Stock Exchange

The Asian stock markets continue to develop and recover from the Asian financial crisis of 1997-98. The regional economy continues to grow and receive the benefits from international portfolio diversification.

Asian stock market performance tends to follow the regional economy closely. There are however strong regional differences in market depth and regulation. The strongest Asian stock markets are located in Hong Kong , Singapore , Japan , South Korea , Taiwan , and Australia . These six markets arguably have the most liquidity and transparency. The majority of Asian stocks and bonds are traded on at least one of these four markets.

Other Asian countries are making efforts to legitimize their domestic stock markets. Some notable examples are China , India , Thailand , Malaysia , Indonesia , and the Philippines . The developing markets are struggling to gain investor respect and global legitimacy. The stock markets have struggled because of issues with rule of law and insider trading. Poor accounting standards are also problematic for these developing markets. Aside from regulatory problems in these markets there are also market health issues. Many of the developing markets lack liquidity because of nonexistent bond and derivative markets.

The development of China has been a driving force behind the recent prosperity in the Asian stock exchanges. Insider trading and poor accounting standards are plaguing the mainland Chinese exchanges. Government economic policies are also hurting the markets in China . The government has yet to fully embrace true market economy policies. There are still many state owned enterprises and interest rates/lending rates are still fixed. Also, the RMB is tied to the U.S. dollar. The CSRC closely regulates which companies are allowed to list on the exchanges and which corporations are allowed to make bond offerings. In order for Chinese companies to enter the market they typically require huge amounts of capital reserves. The CSRC always has the final say in whether or not a company can list. As a result the SOE's are typically preferred because they usually have the necessary capital and political associations to be able to list. However many of the SOEs are not profitable and have not been profitable in years. They are kept afloat by the Bank of China (government owned and operated) through nonperforming loans in order to keep political and social stability. The bond markets are also under-developed and there is little investor confidence in instruments with a maturity of more than five years. Yield curves tend to go up for the first five years and then move in completely irrational directions afterwards. In summation, the unpredictability of the Chinese exchanges has hurt international investor confidence. As a result many of the profitable Chinese companies have decided to list outside of China where market regulatory standards are higher. This has helped to bolster the exchanges in Hong Kong , Taiwan and Singapore where investors feel more comfortable trading. This has in turn has also helped to bolster the regional economy.

Development of the Asian stock markets has been slow due to a variety of factors. The Financial crisis and the SARs epidemic have both caused problems for the region. Many Asian countries have currencies tied to the dollar and are thus subject to American economic policies and interest rate changes. Despite some of these issues the long term outlook looks strong for the Asian stock markets. Continued regional development and recovery as well as stronger regional exporting should have a positive influence on the Asian stock exchanges.