The achievement of a broad Asia-Pacific free trade area may remain a far-off goal, but real progress is meanwhile underway in the funds industry.
The Asia Region Funds Passport, an initiative of the Asia-Pacific Economic Cooperation forum, is set to commence next year, with final rules on eligibility and permitted investment types expected to be published shortly.
The passport program will provide a framework to facilitate the cross-border marketing of managed funds across participating economies in the Asia region. Australia, Japan, South Korea and New Zealand formally confirmed their participation at a signing ceremony April 28. Singapore, the Philippines and Thailand have also participated in the program's development.
The passport is expected to provide investors with a more diverse range of investments, deepen capital markets, facilitate the recycling of savings into investment and strengthen the expertise and competitiveness of financial markets.
The passport will not be the first such program in the region but it will be the largest. The ASEAN Collective Investment Scheme has been live for around 18 months and includes Singapore, Malaysia and the Philippines. A bilateral mutual recognition agreement between Hong Kong and China came into effect last year, complementing an earlier one between Hong Kong and Australia.
There is potential for the ASEAN and APEC programs to converge in the future to create a common market across all of Asia. While the Asia Region Funds Passport has been run under the banner of APEC, it will be up to the participating countries to determine who else can join. Singapore and the Philippines have both signed onto the ASEAN scheme and the door remains open for them to sign onto the APEC Passport. Other governments have also shown interest in joining the APEC scheme.
The final passport rules are expected to set a threshold of experience for fund providers. Allowable products are likely to include funds that invest in shares, stocks, bonds, certain deposit instruments including depository receipts over gold, and both money market funds and some derivative arrangements.
Japan, South Korea and Australia will be the largest markets in the program and will offer participants significant opportunities to access investors. While naysayers will point to market differences between these jurisdictions as insurmountable barriers, opportunities will arise for players willing to think outside the box.
Australian investors have historically tended toward portfolios heavy in domestic equities. However market losses since the global financial crisis have highlighted the need for less risky, more stable investments. The domestic focus has also begun to wane, with many of Australia's superannuation, or retirement, funds looking to allocate a greater proportion of their investments offshore. Knowledge of offshore markets will be required to develop appropriately diversified investment options.
This article by Carla Hoorweg, FSC Senior Policy Manager - Investment, Global Markets & Tax appears courtesy of Nikkei Asian Review.
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