Closer, Ever Closer
IMF Blog, May 17, 2012
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- Authors: Anoop Singh
- Published: May 17, 2012
Capital market integration
- Over the past two decades, Asia’s equity markets have become increasingly sensitive to global financial developments, in line with the region’s growing role in the global economy.
- Equity returns in Asia generally now move in tandem with those in systemic economies (examples given: the United States and the United Kingdom).
Measuring interconnectedness
- Asian financial “betas” are used to measure volatility and capture the impact of systemic economies on Asian equities.
- Interpretation:
- A positive beta means the asset's returns generally follow the market's returns.
- A negative beta means the asset's returns are generally unmoved by the market.
- Asian financial betas have followed a modest, but steady upward trend over the past two decades.
- Spikes in global financial shocks (for example, the bursting of the technology bubble or recent euro area turmoil) are mirrored by similar spikes in Asian financial betas.
Key findings and evidence
- The global financial shock associated with the Lehman Brothers bankruptcy explains nearly 90 percent of the pickup in financial betas across Asia from 2002‒07 to 2008–11.
- Financial betas differ across countries:
- East Asia (including Singapore and Hong Kong, SAR) has the highest financial betas and tends to be more financially integrated, mirroring global ups and downs more closely.
- Countries that pursued a more gradual pace of capital market integration, such as China, generally had lower financial sensitivity to the systemic economies.
- Conclusion: Given high—and increasing—financial interconnections, Asian markets will never be completely insulated against major global financial shocks.
Policy implications and recommendations
- Macroeconomic policies matter: the choices made by Asia’s policymakers can help determine the region’s financial betas.
- Specific associations identified:
- A lower government debt-to-GDP ratio is associated with lower financial betas.
- A higher stock of international reserves, but up to a limit, is associated with lower financial betas.
- Sound macroeconomic policy frameworks are associated with lower financial betas in Asia during both tranquil and turbulent periods.
- Implication: Sound macroeconomic policies may help limit the impact of major downside risks on the real economy.
Anoop Singh, May 17, 2012 — Closer, Ever Closer
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- より近く、より密接に; アヌープ・シン; iMF direct ブログ 2012年5月17日掲載
