The title of this post is not newsworthy. It happens regularly. Despite all 4 nations having their own currencies, exchanges and regulatory regimes, this trade could happen with little fanfare. Maybe a little cajoling of the settlement department, but nothing ground-breaking.

Now try this: “Thai Broker sells Hong Kong Stock to a Korean counterparty and settles in Japanese Yen”
This would make headlines, because it crosses rigid regulatory, currency and exchange boundaries. Asia is further from a unified capital market environment than ever, and the walls are set to be built HIGHER, not lower.
This article  Financeasia.com calls for Increased Regional Integration is a pipe dream. It will never happen. FundKing has nearly 5 decades of combined experience in Asia, and understands full well that these ideas will meet with an extradition amount of resistance. Corruption, along with typical market distortions that occur when “The Government” has a large pecuniary interest in the economic outcomes, will tilt the results in a way that will preserve the local monopolies of financial institutions and exchanges.

The impact of this will be to create huge gaps between countries that only large global financial institutions can bridge. Spreads will be wide, and remain wide, as these intermediaries benefit from this regulatory arbitrage for at least a decade. Institutions such as HSBC and Standard Chartered, which derive large portions of their income from Asia, will see the biggest gains relative to their total bottom line.
What does this mean for smaller Asian firms looking to table regional capital markets? It means they must curry favor with a bank which has a large regional presence, and understand that they will be locked into this relationship. The conflicts this presents, on so many levels, will serve to stifle small and mid-cap company growth, and keep it at current levels, when it could potentially be a source of some of the most explosive creative growth the world has ever seen.

 


Filed under: Market CommentRegulation

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