In its research report Caged Tiger: The Transformation of the Asian Financial System, ANZ explained Asia’s share of global economic output has already risen from 17 per cent two decades ago to a current share of 22 cent.
The report said while the US and Europe currently account for around half of the world’s economy, the continued growth of Asia’s economy could see their share drop to less than a quarter by 2050.
ANZ chief executive Mike Smith said the growth of Asia’s economy represents a “tectonic shift in the global economic landscape”.
He warned, however, that the continued development of Asia’s financial markets will be critical in supporting this growth across the continent.
“With the exception of Japan and the newly industrialised economies, Asia’s rapid industrialisation of the past two decades has not been matched by an extensive development of its financial system,” said Mr Smith.
“Many Asian countries have relatively closed and highly regulated financial systems, with a dominant bank sector and heavily managed exchange rates.”
Mr Smith believes this is not appropriate for Asia’s next stage of economic growth.
“The financial systems of many Asian economies must be reformed, deregulated and opened up to global markets,” he said.
The report said that while banks will continue to dominate financial services in Asia there will be significant growth in capital markets.
Asian bond markets, excluding Japan, are expected to grow to six times their current size in the next 15 years while debt markets are predicted to increase from US$14 trillion in 2013 to US$27 trillion in 2030.
Equity market capitalisation will also see significant growth, increasing from US$9 trillion to almost US$55 trillion by 2030.
ANZ chief economist Warren Hogan said the interaction of Asian capital with the rest of the global financial system will “result in Asia’s private sector playing a far greater role in allocating Asian savings and large increases in investment flows within Asia”.
Mr Hogan expects Chinese foreign investment to grow from US$500 billion in 2012 to US$9.5 trillion by 2013.
“The US and Europe will receive less of China’s outward investment, with Chinese foreign direct investment increasingly favouring Asia Pacific markets,” he said.
Mr Hogan warned, however, that while the opportunities related to Asia’s financial revolution are significant, capital flow surges may result in “wide account deficits, asset price bubbles and large banking system losses”.
“Sound government policy should be focused on developing strong institutions, strong regulatory and supervisory systems, as well as the wider legal and cultural changes needed for a modern, open financial system,” he said.
