How can we explain the rise of Asian financial centres?

Fashionable effect or strategy, to be listed on the Asian financial centres (Asian stock exchanges). Several companies have already made the big leap, especially in the fashion and luxury sector with a high potential market.

asian financial centres

But we can also highlight the Swiss commodity giant, Glencore, which has voluntarily opted for the Hong Kong financial centre to host its market capitalization, this is just one example.  A little bit of history, the oldest stock exchange in the Asian world is the Bombay Stock Exchange (BSE), which was created in 1875.

The world ranking of market capitalizations for 2012:

Countries

% de la Cap Boursière mondiale

United States

32,21

Japon

7,36

United Kingdom

6,63

China

6,44

Hong-Kong

4,63

Source: Bespoke 1

We will focus immediately on the Asian financial centres, which is now the second largest financial centre in the world in terms of overall market capitalization after the New York Stock Exchange (NYSE).

This Asian financial centres, created in 1878, has been offering electronic ordering for 14 years, with trading hours from 9 am to 11 am and from 1 pm to 3 pm (local time).

The listing is divided into two sections, the main one being the largest companies in terms of market capitalization and the second one being the smallest capitalizations or newly listed companies.

The main stock market index of the TSE is the Nikkei 225, which is calculated without weighting the 225 stocks that make it up.

The importance of Asian stock exchanges is the majority at the global level, but the rate of growth is not low.

We know that initial public offerings are a measure of the ongoing renewal of economic structures and therefore of the future of the market. Over the past ten years, more than 5,000 companies have been listed on the equity markets of the main Asian economies, compared to only over 1,500 in the ten main European markets.

This means that three times more IPOs were carried out in Asia than in Europe, with capital of around $550 billion in Asia compared to $270 billion in Europe.

To explain, this rapid development of Asian economies can be seen in their gradual opening to international capital and the establishment of large multinational groups as reasons for the expansion of Asian stock exchanges and the increase in their sophistication, which has not had the choice of evolving in view of the importance of providing a decent service to newcomers.

Groups that either become listed or simply enter the market, or establish joint ventures with local capital and companies, benefit from the growing accumulation of capital in these markets.

It is also important to note that the creation of very powerful financial groups with what can be described as “gigantic” financing capacities and their close relationships with local customers and suppliers play an important role in further expanding these markets.

But in this utopian portrait, of Asian markets there are points that can darken this “wonderful world”.

These are still fragile markets, which, compared to financial markets such as New York, London and Paris, do not have all the sophistication that these markets, which can be considered as old, are perfectly equipped with.

Some recent introductions have left some disappointment for groups that have tried to enter these markets due to the lack of depth that currently exists in these markets.

Prices are subject to significant volatility, investors are more reluctant to change their minds more easily than in the US and European markets, and speculation is quite present and high frequency.

This leads to the conclusion that Asian markets do not offer the security of traditional markets, except for an industrialist or a company wishing to set up locally and whose objectives would be to associate with industrial partners and/or set up only as part of a Joint Venture. Moreover, with an almost non-existent float, the company’s valuation will therefore immediately be distorted, which will reduce price volatility to its simplest expression.

It will be very interesting to analyse and compare the evolution of these markets, which are mostly located in so-called “emerging” countries and therefore with a considerable capacity for expansion with the possibility of attracting many investors, and to see if the potential to overtake the United States can be present.

When will the Yuan (China) be opened to international trade? Consequence or not on Asian financial markets?

Loïc ONTENIENTE

Bibliographie :

Loïc ONTENIENTE

Loïc ONTENIENTE


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