Background

ACMF Vision 2025 is to become an “Interconnected, Inclusive and Resilient Capital Market”. The Phase 1 action plan from 2016 to 2020 focused on six key priorities- regional market infrastructure and connectivity, cohesive regulations and practices, promoting ASEAN asset class, mobility of professionals, greater investor participation and stakeholder interaction – with specific initiatives designed to achieve the objectives.

The Phase 1 action plan has generated some positive developments for ASEAN’s capital markets. However, in drawing up the Phase 2 action plan, ACMF is at an important juncture especially due to the COVID-19 crisis. To recover from the pandemic and to strengthen ASEAN’s growth and resilience, the role of capital markets will be even more crucial as public funding cannot do the heavy lifting alone and needs to be complemented by substantial private financing and as continued over-reliance on the domestic banking sector will increase pressure on its absorption capacity and can compromise long-term growth.

ACMF’s role in strengthening the region’s capital market integration efforts for the next phase is crucial but comes precisely at a time of a confluence of disruptions- from accelerating signs of a de-globalisation and a retreat from integration due to COVID-19 to rapid technological advancements disrupting traditional business models and changing the future of work.
In line with this, ICMR is of the view that further regional capital market integration efforts should focus on facilitating the structural changes that is now unavoidable as a result of the pandemic and to address the barriers which could impede capital market’s mutually reinforcing functions to:

1. Support longer term investments in infastructure
2. Transition to a greener and more sustainable economy
3. Provide easier access to market-based financing instruments for smaller businesses which would benefit from more diverse funding sources, apart from bank financing
4. Advance and adapt capital markets’ legal and regulatory frameworks to fast-changing technological interventions which are aimed at supporting growth and innovation
5. Promote further financial development through efforts to increasing capital mobility within the region, build a more diverse and digitally-adaptive talent pool regionally and and improve financial literacy and education initiatives to reap the benefits of a more inclusive capital market

Executive Summary

• ACMF’s role in strengthening the region’s capital market integration efforts for the next phase is crucial as it comes at a time of a confluence of disruptions – from accelerating signs of a de-globalisation, a retreat from integration due to COVID-19, rapid technological advancements disrupting traditional business models and the changing future of work.
• The need to mobilise greater private sector funding through more efficient and integrated capital markets is particularly important due to the COVID-19 crisis as the public sector cannot do the heavy lifting alone and continued over-reliance on the banking sector can compromise its absorption capacity. Longer-term investments such as infrastructure development which are critical for the region will need stronger regional collaboration. ASEAN should increase the visibility and size of the ASEAN Infrastructure Fund by working together with other multilateral agencies and Development Financial Institutions. ASEAN could also consider introducing an ASEAN Long Term Infrastructure Investment Fund and an ASEAN –Infrastructure Investment Trust Fund, based on concepts which have been successful in Europe and India, to spur greater involvement.
• ACMF must take a leadership role in moving towards a greener and more sustainable economy. To complement the ASEAN Sustainable Capital Markets roadmap, a comprehensive financing strategy for the region, aligned with the broader SDG goals which determines the priority areas and sectors where investments are needed, has to be developed. To build on the progress made by ACMF with regards to the ASEAN Corporate Governance Research Institute, their mandate should be broadened to be an ASEAN Sustainable Research Centre – a one stop centre to work with permanent capacity on the above action plans, under ACMF’s strategic guidance.
• SMEs are the backbone of the ASEAN economy and are expected to further grow in importance. Hence efforts must focus on providing easier access to market-based financing instruments for smaller businesses which would benefit from more diverse funding sources, apart from bank financing. In line with this, ACMF needs to develop an ASEAN-based mutual recognition regulatory framework for innovative alternative funding models such as equity crowdfunding and peer-to-peer lending, which is now available in Singapore, Malaysia, Thailand, Indonesia and Philippines. For greater effectiveness, an ASEAN “Market Access Platform” which links SMEs across ASEAN will facilitate greater cross-border partnerships to achieve wider reach, scale and synergies and act as a bridge between ASEAN and global startup ecosystems.
• The digital transformation of the capital markets is well underway globally and will only accelerate over the next few years. ACMF needs to shape a consensus view on the role and future use of artificial intelligence (AI) and the regulations of AI in capital markets and this would be best achieved through the establishment of a high level expert AI committee. Also ACMF needs to consider designing a “single acccess point” for a digital information platform to facilitate the centralisation of national data repositories at a regional level to assist ASEAN in policymaking, coordination in times of emergencies and to further promote ASEAN as an asset class.
  6. Efforts also need to focus on promoting further financial development. Some considerations include promoting further capital mobility within the region through a sequencing strategy, building a more diverse and digitally-adaptive talent pool regionally by establishing an ASEAN learning centre to design curriculum aimed at promoting mutual recognition of skills as well as to expand the scope of the ACMF Pass Framework. This should also be complemented by an ASEAN-led initiative to improve financial literacy to facilitate greater investor participation so as to reap the benefits of a more inclusive capital market.

Click below to download the full paper.