Donald Tsang

Tsang urges joint fight on market volatility

PUBLISHED : Saturday, 22 September, 2007, 12:00am
UPDATED : Saturday, 22 September, 2007, 12:00am

Chief Executive Donald Tsang Yam-kuen has urged financial market regulators in Asia to join hands in curbing market volatility.

The call came after the recent subprime mortgage crisis caused unusual fluctuations in worldwide security markets.

In his opening speech at yesterday's Asian Financial Forum, Mr Tsang warned that the relatively small sizes of financial markets in Asia made them more vulnerable to volatile international capital flows, compared with their European and American counterparts.

Uncertainty in interest rates, growth of hedge funds and other unregulated entities all posed risks to financial markets, such as the sudden flight of capital, said Mr Tsang.

He noted that emerging markets in the region where infrastructure was immature were especially susceptible to instability.

'To address the risks arising from volatile capital flows, regulators should stress test their systems to assess the impact on liquidity and pricing arising from the unwinding of large positions,' Mr Tsang said.

Transparency across the markets was needed for the proper evaluation of risks, he said. 'There must be better access to reliable information for risk assessment, stress testing and increased regulatory co-operation across jurisdictions.'

He added that training personnel was necessary for the proper enforcement of regulations and the innovation of new products.

Reviewing the regional financial markets' development during the past decade, Mr Tsang said the area had been playing a more significant role in the world market, thanks to the accumulation of wealth and foreign currency reserves held by Asian countries.

He also said that Asian economies had made considerable progress in improving financial infrastructure.

However, the region's bonds markets had yet to flourish despite the growth of retirement funds and surging demands for long-term fixed-income products, he said.