Asia needs to deepen financial markets: experts

Asian and Middle Eastern financial regulators and institutions have to remove roadblocks to broaden the range of financial instruments amid the rise of the Chinese currency Yuan, experts said here on Tuesday at the Boao Forum for Asia financial cooperation conference.

The two-day financial cooperation conference which closed here on Tuesday, was held for the first time in West Asia. It focused on how the Far East, Central Asia and the Middle East can expand bilateral trade and grow economically together.

Dr. Nasser Saidi, a leading Dubai-based economist and President of Nasser Saidi and Associates, said that Asia today produces 50 percent of the world's output "but its global share in financial markets is far beneath that."

"The region needs to deepen its financial markets by issuing more financing and investment instruments like bonds, equities, investment funds," he said.

Zhang Hongli, executive vice-president of China's ICBC, said the Asian financial markets are still very fragmented.

"Ratings are often different and not comparable, we need to develop a unified understanding," he said.

But Zhang, on the other hand, agreed with Dr. Saidi that financing is too much bank-dominated.

"Certainly, investment banking must be increased, we need bonds, equities, more Asian capital markets, but this takes time and needs qualified people," he said.

In 2008, ICBC was the first Chinese lender which opened a branch in the Dubai banking free zone DIFC in order to expand its financing operations in the Gulf Arab region.

Dr. Saidi and another panellist from Pakistan, Mumtaz Hussain Syed, CEO of Pakistani investment firm Aequitas, pointed out that the fast rising Islamic finance segment can be a catalyst to fill the financing gap in Asia which Dr. Saidi said amounted to 800 billion dollars a year.

Hussain Syed said Islamic finance was growing at least 15 percent per year in Pakistan, meaning the industry doubles every five years. With China being a key trade partner for Islamabad, Chinese banks should bank on the religious financing style to increase bilateral trade.

Dr. Saidi said that the rise of Islamic bonds or sukuk in the Middle East and Far East was positive, but more has to be done.

Arab sovereign wealth funds are keen on investing in sukuk as they must be asset-based and put faith into finance, he said, adding that "if more East Asian countries launch sukuk, they can attract sovereign wealth funds."

Islamic bonds do not pay interest but periodically distribute a profit share to the bondholders based on a tangible assets like commodities or real estate.

Hong Kong issued its first sukuk in mid-September, raising one billion U.S. dollars from 120 institutional investors and 36 percent of the funds came from the Middle East.

Dr. Saidi said he expects the Chinese currency to become a global reserve currency in 2015 the earliest. Therefore the fact that more Arab banks in the Gulf offer Renminbi financing options and the growing presence of Chinese lenders in the region was a development into the right direction.