ASEAN Roundtable Series: Deepening Capital Markets in ASEAN – Opportunities and Challenges

Published on 20 September 2017



Joydeep Sengupta

Joydeep Sengupta

Senior Partner, McKinsey & Company and Managing Partner, Asia-Pacific Banking Practice

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Mr. Joydeep is a Director in McKinsey & Company and leads the Asia Banking practice, based in Singapore. He has served leading financial institutions in Asia and Europe.

Joydeep has deep expertise in a range of business areas including retail banking, wholesale banking and organization-related topics. He has worked with Asian banks and insurers on business unit strategy, service operations, risk and regulation and sales excellence and channel management.

His recent work includes supporting the performance transformation of several leading banking groups in Asia with a focus on sustainable change management and helping with bank and banking sector restructuring issues facing Asian banks. He is currently a member of several policy-making groups in Asia on financial sector and capital market reform issues.

In addition to serving clients, Joydeep has authored several publications in the areas of asset management, banking reform, economic crisis and infrastructure development. Prior to McKinsey, Joydeep held several managerial positions with HSBC.

Joydeep holds a Post Graduate Diploma in business management from Indian Institute of Management, Ahmedabad and a Bachelor of Commerce from the University of Delhi.

Tan Sri Dato’ Seri Ranjit Ajit Singh

Tan Sri Dato’ Seri Ranjit Ajit Singh

Executive Chairman, Securities Commission (SC) Malaysia Chairman, ASEAN Capital Markets Forum (ACMF)

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Tan Sri Dato’ Seri Ranjit Ajit Singh was appointed as the Executive Chairman of the SC on 1 April 2012. He has extensive experience in the field of finance and securities market regulation and has spearheaded many key initiatives in the development and reform of Malaysia’s capital market. He was appointed the Vice-Chairman of the governing Board of IOSCO and is the Chairman of IOSCO’s largest Committee, the Growth and Emerging Markets Committee. In 2014, Tan Sri Dato’ Seri Ranjit was appointed Chairman of the ASEAN Capital Markets Forum (ACMF). Tan Sri Dato’ Seri Ranjit chairs the Securities Industry Development Corporation (SIDC), the Malaysian Venture Capital and Private Equity Development Council (MVCDC) and the Capital Market Development Fund (CMDF). He is also the Vice-Chairman of the Asian Institute of Finance and a Board member of the Labuan Financial Services Authority and the Financial Reporting Foundation as well as a board member of the Malaysian Institute of Integrity (IIM).

Dato' Sri Nazir Razak width=

Dato’ Sri Nazir Razak

Chairman, CIMB Group

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Dato’ Sri Nazir Razak is the Chairman of CIMB Group Holdings Berhad. He joined CIMB’s corporate advisory department in 1989 and served the Group in various capacities before being appointed Chief Executive in 1999. After 15 years as Chief Executive, Nazir became Chairman on 1 September 2014. He spearheaded the Group’s transformation from a Malaysian investment bank into an ASEAN universal bank via several acquisitions and new builds throughout the region.

Today, CIMB is Malaysia’s second-largest financial services group and ASEAN’s fifth-largest by assets. Backed by a staff force of around 39,000, the Group has operations in 15 countries, but positions itself as an ASEAN franchise. Under Nazir’s stewardship, CIMB has won many awards, including best investment bank and best Islamic bank in Asia and best bank in Malaysia. Nazir himself was recognised as Malaysia’s top executive/CEO on several occasions. He was the youngest recipient of FinanceAsia’s ‘Lifetime Achievement Award’ in 2009 and was awarded Euromoney’s ‘Outstanding Achievement Award’ in 2012. In 2015, he was the recipient of Asia House’s ‘Asian Business Leaders Award’.

Nazir is a Director of Khazanah Nasional Berhad and a member of the International Advisory Board of the Blavatnik School of Government at the University of Oxford. A strong advocate of the ASEAN integration, Nazir is the inaugural Chairman of the World Economic Forum’s ASEAN Regional Strategy Group and ASEAN Regional Business Council. He led the establishment of the ASEAN Business Club, which comprises CEOs of large ASEAN multinationals, and the CIMB ASEAN Research Institute. He is also a Founding Board Member of Endeavor Malaysia, a non-profit organisation that helps spur the development of entrepreneurs, and was instrumental in the formation of CIMB Foundation, the Group’s corporate responsibility arm. He is also the Honorary President of the Malaysia-China Chamber of Commerce and a member of the Advisory Board of the Centre for Asian Philanthropy and Society.

Nazir graduated from the University of Bristol with a B.Sc. (Hons) and obtained an M.Phil. from the University of Cambridge. In 2009, he was the Chevening Fellow at the Oxford Centre for Islamic Studies.

Dr. Bambang Irawan

Dr. Bambang Irawan

Senior Research Fellow, CIMB ASEAN Research Institut

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Bambang Irawan is a Senior Research Fellow with the CIMB ASEAN Research Institute (CARI). In his capacity, he has provided analyses on the new AEC Blueprint 2025 from the point of view of the stakeholders, particularly the private sector, as well as on the latest policy developments in Indonesia. Bambang was formerly an Assistant Director at the ASEAN Secretariat, Jakarta, Indonesia. His portfolio covered cooperation and initiatives under the ASEAN finance integration. He coordinated activities and initiatives under financial services liberalisation, capital account liberalisation, capital market development, insurance and taxation.

With the completion of ASEAN Economic Community (AEC) Blueprint 2015, Bambang was involved in the development of the AEC Blueprint 2025 that would guide the cooperation and integration of all economic sectors in ASEAN between 2016 and 2025. His professional experience includes the banking sector and higher education, where he taught economics, statistics and ASEAN studies. Bambang earned his undergraduate degree in economics from the University of Indonesia and MBA from Webster University. His doctorate (economics) is from Monash University, Australia.



Tan Sri Dr. Munir Majid

Chairman, CIMB ASEAN Research Institute President, ASEAN Business Club

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Tan Sri Dr. Munir worked in the UK as a university tutor and research analyst in the City before returning to Malaysia at the end of 1978, to be leader writer for the New Straits Times. He progressed to the position of Group Editor before leaving in 1986 to become Chief Executive Officer of a small merchant bank Pertanian Baring Sanwa, whose name he changed to Commerce International Merchant Bankers (CIMB), which was then transformed into one of Malaysia’s leading merchant banks. In 1993, he was invited by the Government of Malaysia to establish the Securities Commission, where he served as Executive Chairman for two terms until 1999. He was instrumental in shaping the legal and regulatory framework of the capital markets in Malaysia, particularly in establishing disclosure-based regulation. He was also responsible for drafting the country’s first code of corporate governance in the aftermath of the Asian Financial Crisis of 1997-98. He was Chairman of the Emerging Markets Committee of the International Organisation of Securities Commissions during his term at Malaysia’s Securities Commission. After leaving the Commission, he became Director of Telekom Malaysia Berhad, Chairman of Celcom (Malaysia) Berhad and Chairman of Malaysian Airline System Berhad. He was the Founder President of the Kuala Lumpur Business Club, established in 2003 and is a member of the Court of Fellows of the Malaysian Institute of Management. He is currently Chairman of Bank Muamalat Malaysia Berhad, CIMB Asean Research Institute, the Asean Business Advisory Council, Malaysia and The Financial Services Professional Board Malaysia (FSPB), as well as President of the Asean Business Club.

Tan Sri Dr. Munir obtained a B.Sc (Econ) and Ph.D in international relations from the London School of Economic and Political Science (LSE) in 1971 and 1978. He is an Honorary Fellow of LSE and continues the long association with his alma mater as Visiting Senior Fellow at the Centre of International Affairs, Diplomacy and Strategy. Tan Sri Dr. Munir is an associate of Southeast Asia Centre (SEAC) at LSE.


The ASEAN Capital Markets Forum (ACMF) highlighted that the size of the capital markets in ASEAN is estimated to be at US$3.5 trillion and collectively the exchanges in ASEAN are ranked as the 9th largest in the world.

The panellists recognised the opportunities presented by the region’s capital markets but there are many hurdles in capital market development and connectivity that ASEAN needs to overcome in order to unlock the potential value to fund infrastructure development, businesses and provide attractive returns for investors.

Joydeep Sengupta, Senior Partner and Managing Partner, Asia Pacific Banking Practice at McKinsey and Company said that deepening of capital markets in ASEAN is crucial to keep up with the kind of growth that the region will need to become a US$5.2 trillion economy by 2025. McKinsey estimates that US$160 billion will be required on an annual basis to meet infrastructure needs.

Currently, 90 percent of infrastructure in ASEAN is financed by the public sector through tax revenue and borrowings from development institutions. There is an infrastructure investment gap of approximately US$100 billion of which the public sector can bridge between US$30-40 billion. The private sector will need to increase its investment from US$5-10 billion to US$50-60 billion.

McKinsey and Company presented the results of research on the performance and health of a select number of capital markets in the ASEAN region. The McKinsey Capital Markets Development Index (MCMDI) is a comprehensive gauge of vibrancy of markets which looks at whether:

  1. issuers can raise reliable and affordable capital at scale (broken down into affordability, availability and diversity of sources)
  2. investors are able to mobilise domestic savings through investments in the markets (broken down into availability and return) and
  3. the market is able to provide high-quality pricing information to support efficient allocation of limited resources (pricing efficiency).

The McKinsey research also found that the overall health of the capital markets was determined by the policies and architecture and design of markets within each country. These included foundational policies, regulatory framework, cornerstone institutions, regulations and standards, taxation and market infrastructure and technology.

Dr. Bambang Irawan, Senior Research Fellow at CARI cited the example of Indonesia, which is running increasingly large fiscal deficits to fund President Jokowi’s infrastructure plans for the country. He said that if capital markets were deepened then funding could come from the private sector, decreasing the strain on government coffers.



1. Some capital markets in ASEAN are shallow resulting in lost opportunities in filling funding gaps

a. Challenges for individual ASEAN countries

Joydeep said McKinsey’s assessment of the capital markets in ASEAN via MCMDI indicated that there were significant funding gaps, limited choice of investments, expensive capital, lack of avenues to deploy savings, poor liquidity, mediocre risk-adjusted returns and a poor allocation of resources.

With regards to the ability to raise funds at scale, McKinsey found that primary markets are less reliable sources of funds for ASEAN issuers, especially for mid-size companies and infrastructure projects which are usually crowded out by large issuers and governments. Additionally, issuers find it challenging to raise longer-term corporate debt resulting in an asset-liability mismatch which limits investment choices. Finally, the cost of capital in ASEAN is high at about 1.3 times that of developed markets.

With investment opportunities, they found that capital markets lack a full-suite of attractive short-long tenure products (including derivatives) which limited the broadening of investments. Liquidity in the markets was also found to be poor, outside of on-the-run government securities and top-50 equities, resulting in high market impact cost. While the Sharpe ratio for equity products was at 0.9 indicating that returns were not attractive.

Finally, the MCMDI found that ASEAN equity markets are less efficient than developed markets in allocation of resources and that there was a large variance across ASEAN in pricing efficiency.

Dr Bambang, in his presentation about the state of capital markets in Indonesia, concurred with the McKinsey report. He noted that the equity markets in Indonesia are limited in size at 47% of GDP in 2015, less than in other ASEAN countries while 50% of market capitalisation is concentrated in 11 (out of 537 in 2016) of the largest listed companies. He also added that mostly all traded instruments are common stocks, and hedging instruments are not readily available.

Joydeep went on to elaborate on the health and sustainability of the capital markets by looking at foundational policies, as well as market architecture and design of Malaysia and Indonesia. Foundational policies include benchmark assets, supply of capital, demand for capital, intermediation, free markets, and price discovery. Market architecture and design include regulatory frameworks, cornerstone institutions, regulations and standards, taxation, market infrastructure and technologies. He noted that on a scorecard of 1(lowest) to 5 (highest) that Malaysia garnered an average rating of 3.5, and Indonesia, 2.0 which indicated that foundational policies, as well as market architecture and design to support capital market health are weak and can be further strengthened.

With such challenges at a country-level, deepening, increasing connectedness and harmonisation of ASEAN capital markets present an even bigger hurdle.


b. Choke points at the ASEAN level due to lack of harmonisation

Dato’ Sri Nazir Razak, Chairman of CIMB Group, said that there was a lack of coherent and harmonised policies across ASEAN. For investment in equities, these included capital control limits which vary by country and time, tax settlement cycles and clearing issues that can be much better clarified or harmonised. On the fixed income side, he gave the example of varying tax treatments across countries. For example, Singaporeans and Koreans do not get taxed on capital gains on baht government and corporate bonds while Malaysians do, whereas with rupiah government bonds, Malaysians and Koreans get taxed on capital gains, but Singaporeans do not. He suggested that ASEAN countries should be treated to best-in-class treatment for tax across the region.

Dato’ Sri Nazir added that there is a lack of support from ASEAN government for many of the ACMF’s initiatives which indicated that there was still apprehension of capital outflows, competitive disadvantages and losing control of their markets.

Tan Sri Dato’ Seri Ranjit Ajit Singh, Chairman of the Securities Commission Malaysia and Chairman of ASEAN Capital Markets Forum (ACMF), said that the wider ecosystem including addressing diverging tax regimes and national frameworks continue to present challenges for ASEAN interconnectivity.

Both Tan Sri Ranjit Singh and Dr Bambang agreed that there is a large gap between the depth of capital markets in more developed and less developed countries in the region.


2. ACMF is addressing the connectivity of ASEAN markets as a precursor to integration but measures have led to limited impact

According to Tan Sri Ranjit the ACMF has recalibrated its vision to overcome some of the challenges it has faced in the past. The recalibrated vision includes creating an interconnected and inclusive market place to bring the less developed economies into the fold. He also said that ACMF will focus on market needs as it moves forward.

Tan Sri Ranjit also recapped the three broad objectives of ACMF and associated initiatives. The first is the harmonisation in the framework of ASEAN capital markets both in terms of securities regulatory rules and corporate governance and standards. The second is to create linkages within the infrastructure of ASEAN capital markets which to some degree occurred through the connection of the ASEAN Trading Link (ATL). The third objective is to create cross border products such as the ASEAN Exchange Traded Funds and the ASEAN Index, which are works in progress. Other ACMF initiatives include the ASEAN collective investment schemes (CIS) framework. There are 13 funds qualified under the ASEAN CIS and the regime has only three signatories namely Thailand, Malaysia and Singapore with Indonesia and Philippines keen to participate in the regime.

Dato’ Sri Nazir also commented on some of these and other ACMF initiatives from a user’s the perspectives of investors and issuers. He said that the ATL, common prospectus, CIS and dual listing initiatives have had limited traction. He observed that investors are already able to access various stock markets via multiple platforms, including digital ones, so the ATL may not be relevant. For dual listings, even when there is strong multi-market brand recognition, activity tends to flow back to the primary market. He then elaborated on CIMB’s experience in dual listing trying to list in Thailand, which he said a project that was abandoned after four years due to the complications of adhering to two separate legal jurisdictions (Malaysia and Thailand), among other concerns. However, Dato’ Seri Sri Nazir was optimistic about the ARFP initiative which he believes will be important in the near future.


3. Moving Forward: What is next for ASEAN capital markets?

The panelists have proposed various initiatives to be taken on board by both policymakers and regulators going forward.
a. Policymakers to create the environment necessary for the deepening of capital markets

Joydeep proposed that in order for ASEAN to deepen capital markets and unlock more funding potential policy makers and market participants should be looking at entire ecosystem.

  • For foundational policies he suggested that governments across the region should enhance liquidity in government securities. This should be done by improving predictability of issuances which provides the benchmark to allow the other securities to price more efficiently and hedge interest rates, creating on the run benchmarks and creating compelling primary dealer programmes. This is extremely important, particularly for markets like Indonesia and the Philippines.
  • He then suggested that ASEAN focus on long-term buy and hold investors, such as pension funds which can be a catalyst for the markets. This has social implications because if these institutions are not able to invest with good returns they run a risk of leaving ASEAN with a large poor elderly population.
  • The third is to broaden the investor base – there is a need to attract a broad group of investors.
  • Fourth is to bring back privatisation and equitisation which will act as a catalyst for growth in some markets. His final recommendation around foundational policies was to mandate state owned and large private companies access to bank lending as they are crowding out others from accessing bank lending.
  • In the area of market architecture, Joydeep suggested that ASEAN create a cornerstone institution similar to that of the Hong Kong Mortgage Cooperation in the 1990s which acted as the single largest catalyst for the development of the Hong Kong market.
  • ASEAN should create an infrastructure cooperation, which would drive primary and secondary issuances, allow for securitisation of assets and create the framework for equity and debt in ASEAN markets. He also suggested that ASEAN should leverage on technology to grow supply and demand as well as creating greater pricing efficiency and transparency.

Dr. Bambang added that the region needs to ASEAN efforts to integrate the region’s capital markets should advocate closer cooperation among the relevant ASEAN sectoral bodies including taxation, payment and settlement systems, and the ASEAN infrastructure fund.

b. ACMF to review the ATL, promote ASEAN as an asset class and green bonds

Looking forward, Tan Sri Ranjit spoke about what was in the works at ACMF to help further develop and deepen individual ASEAN capital markets as well as enhancing connectivity between markets.

  • The ACMF has reviewed the existing ATL in order to make it easier to for investors to invest in cross border investments.
  • ACMF is also working on creating opportunities to mobilise the large savings pool for infrastructure financing by developing bond markets, promoting various asset classes and through the ASEAN Infrastructure Fund.
  • For example, ACMF is working with the International Capital Market Association on green financing. This is a strategic move to respond to the demand in the global markets for investors looking for investments that are environmentally conscious and follow good corporate governance practices.
  • The way to do this is to create an ecosystem around the new investment or to leverage on the existing infrastructure. The latter was carried out in Malaysia by releasing green bond/sukuks which took advantage of the vibrant sukuk market in the country.
  • The ACMF working groups are now focusing on real estate investment trusts and exchange traded funds.
  • The ACMF is also focusing on less developed markets with initiatives such as the ASEAN Market Development Programme which was launched a couple of years ago and runs programmes such as development of bond markets. He said that these programmes were received well, particularly by CLMV countries.
  • The ACMF was working on the mobility of the professionals across ASEAN. The intention is to have a Mutual Recognition Agreement (MRA) of licensing regimes based on a common licensing framework which is likely to be ready in early 2018.

Tan Sri Ranjit was also confident that the establishment of the International Organization of Securities Commissions (IOSCO) Asia-Pacific hub in Kuala Lumpur was an encouraging development, especially for the capacity building needs of the region. He added that countries like Indonesia and the Philippines were eager to join the ASEAN CIS but that this would only be possible if they were to be signatories to the IOSCO Multilateral Memorandum of Understanding which required them to fulfil certain requirements first.

Tan Sri Ranjit said that one of the challenges moving forward will be the number of competing issues that ASEAN countries face, especially those which are less developed as they prioritise the development of their domestic capital markets ahead of ASEAN and the opening up their markets to foreign capital and investors. He said that market players who are pushing for development of domestic capital markets in their respective countries should push for this to be done through the ASEAN platform.


c. Practical recommendations

  • Allowing room for “switch-on and switch-off” options?
    Here, Dato’ Sri Nazir was also of the opinion that there would be a better response to ACMF initiatives from various governments if they were given guarantees on safeguards and mechanisms which allowed them to “switch on and switch off” certain policies to limit risks such as capital flight. This would be one way to encourage them to agree on and progress forward with regional reforms.
  • Streamline fundraising in ASEAN
    Dato’ Sri Nazir said that ASEAN should focus on the fundraising process and streamline it. He said that the ideal situation for industry players would be to register a prospectus once then to have a free reign of marketing to investors across the region. If raising funds was made simple across the region then it would enable companies to access to the broadest range of capital providers and it would be a very powerful value proposition to being a part of ASEAN.
  • Virtual ASEAN bourse
    He also suggested that there is much room for improvement in how the region promotes intra-ASEAN flows and that there should be a virtual board which listed all the top companies in ASEAN and information such as which exchanges they are listed on and key valuation metrics. This board should be as visible across the region as possible.
  • ASEAN market Information hub
    Tan Sri Ranjit Singh suggested to establish an ASEAN markets information hub for investing in ASEAN capital markets, an initiative which he encouraged the private sector to take on. He added that the task of developing and deepening capital markets should not just be left to regulators but that industry should drive this forward by presenting white papers on issues faced along with recommendations to resolve cross-border challenges.
  • Raising awareness of foreign investors
    Finally, Tan Sri Ranjit and Dato’ Sri Nazir also agreed on the fact there is a need to raise awareness about the investment opportunities in ASEAN capital markets. Currently, too many investors only invest in their domestic markets or overlooking their regional neighbours and investing in developed countries such as the United States. Raising awareness is also key to ensuring that ASEAN is able to maintain and increase investments even as larger markets such as China and India become more accessible for investors.


Tan Sri Munir Majid concluded the session by observing that there has been much progress made and that there were many practical proposals put forward by the panellists. However, he said that ASEAN countries need to be less suspicious of proposals from other member countries and this is where consultants can play a role in providing a more neutral face when proposing reforms especially in relation to harmonisation of rules. More developed nations in ASEAN need to somehow encourage less developed countries in taking on board reforms without making them feel inferior.

Written by Tamanna Patel, Resident Research Fellow at CARI.



ASEAN Roundtable Series

ASEAN Roundtable Series

ASEAN Roundtable Series

ASEAN Roundtable Series

ASEAN Roundtable Series

ASEAN Roundtable Series

ASEAN Roundtable Series

ASEAN Roundtable Series

ASEAN Roundtable Series


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