Trends in Global Finance, Markets and Institutions: Some Implications for Developments in the Asian Region

The paper briefly describes three interrelated developments in global capital markets: the sustained rise in gross capital flows relative to net flows; the increasing importance of securitised forms of capital flows; and the growing concentration of financial institutions and financial markets. It examines why these developments have contributed to a sharp rise in the volatility of capital flows and asset prices. Finally, it considers the implications for the ongoing development of capital markets and financial institutions. The implications include the increasing foreign penetration of financial systems in emerging markets; the new emphasis on developing adequate liquidity in financial markets; the rise in competition among financial institutions and markets, including cross-border competition; pressures for modernisation and convergence of national regulatory and legal frameworks; the development of new financial instruments to price and to redistribute various financial risks; and the development of local financial markets as a defence against volatile international capital flows.