Further development in local bond markets To increase resilience against external shocks and reduce volatility in asset prices, it is important to develop deep local capital markets and enhance their functions and resistance to the influences of capital flows in the region as a whole. As I mentioned earlier, higher volatility in Asian stocks and bonds causes higher volatility in their currencies.
Volatile asset price leads to an unstable financial system, and is thus an obstacle to sustainable economic growth. What is important in the region is to enhance the market capacity for receiving capital flows, or in other words, to dramatically improve the situation of being “a big fish in a small pond”.