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Deeper Capital Markets Hold Key to Asia's $800 Billion Question

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Here's how emerging Asia can unlock $800 billion in extra funding per year, McKinsey & Co. says: by developing deeper capital markets.

Asian economies from Vietnam to Indonesia can certainly use the funds--as much as $300 billion in the government sector, with the rest in the private sector--to lift millions out of poverty and provide much-needed infrastructure development, the consulting firm said in a report.

``Asian countries do not yet have access to predictable capital market funding at scale, and investors lack the financial instruments to deploy long-term savings,'' McKinsey said.

In the report, McKinsey looked at key performance metrics for twelve large Asian economies. The conclusion is that, while the likes of Japan and Australia rank pretty high, others including China and Vietnam have some extra homework to do to take advantage of their significant savings capacity.

Too many investors in Asia, as in other emerging markets, put a large part of their savings in physical assets such as real estate and gold, and bank deposits, McKinsey said.

This is partly because of less liquid government bond markets, a problem that can be addressed if Asian governments shift to larger sales of benchmark bonds, instead of having many different outstanding bonds that are only rarely traded.

The listing of government-controlled entities may also entice investors to capital markets, as it did in Europe during large waves of privatizations in the 1970s and 1980s, the consulting firm said.

Another McKinsey suggestion: mandate state-controlled entities to tap debt capital markets for funds instead of securing bank loans, and rely less on large conglomerates that rarely demand capital market products.

 

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