Growth, integration and trends in equity markets in Asia

Abstract

The objective of this paper is to examine the growth and development in the Asian financial markets and then focus on equity-market developments in the Asian economies. Asian equity markets have grown exponentially over the last two decades. The trauma of the Asian crisis crystallized transformations in Asia's financial architecture. Equity markets were, in turn, no exceptions. Despite these problems, these markets slowly began expanding again. Attracted by rapid and sustained regional growth in Asia, international institutional investors and fund managers began investing in Asian equities. This inexorably led to an increase in market capitalization. However, growth in the equity markets was far from steady and uniform. This paper has dwelt on the performance of important equity markets in Asia and highlighted the diversity in them.

Keywords::

• Asia
• asymmetric integration
• equity markets
• financial sector
• growth
• market performance

Notes

^1. Asia in this paper includes the dynamic economies of East and Southeast Asia. It comprises the original six members of the Association of Southeast Asian Nations (ASEAN), the four newly industrialized economies (NIEs) and the People's Republic of China. These economies are heterogeneous and at various levels of economies development and income levels, high, middle and low. They are also structurally different. Some are services oriented, others are highly industrialized and depend on manufactured exports, while still others are not highly industrialized and have primary products in their export baskets.

^2. Some of the pioneering contributions in this area include De Gregorio and Guidotti (1995). For an extensive literature survey, see Demirguc-Kunt and Levine (2008). Hassan, Sanchez, and Yu (2011) examined panel regressions with cross-sectional countries and time-series proxy measures to study linkages between financial development and economic growth. They found strong long-term linkages between the two.

^3. See Morgan and Lamberte (2012, table 3, p. 7).

^4. See, for instance, Corsetti, Pericoli, and Sbracia (2002), Forbes and Rigobon (2002), Johnson and Soenen (2002) and Chelley-Steeley (2005). These are selective empirical works. An exhaustive list would be much longer. Empirical models like those developed by Forbes and Rigobon (2002) show that integration and interdependence between various country financial systems are useful. It needs mentioning that empirical work on financial contagion found problems with analysing level series price index series with contemporaneous regression models.

Additional information

Notes on contributors

Dilip K. Das

Dr Dilip K. Das is a Professor of International Economies and International Finance and the Director of the Institute of Asian Business (IAB), SolBridge International School of Business, Woosong University, Daejeon, Republic of Korea. He is the author of many noted books and papers on Asian economics.