The Asian financial system will be larger than the financial systems of the United States and Europe combined by 2030, the Australia and New Zealand Banking Group (ANZ) has predicted in a report released on March 24, 2014.
The report, entitled Caged Tiger: The Transformation of the Asian Financial System, argues that the rapid development of financial markets in Asia will become increasingly critical to support high levels of economic growth in the region.
Financial liberalization in China will see a significant increase in capital flows with Chinese outbound foreign direct investment rising to as much as USD9.5 trillion by 2030, the report says. By 2050,
China will account for about half of Asia's financial assets. In addition the Chinese renminbi will become a genuine rival to the US dollar as a global reserve currency, ANZ predicts.
The report points out that Asia will host a succession of the world's largest initial public offerings in the coming years, particularly in the areas of financial services, energy, telecommunications and infrastructure.
"Continued progress in financial reform, deregulation and opening up to global markets in Asia will be essential to support high levels of economic growth in the region," ANZ Chief Executive Officer Mike Smith said.
"Asia's financial institutions will become increasingly important in global finance, and Asia will become home to many of the world's largest financial centers. Shanghai will grow to rival New York as a financial center. Singapore will increase its importance as a south-east Asian hub. Hong Kong and Tokyo will remain large centers, while Seoul, Mumbai and Sydney will all grow strongly."
ANZ Chief Economist Warren Hogan cautioned that while the opportunities associated with Asia's financial revolution are large, so are the risks.
"There are many examples of capital flow surges creating wide current account deficits, asset price bubbles, and large banking system losses," he said. "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.