Future is Asian

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Asian Financial Sector

As the share of Asia in world GDP and global capital is growing rapidly, western financial institutions are planning to increasing their involvement in eastern region. Moreover, Asian-based banks see local opportunities too, and follow the trend of regional rather than global expansion. “Asia is now one third of global GDP with a growth rate of 6%. Why would I allocate capital to the other two thirds growing at 1.5%?” - says Piyush Gupta, chief executive of DBS in Singapore, one of the most expansive of Asian banks. 

Demographics in Asia have grown rapidly over time, and the Asian Development Bank predicts that the number of Asians needing banking services will increase by three billion by 2050. In addition, by that time, per capita income in purchasing power parity is expected to increase sixfold, by which time the continent will account for 52% of global GDP.

 

The government plays a larger role in banking in many Asian emerging markets, especially China and India, than in the rest of the world. In China, for example, the five largest banks are government-controlled, and in India, state-owned banks account for about three-quarters of the system's assets. This also applies to non-bank financial institutions: in India, one of the world's largest life insurance companies, the Indian Life Insurance Corporation, is controlled by the Government of India. 

There is also inequality across the region - state-owned banks in countries such as the Philippines and Thailand account for a much smaller share of total banking sector assets, and private institutional investors play a significant role in Malaysia.

The following chart provides an overview of the financing and investment structure of Asian countries compared to advanced economies. The funding side shows the form of company funding (stocks, bonds, and bank loans). The investment side shows how much capital is provided by different types of investors: all major sources of asset management, including mutual funds, hedge funds and private equity; pension and insurance asset. The amounts are presented as a percentage of GDP.


The figure shows underdevelopment of funding in countries of Asia compared to Hong Kong and Singapore. Due to such typical long term investors as insurance or pension sector are underdeveloped, the investment horizon is often short. Thus, some countries depend on foreign investment to finance their local funding needs more.