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Capital Access Index 2004: Emerging Growth in Asian Bond Markets
Apr 01, 2004
James R. Barth, Cindy Lee, Don McCarthy, Triphon Phumiwasana, Sunny Zhitao Sui and Glenn Yago

The Capital Access Index is a comprehensive analysis of the breadth, depth and vitality of capital markets around the world. It is based on the simple premise, complexly measured, that efficient financial markets - making capital accessible to the entrepreneurs who can use it to grow and sustain companies and generate jobs - are the key for long-term growth and reducing poverty and income polarization.

The 2004 edition shows the growing gap between "have" and "have-not" countries, which the authors say is creating a dangerous vulnerability for global economic recovery.

Of the 85 countries surveyed by the Index, 33 of the 51 "mature" capital markets improved scores and attracted increased portfolio and direct investment flows. By comparison, only 15 of the 34 "frontier" markets - primarily low-income and developing countries with restricted, non-competitive and less-transparent financial systems - improved their position on the Index. Nineteen of these markets declined.

Topping the "mature" markets index were Hong Kong, the Netherlands and the United Kingdom. Finland and Germany moved up the most on the Index. The United States fell three spots from last year, landing at number six, mainly because of corporate governance issues. Canada and South Korea fell the most.

Among "frontier" capital markets, Bahrain, Kuwait, Slovenia and Latvia ranked high and improved. The Ukraine, Romania, Pakistan, Croatia and most of Africa fell further behind.

The focus on this year's index is Asia, where the broadening of access to capital has greatly aided the Asian recovery. All of the countries involved in the "Asian Crisis" of 1997-98 (South Korea, Malaysia, the Philippines, Indonesia and Thailand) have nearly returned to or surpassed their pre-crisis levels of production and profitability. According to the Capital Access Index report, a common policy followed by all these countries was to strengthen their domestic financial markets by developing deep and liquid bond markets to complement existing equity markets and commercial banking.

Diversifying risk through use of more financial innovations improved in almost all Asian countries, allowing entrepreneurs to access a broader range of capital resources. For example, domestic bond markets continue to grow and have a positive effect in non-crisis Asian countries, particularly in the emerging engines of growth in Asia - China and India, where domestic bond markets grew 22 percent and 13 percent respectively.