A unified ASEAN stock market,
a first step to ASEAN economic integration?
By Jon Fernquest |
The European Union has proven that the best way to compete in the global economy is for the smaller countries in a region like Southeast Asia to combine their resources and work together as a unified whole.
In short, regional economic integration can provide to smaller countries the same economies of scale that larger more economically powerful countries enjoy.
Shared business interests are also probably the most solid foundation for political cooperation and dispute resolution between the very different countries of Southeast Asia.
A unified Southeast Asian stock exchange may well turn out to be the first significant step towards regional economic integration. As Antonio Riera of the Boston Consulting Group puts it
"It is easier to have four smaller markets combined into one and make it more attractive to investors than to have smaller market with not as much attractiveness."
An article in Saturday's's Bangkok Post looks at efforts underway to create a unified ASEAN stock market. A Bangkok Post article last week was the first to cover this development.
Here is the article in full:
ASIA FOCUS
Taking stock
Reforms are needed quickly for Thai markets to compete, says Boston Consulting. By Umesh Pandey
Saturday April 05, 2008
As Thailand undertakes the momentous task of trying to develop regional equity markets in Laos and Cambodia, experts are already warning that the world of equity markets has changed and that bigger is better.
"Look at Thailand's weighting on the MSCI-emerging markets index, it stands at a mere 1% from the nearly 10% it was in the past, and there are very few reasons except that the market is not big enough for sizable investors to participate," said Antonio Riera, a senior partner and managing director for the Boston Consulting Group.
His recommendations - merge or be gobbled up by large players.
"If you look at the 10-member Asean, it would be the best opportunity for these countries to have a streamlined equity market that has a similar platform. Then the region would become a centre to attract investments from all parts of the world," he said.
Thailand's local bourse has been in discussions to facilitate regional trade, but the move has seen very little progress.
Earlier this week Nongram Wongwanich, deputy director of the Stock Exchange of Thailand, said the Securities and Exchange Commission had agreed on the co-operation of the six Southeast Asian stock markets to select 30 listed companies from each market. The deal would see a total of 180 companies to create an inter-market Asean board.
Ms Nongram said the inter-market board would increase flexibility and allow investors to trade in foreign stock markets. This includes Thai companies listed in other stock markets such as Thai Beverage, the producer of Beer Chang, which was listed in the Singaporean market and would be one of the 30 selected companies of that country.
Ms Nongram said the SET is negotiating with securities companies, the SEC and the Bank of Thailand on the operations, regulations, trading of shares, and the flow of money between the countries. The results of the discussion would be shared with other Asean markets in the next three months.
On the same issue Patareeya Benjapolchai, president of SEC, said the Singaporean and the Malaysian stock exchanges as well as Nasdaq had invited Thai companies to be listed with their markets (dual-listing).
Mr Riera says that such a move is very positive for Thailand and represents the first step toward a more integrated region.
"What is most needed is the leadership's willingness to undertake this move," he says adding that one of the keys to this goal is harmonising regulations in regional bourses.
The benefits, he says, are that countries with higher transparency and easy access to such integration have 1.5 times higher GDP growth. That is why countries such as Singapore have taken the lead in developing their equity markets.
"It is easier to have four smaller markets combined into one and make it more attractive to investors than to have smaller market with not as much attractiveness," he says.
A good example, he says, can be found in the Nordic countries, which formed a combined market that is very attractive to major foreign investors.
"This region should follow the move and look at ways otherwise we all could lose our long-term attractiveness," Mr Riera said.
But again Thailand has to move a lot more to make this possible. The country still has a limited free float and foreign exchange limitations that hamper equity market growth.
(Source: Bangkok Post, business section, page B2, Umesh Pandey, 05-04-08, temp-link)
Vocabulary:
economic integration - a term used to describe how the economies of different countries are integrated, this can range from free trade agreements which readuce barriers to trade and doign business between countries, to the same money being used by a set of countries, to workers from any country being allowed to work in any other country, to shared taxes, to one set of laws, to integration of companies across what were once separate economies (See Wikipedia)
European Union (EU) - a political and economic community of twenty-seven member states, located primarily in Europe established in 1993 by the Treaty of Maastricht, with almost 500 million citizens, the EU generates an estimated 30% share of the world's nominal gross domestic product (US$16.6 trillion) in 2007 (See Wikipedia)
shared business interests - working together on business, so we stand to gain or lose together
economies of scale - produce more and a company can save on costs, as output increases, the average cost of production falls, overhead and fixed costs can be spread over the greater quantity being produced (See The Economist Glossary)
may well turn out to be - may be this way in the future, which is different than you would think
taking stock - assessing, evaluating
reforms - changes to improve
Boston Consulting - a global management consulting firm and the world's leading advisor on business strategy founded in 1963 (See Wikipedia)
undertake Y - start doing job Y and accept responsibility for completion
momentous - very important, will have great effects in the future
undertakes the momentous task of - starts a very important task (and accepts responsibility for completing)
an equity market - a stock market
regional equity markets - stock markets in the Southeast Asian or Asian region
an exchange traded fund (ETF) - "an investment vehicle traded on stock exchanges, much like stocks or bonds. An ETF represents a collection or "basket" of assets such as stocks, bonds, or futures. Institutional investors can redeem large blocks of shares of the ETF (known as "creation units") for the underlying assets or, alternately, exchange the underlying assets for creation units. This creation and redemption of shares enables institutions to engage in arbitrage and causes the value of the ETF to track the net asset value of the underlying assets. Most ETFs track an index, such as the Dow Jones Industrial Average or the S&P 500" (See Wikipedia and a list )
MSCI-emerging markets index - a stock index with stocks from emerging markets
a stock index, an equity index - a weighted average of stock prices used to measure the average value of stock prices in a certain group of stocks, for example from a country, an industry, or a region of the world (See Wikipedia and a list of stock market indexes)
Thailand's weighting on the MSCI-emerging markets index - Thailand's percentage of the the total stocks on the index (probably based on relative market capitalisation, value of stocks traded)
stands at - is at
merge - when two companies combine and form one new company
gobbled up by large players - larger companies buy the smaller companies
streamlined - make more eficient by removing unnecessary parts
streamlined equity market - a stock market made more efficient (which should encourage trading and issuance of new stock on the exchange)
a computing platform - a combination of software and hardware used to run a computer system, for example a computer gaming platform, a mobile phone platform, an operating system platform, or software platform (See Wikipedia)
a trading platform - the combination of software and hardware used for trading on a stock exchange, clearing and settlement being an important part of this
clearing and settlement - calculating the number of shares and money changing hands in a transaction and then arranging for the transfer of money and shares
has a similar platform - has a similar trading platform
a bourse - a stock exchange (French language)
facilitate - help make something happen (See glossary)
the move - the action
such a move - such an action
willingness to undertake this move - are willing to do this
progress - over time improving and moving to a more advanced and desirable state (See glossary)
seen very little progress - very few improvements have been made, the market has not grown bigger or better
Stock Exchange of Thailand - the national stock exchange of Thailand located in Bangkok (See Wikipedia and website)
Securities and Exchange Commission (SEC) - the government agency that protects the public from malpractice in securities and financial markets
inter-market - between markets
intra-market - within one market
inter-market Asean board - a planned multi-country stock trading system in which the top stocks from six ASEAN countries are traded (See previous Bangkok Post article)
Nasdaq - the largest electronic screen-based equity securities trading market in the United States with approximately 3,200 companies, it lists more companies and on average trades more shares per day than any other U.S. market (See Wikipedia)
a listed stock - a stock publicly traded on the stock exchange
a company listed on a stock exchange - the companies stocks are publicly traded on the stock exchange (this makes it easier for the company to raise money to finance business expansion)
companies listed with their markets - companies listed on their stock exchange
dual-listing - when a company is traded on two stock exchanges
integrated - a system with all parts closely linked with other parts in the system
a more integrated region - a region with more business, educational, and cultureal ties between countries
harmonising regulations - making two separate sets of regulations work together well
harmonising regulations in regional bourses - making the regulations of different countries for stock exchanges work together better
higher transparency - easier for the public to see what is happening
easy access to such integration - can use the combined wealth and resources of every country in the Southeast Asian region (not just the resources of one's own country)
lose our long-term attractiveness - over many years people don't want you anymore
free float, the free float of a stock - the percentage of a company's stock not held by long-term investors, this stock not held by big investors is freely tradable on the stock exchange (See Google's definitions)
limited free float - big investors account for most stockholders, very little left over for people holding smaller amounts of shares to trade them on the stock exchange
hamper - make more difficult to do
