Open markets 'way to draw foreign funds'
Asia faces an increasingly tough challenge for private fund flows from the developed world unless domestic equity markets open the door a crack wider, the International Finance Corp (IFC) says.
Robert Shakotko, manager of the IFC's emerging markets group, said Asia stood to lose out as equity investors from developed countries channelled their resources towards the faster-growing and more open emerging markets outside the region.
'Asia is becoming identified as the only place [among emerging markets] that is relatively closed to investors,' Mr Shakotko said.
The IFC is the World Bank's investment bank for developing countries.
In January, emerging markets in Europe, the Middle East and Africa grew 11.6 per cent, while those in Latin America expanded 9.1 per cent, according to IFC figures. Asia's markets registered growth of only 3.3 per cent in the month.
Mr Shakotko said developed-country investors were frustrated by the restrictions placed by Asian governments on the level of foreign ownership in listed companies.
Foreign-board limits and separate share classes for foreign investors raised the cost of Asian equities, diminishing their attractiveness, he said.
'China's markets are among the most closed of all,' he said.
'[This year] will see more controversy on foreign-board prices [in Asia]. There will be more pressure for a relaxation,' he said, adding that the drive would be most pronounced in Thailand, South Korea and Taiwan.
Asia's lower thresholds for foreign holdings stemmed from the region's economic emergence in the 1960s, when governmental commitment to free markets was weaker.
'Asia's emerging markets were the first on the scene and they came with the [ideological] baggage of the 1960s,' Mr Shakotko said.
He said developed-country investors had recovered their nerve since the 1994 Mexican peso crisis, which had shaken their faith in the wisdom of committing funds to emerging markets.
'Private-portfolio investors have become rejuvenated and are back in the market,' he said.
Last year, private portfolio flows from developed countries to emerging markets totalled about US$90 billion, split evenly between debt and equity holdings.