Better capital allocation with integrated stock markets, Sri Lanka forum told
ECONOMYNEXT – The integration of South Asian stock markets was discussed at a forum in Sri Lanka whose regulator said more interconnected markets would ensure the region remains a growth hotspot with better allocation of capital and efficient sharing of risks.
The region should work towards developing a regulatory environment which encourages stock exchanges to embrace integration, said Thilak Karunaratne, chairman of the Securities and Exchange Commission of Sri Lanka.
“There is a need towards greater integration of markets where there are no barriers to the movement of capital and there is easy access to each other’s stock markets,” he told a forum of the South Asian Federation of Exchanges (SAFE) in Colombo.
“More recently, capital market integration has continued to accelerate, as new investing opportunities emerge,” he said.
“Unfortunately, South Asia is the most malintegrated region in the world as a result of highly restrictive national policies governing financial markets,” Karunaratne said.
Domestic markets can derive “substantial benefits” from regional integration including better allocation of capital, efficient sharing of risks, enhanced portfolio diversification and lower cost of capital, he said.
“On the other hand various barriers including regulatory, information, infrastructure and taxation pose serious challenges to integration,” Karunaratne said.
“A strong framework for prudential regulation is necessary to ensure that risks arising from integration are being assessed and managed well.
“Removal of controls on capital transactions within the region, harmonization of capital market infrastructure including regulations, taxation, accounting, trading systems and cross-listings of securities are necessary steps to move towards regional financial integration,” Karunaratne said.
Leaders from the other South Asian capital markets were united in their call at the forum for improved integration of regional markets, a statement by the Colombo Stock Exchange (CSE) said.
SAFE aims to foster collaboration and co-operation among its members in order to develop their respective capital markets.
Domestic exchanges have much to gain if they reinforce and improve effort towards integration, said Vajira Kulatilaka, Chairman of SAFE and CSE.
“The role and impact of an exchange today is well beyond what was defined at the inception of SAFE as an organization. This is even more so for emerging and developing countries, which many of us are a part of. It is therefore quite relevant that SAFE today looks at evolving as an organization,” he said.
Smaller exchanges in the region have the ability to benchmark more developed peers, while more developed ones have the privilege of shaping the future of fellow regional exchanges – a process that is brought into the table through affiliation, Kulatilaka said.
Shalini Gokhool, Manager of the Stock Exchange of Mauritius, said that since 2010 they had embarked on an internationalization strategy, trying to innovate in terms of products and getting more players to come to the market.
“Today we have created a flexible and enabling regulatory environment to list a variety of products ranging from global funds, depository receipts, and a number of specialist securities such as specialist debt securities, and exchange traded funds.”
(COLOMBO, March 02, 2017)