Asia was the first region to feel the full force of the Covid-19
crisis in 2020, with borders closed and economies shuttered long before the disease was declared a pandemic. It was also the first to show signs of recovery after countries began to bring the outbreak under control.
The capital markets had a big part to play in that response.
Across Asia, the primary markets functioned as intended, delivering surplus capital to productive uses. Governments and major issuers enjoyed easy access to capital – especially if they could demonstrate a clear sustainability agenda.
At the height of the disruption, investors supported a rush of critical recapitalisations to help companies and governments respond to the crisis. And, as volatility cooled and longer-term winners emerged, long bonds and Chinese tech listings powered a surge in more opportunistic fundraisings that lasted throughout the year.
Those achievements are testament to the progress made in recent years. Had the pandemic struck a decade ago, for instance, it is unthinkable that China’s capital markets would have been able to support recapitalisations and growth funding on this kind of scale.
The resilience of Asia’s homegrown investor base was a crucial factor. While abundant US liquidity certainly helped keep the world’s capital markets open for business, it was Asia’s local bond markets – a weakness in previous crises – that played the essential role in transmitting stimulus policies to the real economy.
Regional investors also helped Chinese property developers quickly regain access to offshore funding and elevated Hong Kong’s share of global equity trading. As many as nine US-listed companies saw value in adding a Hong Kong listing over the course of the year.
No amount of capital can ever compensate for the terrible human cost of the coronavirus, but Asia’s experience underlines the importance of developing deep and liquid capital markets that can support economies through times of unforeseen stress.
Policymakers deserve credit for the reforms that have helped take Asia’s capital markets to another level in 2020, but there is still much to do.
The Covid-19 crisis also highlighted the extent of the gap between developed and emerging capital markets. The rapid pace of recapitalisations in Australia in March and April, for instance, offers a stark contrast with the time it took Indian companies to respond to the crisis.
Worryingly, lower-rated issuers still find themselves frozen out of Asia’s local markets at the first sign of trouble. Asia still lags the rest of the world in sustainable finance, in terms of both volumes and standards. Even in the leading Hong Kong market, capital raisings are under regulatory scrutiny.
As 2021 rolls on, global vaccination programmes are raising hopes for a return to normal as public health fears ease. For Asia’s capital markets, there is no looking back.
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