–The following is an extract from the Unlocking Investment and Finance in Emerging Markets and Developing Economies (EMDEs) World Bank program
–Building Robust Financial Markets and Institutions in EMDEs presented by Jaeheung Park
Capital markets provide an important channel of long term financing for the real economy. They are also helpful to locate risk and support the economic growth and financial stability. It is therefore very important for the economy to have well developed deep and if you sent capital market. At the end of the 2017 stock market capitalization of Korea Stu and 1.8 trillion dollars nice largest in the world. Next to Del of the Germany. And both the outstanding amounted to 1.7 trillion dollars or 112.1 percent of GDP. You might be surprised to hear that when Korea secretary ship was first opened in 1956. There were only twelve companies related in the equity market and only the government bond exist in the bond market. This shows that Korea capital market have a two huge growth over the past six decades.
So how was this a two and one lessons might there be for emerging market and developing economies. Let me take a history of Korea capital market development. In the earliest days of the sixties and seventies capital market development was driven by the government. Policies were focused on basic system building and primary market development. From the eighties as the stock market stagnated for many years many reforms forced stock market took place. During this period the general republic first learned about investing in stocks and bonds. Also waiting increase their wealth and the policy reforms increases the excess two foreign source of finance. The ninth was Iraq over capital market evaluation.
As Korea achieved strong economy across to own by the private sector the demand for finance increase accordingly. In foreigners were first permitted to purchase Korean stock and the regulation of the financial market started the in paving the way for capital markets to provide funding from a more diversified investor base. However it did not take long to realize that Korea’s market or not yet ready to fully connected to the global markets. In the Asian financial crisis hit Korea. It was a difficult time for the economy but also unprecedented opportunity to Korea comprehensive capital market infrastructure reforms to better align with global standard.
Korea gained valuable lessons and the structural ways to capital marketing changes dramatically the most important continent included introduction of a new supervisor assistance for capital market preparation of a global market at over stand us and improve month in market infrastructures especially tricked thorough accounting rules and requirements for external auditing. In when the global financial credits to place the Korean economy and entered the year of the global and low inflation to get the aging population accordingly the capital markets were tested with new set of priorities such as introducing strong were investor protection retirement pension plan and innovative finance to help stimulate the growth. Let’s take a look at the lessons from Korea’s experience two unique approaches were adopted by the Korean government the significantly contributed to their Korean capital market development. For instance the Korean government was actively involved in promoting the capital market.
The government for example gave tax incentives to encourage IPOs combined the with economic growth these interventions to the phenomenal growth in the Korean stock market over a short period of time in is one decade. Second the promotion over capital market had duel objectives. One was to mobilize domestic capital for economic development. The other was to diversify financial options for the rural economy. As a result Korea achieved global development of both direct and indirect financial market. But most interestingly the government actively popularize stock ownership thus a while public to share the fruits of economic growth the people’s stock ownership plan was the most growth we can see as example other lessons can be applied more generally to emerging market and developing economies.
These include lessons of market enabling factors. There are three factors. First market autonomy aligned with the market principle facilitate creation of information and diverse supplies investor base. Second a supportive legal framework sure efficient and fairer enforcement of financial and and transactions. While efficient unpredictable in service agency provide greater assurance about the recoverable you’ll over district is all set finally the dependent liabilities with a well dependent activist educator resources at incredibly enforcement powers are better able to protect investors lower and insure that capital market are fair effective and transparent. Second lessons on disclosure regions. High quality and timely information is the life blood of effective and viable capital market high quality information provided at lower cost through well-developed disclosure regions allows investors to well used secretes and may invest but this is done in a timely manner.
Third lessons on diversified investor base of both and diversified investor base provide those source of stable demand that support the utility that has stability of the market. Create a openness to international investors ensures instance of the poor savings and investment products as well as promote implementation of international best practice as tender. First lessons on capital market opening but openness may also increases the sensitivity of domestic capital markets to global stability. Policy makers should cautiously constantly educate timing over capital market opening. The timing should be determined based on the readiness and efficiency of the country’s market infrastructure. Last lessons on complementary market deeper complementary markets such as those for deliberative repose and secretes landing. Transfer liquidity and broader participation by enabling hitting and funding of capital market positions