China may ‘crowd out’ Asian capital markets

Asian economies risk being crowded out by China due to their comparative lack of capital market development, and that may exacerbate asset-liability management (ALM) challenges for insurers in the region, warns Mark Konyn, chief investment officer of AIA.

Speaking at AsianInvestor’s third annual Insurance Investment Forum last week, Konyn pointed to such developments as a key issue in respect of ALM for the industry. He oversees Hong Kong-based insurer AIA's $130 billion investment portfolio and a further $20 billion in unit-linked assets.

Konyn said capital efficiency was the watchword for insurers looking ahead. In particular he focused on the lack of depth and development of Asian capital markets outside China, voicing fears that finance ministries and regulatory bodies had become complacent.

“If you wind the clock back 20 years there was a lot of good intention about developing domestic capital markets,” he said. “But we have not seen a lot of follow-through in terms of reforms.”

This lack of market development will hinder insurance companies in their economic role of mobilising individual savings within the region, added Konyn, forcing them to diversify internationally.

“The life insurance industry is outgrowing the development of the underlying capital markets,” he noted. “I think if regulators or governments are not careful, they face a real risk of being crowded out."

Last year the vast majority of corporate credit was issued by Chinese names, Konyn pointed out.

"The emergence of China as it deregulates and liberalises its capital account will come to dominate the capital markets in this region, and that is going to create some tension in terms of being able to match local liabilities with local assets.”