countries that are ready to liberalize can proceed first and be joined by
others later. Second, the liberalization process should take place with due respect for
national policy objectives and the level of economic and financial sector development of
the individual members.

Roadmap for Monetary and Financial Integration of ASEAN (RIA-Fin). Endorsed by the
ASEAN Finance Ministers Meeting (AFMM) that consists of four areas: (a) Capital Market
Development, (b) Liberalisation of Financial Services, (c) Capital Account Liberalisation and
(d) ASEAN Currency Cooperation, with the ultimate goal of greater economic integration in
ASEAN by 2015.

In finance and monetary cooperation, the focus continues to be on the implementation of

the Chiang Mai Initiative Multilateralisation (CMIM) and the Asian Bond Market Initiative
(ABMI). The CMIM is supported by the ASEAN Plus Three (APT) Macroeconomic Research
Office (AMRO) in Singapore, which commenced its operations in 2011.
 Figure: Financial Assets in ASEAN+3 Countries, 1997-2012 (% of GDP)
From bank dominated industries to more financial deepening

Source: IMF, World Bank, Asian Bond Online, CEIC (2013)

Transformation upon regional banking industry into more cross border banking have been slow
to develop.
 Table: Market Capitalization to GDP Ratio
ASEAN Capital Market has a significant performance progress for the recent years

Source: CEIC, Bloomberg (2014)

Financial deepening is vary between ASEAN+3 member economics.

Figure: Bank Assets, Stock Market Capitalization and Bond Market Capitalization in
ASEAN+3 Countries, 1997 and 2012(% of GDP)
Financial deepening in regional economy members are vary

Source: IMF, World Bank, Asian Bond Online, CEIC (2013)

Countries with larger stocks of financial assets tend to have better developed capital markets.
Singapore, Malaysia, Thailand, China, Japan, and Korea were categorized as advanced financial.
Philippines, Indonesia, and Vietnam have medium development of the financial system. It can
be said that those countries have a complete financial structure (banks, stock and bond
markets) but at a low level and characterized by bank dominance.
Brunei Darussalam, Lao PDR, Myanmar, and Cambodia have low development of the financial
system.
 ASEAN+3 CAPITAL MARKET DEVELOPMENT

Source: ASEAN Capital Market Implementation (2009)

Table: Bond Market Capitalization in ASEAN+3 Countries, 1997-2013 (% of GDP)
Japan, South Korea and Malaysia are leading in bond market deepening

Source: Asian Bond Online, CEIC (2013)

 FINAL REPORT: SWOT ANALYSIS ON THE CAPITAL MARKET INFRASTRUCTURE IN THE ASEAN+3 COUNTRIES AND
ITS POLICY IMPLICATIONS

ASEAN+3
CAPITAL MARKET INFRASTRUCTURE

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 BRUNEI DARUSSALAM
In order to manage its capital market, Brunei Darussalam Capital Markets:
(1) Securities Order of 2001 which had been amended in 2002 and 2005; and
(2) Mutual Funds Order of 2001.
Both of them have been replaced with the Securities Market Order of 2013.

There is currently no stock exchange and self-regulatory organization in Brunei Darussalam.

The capital markets of Brunei Darussalam are currently in the development stage .

The capital market infrastructure is still being established and there are plans to have
linkages for cross-border cooperation especially with the ASEAN member countries.

Brunei has investment advisers, investment dealers, investment representatives, fund

operators and banks as part of its capital market infrastructure. At the moment, there is
only one company offering its stock publicly OTC. This is through a licensed dealer, and
trading volume is very low.

Brunei has capital market intermediaries whose head offices are based in other ASEAN
member countries. The intermediaries outsource some operations to their head offices.
 CAMBODIA
Table: Financial Supervisory Infrastructure in Cambodia

Source: Naron (2007)

 INDONESIA
Figure: Financial Supervisory Infrastructure & Capital Market Structure In Indonesia

Source: Aziz (2013) Source: OJK (2013)

In the wake of 2008 global financial crisis, the Indonesia financial systems
restructured by establishing the Financial Services Authority. The agency was newly
established replacing the role of BAPEPAM-LK and part of the Central Bank of
Indonesias duties. OJK is an autonomous institution which directly reports its duties
to the parliament and is free from interference by other parties, with functions,
duties, and authority to regulate, supervise, examine, and investigate financial
services sector in Indonesia.
 LAO PDR
Figure: Financial Supervisory Infrastructure in Lao PDR

Source: Asian Development Bank (2012)

 MALAYSIA
Figure: Financial Supervisory Infrastructure in Malaysia

Source: Yunus (2007)

 MYANMAR
Myanmar Capital Market is still in the development stage.

Myanmar has a plan to open the capital market by 2015. To support the plan, Myanmar, led
by the Minister for the Ministry of Finance and Revenue, organize Capital Market
Development Committee on 1st July, 2008.

Myanmar also built Road Map for the development of capital market in accordance with
the time frame for the effort to gain ASEAN integrated Capital Market. There are three
phases to be implemented. The first phase has already been implemented from 2008 to
2009. The second phase is being implemented from 2010 to 2012 and the third phase will
be implemented from 2013 to 2015.

The financial system in Myanmar remains one of the least developed in the world, with
only under 10% of the population holding of a bank account and less than one citizen per
1000 active in the credit market. This lack of financial development happens due to a
combination of high inflation, bank runs and insider lending and low capital bases.

The new Central Bank of Myanmar (CBM) Law was signed by the president, Thein Sein, on
11 July 2013. The legislation secures the banks autonomy and clarifies its responsibilities to
regulate local banks, oversee the development of capital markets and manage the official
foreign exchange reserves. Under this new law, the role of CBM Director will be upgraded to
ministerial level to give more flexibility in conducting their business. Through this new law
its clearly reflected that all kinds of financial activities in Myanmar are solely supervised by
the CBM.
 PHILIPPINES
There are three agencies that supervise the different institutions in the Philippine financial
system. In addition to being the monetary authority, the Bangko Sentral ng Pilipinas (BSP)
supervises banks and their financial allied subsidiaries and affiliates (except insurance
companies), non-stock savings and loan associations, and pawnshops.

The Securities and Exchange Commission (SEC), on the other hand, has oversight on the domestic
capital market and, as such, supervises self-regulatory organizations (SROs), investment houses,
and securities dealers/brokers. It also supervises investment companies, finance companies and
pre-need firms.

Finally, the Insurance Commission (IC) supervises insurance and reinsurance companies,
insurance brokers, and mutual benefit associations.

In addition, the Philippine Deposit Insurance Corporation (PDIC) also shares some supervisory
powers with BSP over banks consistent with its role as deposit insurer.

Regarding inter-institutions coordination for maintaining financial stability, in July 2004, the three
financial supervisory agencies, together with the PDIC, formed the Financial Sector Forum (FSF).
The FSF is essentially a cooperative effort without any specific legal authority, and thus it is not
intended to function as an integrated supervisory body.

The key objectives for setting up the FSF include the improvement of the supervision of financial
conglomerates and addressing the occurrence of firms operating in regulatory grey areas.
 SINGAPORE
Singapore has an integrated financial regulatory structure, under which the Monetary
Authority of Singapore (MAS) has the authority to regulate the banking, securities, futures,
and insurance industries in the nation-state.

Figure: Financial Supervisory Infrastructure in Singapore

Source: The Group of Thirty (2007)

 THAILAND
Figure: Financial Supervisory Infrastructure in Thailand (Part 1)

Source: Thailand Ministry of Finance

 THAILAND
Figure: Financial Supervisory Infrastructure in Thailand (Part 2)

Source: Thailand Ministry of Finance

 VIETNAM
Figure: Financial Supervisory Infrastructure in Vietnam

Source: Vietnam Bond Market Association

 PEOPLES REPUBLIC OF CHINA
China adopts a sector-based approach for its financial industry supervision, with securities,
banking and insurances sectors under separated supervision by the China Securities
Regulatory Commission (CSRC), the China Banking Regulatory Commission (CBRC) and the
China Insurance Regulatory Commission (CIRC) respectively, pursuant to applicable laws.

Figure: Financial Supervisory Infrastructure in Peoples Republic of China

Source: The Group of Thirty (2007)

 JAPAN
The Japanese financial regulatory structure is characterized as an integrated approach led
by the Financial Services Agency (FSA), with the Ministry of Finance and the Bank of Japan
continuing to retain an important role. Although the MOFs supervisory role is limited as a
result of the establishment of the FSA, it retains a strategic role within the crisis
management council.
Figure: Financial Supervisory Infrastructure in Japan

Source: The Group of Thirty (2007)

 SOUTH KOREA
The Financial Supervisory Service (FSS) is South Korea integrated financial regulator that
examines and supervises financial institutions under the broad oversight of the Financial
Service Commission (FSC), the government regulatory authority staffed by civil servants.
Under the guidance from the FSC, the FSS conducts inspections of and supervision over
financial institutions and then it also reports the results back to the FSC

Figure: Financial Supervisory Infrastructure in South Korea

Source: Yung (2007)

 FINAL REPORT: SWOT ANALYSIS ON THE CAPITAL MARKET INFRASTRUCTURE IN THE ASEAN+3 COUNTRIES AND
ITS POLICY IMPLICATIONS

ASEAN+3
FINANCIAL MARKET PRODUCTS

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 ASEAN MEMBER FINANCIAL MARKET PRODUCTS (Part 1)
BRUNEI DARUSSALAM
The stock and bond markets are small and conducted OTC. In the stock market, there is only
one market player/financial institution offering over-the-counter purchases and selling of
company stocks/shares. In the bond market, Brunei have government and corporate sukuk
issuances. AMBD, on behalf of the government of Brunei Darussalam, is the main issuer for
Brunei Government Short-term Sukuk al-Ijarah.

CAMBODIA
Two types of securities that are able to be traded on CSX:
Common Stock and Preferred Stock
There are currently no such a modern or institutionalized stock in Cambodia Capital Market

INDONESIA
Equities (Stock)
Corporate Bonds: Bond issued by National Private Company, including BUMN and BUMD.
Government Bonds: Bonds Issued by the Government including ORI and T-Bill.
Corporate Sukuk: Fixed Income instruments are issued based on Sharia principles.
Corporate Sukuk Revenue based on contract.
State Sharia Securities/SBSN or Corporate Sukuk: Securities issued by the Government based on
Sharia
Asset-Backed Securities (ABS): Debt Securities issued with underlying assets as the basis.
Derivatives issued in Indonesia include stock options and Index Future Contracts.
 ASEAN MEMBER FINANCIAL MARKET PRODUCTS (Part 2)

LAO PDR
There are two products offered in Laoss capital market, which are stock and bonds. And there
are only two listed stocks in the market listed in LSX which are EDL Generation Public
Company (EDL-Gen), and Banque Pour Le Commerce Exterieur Lao Public (BCEL).
On bonds, Laos issues three year Kip-denominated bonds and Baht-denominated bonds.
The Government issues Treasury-bills on a regular basis to finance the countrys budget deficit.

MALAYSIA
Malaysia financial market products comprise of: common stock, preferred stock, warrant,
mutual fund, and bonds.
Other financial market product outside capital market product is Negotiable Instrument of
Deposit (NID). NID is an instrument issued by a banking institution certifying that a certain
sum in MYR or Foreign Currency has been deposited with the issuing bank for a certain
tenor at a specified rate of interest (coupon rate may be fixed, floating or zero).
While Short Term Corporate Placement (STCP) provides an alternative investment avenue for
customers to place their excess funds with HLBB at a more flexible tenure as compared to
fixed deposit

PHILIPPINES
Philippiness instruments that traded in capital market are:
Fixed Income Securities (Bonds, Mortgage Backed Securities, Asset Backed Securities) and
Variable Income Securities (Derivatives, Equities, FX Denominates)
 ASEAN MEMBER FINANCIAL MARKET PRODUCTS (Part 3)
SINGAPORE
Bond offerings with a lower minimum subscription size and tradable on the Singapore Stock
Exchange (SGX) are also available for the retail market.
Singapore Exchange (SGX) is the preferred listing location of close to 800 companies. One of the
unique strengths of our equity capital markets is the large range of foreign listings on SGX.
Singapore houses the major global FX dealers and offers a deep and liquid market for trading
and hedging of G3 currencies, as well as emerging market currencies. At derivative market,
the products can be split into two: that for exchange-traded derivatives and that for over-
the-counter derivatives.

THAILAND
There are 4 types of products in foreign exchange market, but the most popular in Thailand is
foreign exchange swap since it has relation with other short-term instruments.
The Thailand structured of bonds can be categorized into two groups: structured notes and
securitization bonds. Most of the structured notes in Thailand are issued by commercial
banks and are mainly Equity-Linked Notes (ELN).
Other financial markets include: Repo transaction, Treasury Bills, Private Repurchase
Operations, Bilateral Repurchase Operations, and Futures.

VIETNAM
Similar to other countries, the main capital market product from Vietnam stock exchange
comes from stocks and bonds of companies being traded in the market.
In Vietnam, the most derivatives such as options and future contracts are hold on off-exchange
trading.
 ASEAN+3 (APT) FINANCIAL MARKET PRODUCTS
JAPAN
Japanese Bonds are classified into the following categories:
Japanese government bonds: JGB;
Local government bonds (prefectures, municipalities (cities, towns and villages)
Government agency bonds
Local public corporation bonds
Local governments agency bond
Corporate bonds
Bank debentures, and
Non-resident bonds (foreign bonds)

Other financial products includes: Call money market, Repo market, Commercial Money Market
and Derivative Market.

SOUTH KOREA
Bonds in Korea Republic could be classified into two kinds, they are: government bond and
corporate bond.
While derivatives products in South Korea include: Stock Index Products: KOSPI 200 Futures,
KOSPI 200 Options, STAR Futures.
Individual Equity Products: Individual Equity Futures, Individual Equity Options, Interest Rate
Products: 3 Year Korea Treasury Bond Futures (KTB3), 5 Year Korea Treasury Bond
Futures(KTB5), 10 Year Korea Treasury Bond Futures(KTB10), MSB Futures.
Currency Products: USD Futures, USD Options, Japanese Yen Futures, Euro Futures.
Commodity Products: Gold Futures, Lean Hog Futures
 FINAL REPORT: SWOT ANALYSIS ON THE CAPITAL MARKET INFRASTRUCTURE IN THE ASEAN+3 COUNTRIES AND
ITS POLICY IMPLICATIONS

ASEAN+3
SWOT ANALYSIS ON CAPITAL MARKET

PENELITIAN DAN PELATIHAN EKONOMIKA DAN BISNIS (P2EB)| FEB UGM

 STRENGTH (S) ANALYSIS
STRENGTH:

There are great efforts and awareness by all member

countries to develop their capital markets;
There have been strong willingness by member countries to
embark on capital market cooperation for the last decade.
Mobility of funds and professionals have been extensive for
the last decade;
ASEAN countries economic growth has been robust and
sturdy in the wake of the Asian crisis of 1998.
 WEAKNESSES (W) ANALYSIS
WEAKNESSES:

There are sheer differences among countries in the ASEAN+3

region pertaining to political system, economic development, and
sosio-cultural ambience;
There are, unfortunately, still inequalities among countries in the
ASEAN+3 region with regard to capital market development,
readiness of infrastructure, and the quality of human capital if the
capital markets are to be harmonized and integrated;
Current circumstances indicate that member countries have
enacted and administered so much diverse regulations and
regulators. Moreover, law enforcement is of various degrees in
the ASEAN+3 region;
Traditionally, risk appetite of the regions society is relatively low;
Citizens are more inclined to save in the banking system rather
than invest in capital market products.
 OPPORTUNITIES (O) ANALYSIS
OPPORTUNITIES:

The realization of the ASEAN Economic Community (AEC) in 2015 will

manifest in a huge ASEAN market. This would be enormous
opportunities for capital market participants with respect to portfolio
diversification, market expansion, and capital movement;
Economists and business community deem the 21st century as the
Asian awakening era, indicating that the shift in capital flows will be
(and actually have been) magnificent to the Asian region;
Continuing the second opportunity argument above, potential
capital sources from outside the ASEAN+3 region are very lucrative
and readily available, especially in the wake of the European market
debacle.
 THREATS (T) ANALYSIS
THREATS:

There have been historically volatilities in financial markets in the ASEAN+3

region, which might endanger the stability and sustainability of the regions
financial systems;
The fear for contagion effect from other regions that are experiencing
financial crisis is always prevalent;
Tapering by the U.S. Federal Reserve has reduced capital inflows into the
ASEAN markets;
The risk of financial instability and crisis is still intact due to the still-to-be-
enhanced political and economic foundations of the ASEAN+3 countries;
The fledgling ASEAN+3 integrated capital markets will be competing with
other economic communities and integrated capital markets. For instance,
competitive pressure will come from the NYSE-Euronext in relation to
capital attractiveness.
 FINAL REPORT: SWOT ANALYSIS ON THE CAPITAL MARKET INFRASTRUCTURE IN THE ASEAN+3 COUNTRIES AND
ITS POLICY IMPLICATIONS

ASEAN+3
FINAL REPORT CONCLUSION

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 REPORT CONCLUSION (Part 1)
All countries in the ASEAN+3 regions have made effort to
develop their capital markets to be ready for the capital market
integration.

The robust effort includes the development of infrastructure,

regulations, investor protection, and information and disclosure
requirements.

Nevertheless, some countries such as Cambodia, Myanmar,

Lao, and Vietnam that are the least developed capital markets
seem less ready for market integration.

As a consequence, they need support, not only from countries

cooperating with them, but also from market participants in their
own countries.

For instance, the few number of firms listed in Cambodia are still
a hindrance to the countries capital market development.
 REPORT CONCLUSION (Part 2)
The integration among the ASEAN+3 countries is still very
possible but requires additional work and effort.

In short and medium terms, the region has to address the

issues of sufficient capital market infrastructure,
comparable capital market products, and high calibre
capital market professionals in the region.

In the long run, if the equal and leading development of

infrastructure has been attained, capital market integration
in the region is on the way to be capitalized on.
 FINAL REPORT: SWOT ANALYSIS ON THE CAPITAL MARKET INFRASTRUCTURE IN THE ASEAN+3 COUNTRIES AND
ITS POLICY IMPLICATIONS

THANK YOU!
FINAL REPORT: SWOT ANALYSIS ON THE CAPITAL
MARKET INFRASTRUCTURE IN THE ASEAN+3
COUNTRIES AND ITS POLICY IMPLICATIONS

PENELITIAN DAN PELATIHAN EKONOMIKA DAN BISNIS (P2EB)| FEB UGM

 FINAL REPORT: SWOT ANALYSIS ON THE CAPITAL MARKET INFRASTRUCTURE IN THE ASEAN+3 COUNTRIES AND
ITS POLICY IMPLICATIONS

APPENDIX
ASEAN+3 COMPREHENSIVE
SWOT ANALYSIS

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 BRUNEI DARUSSALAM
Figure: Brunei Darussalam Capital Market SWOT
 CAMBODIA

Figure: Cambodia Capital Market SWOT

 INDONESIA

Figure: Indonesia Capital Market SWOT

 LAO PDR

Figure: Lao PDR Capital Market SWOT

 MALAYSIA

Figure: Malaysia Capital Market SWOT

 MYANMAR

Figure: Myanmar Capital Market SWOT

 PHILIPPINES
Figure: Philippines Capital Market SWOT
 SINGAPORE

Figure: Singapore Capital Market SWOT

 THAILAND
Figure: Thailand Capital Market SWOT
 VIETNAM
Figure: Vietnam Capital Market SWOT
 JAPAN

Figure: Japan Capital Market SWOT

PEOPLES REPUBLIC OF CHINA
Figure: Peoples Republic of China Capital Market SWOT
 SOUTH KOREA
Figure: South Korea Capital Market SWOT