In tandem with greater financial market integration and improved information access in the advent of information technology, these obstacles have significantly diminished over the decades. The recent financial turmoil however, has ignited a debate on whether the benefit of portfolio diversification is overstated considering the relatively low idiosyncratic risk vis-a-vis systemic risk in times of high volatility, and prevalent correlation breakdowns that occurred among asset classes, especially at the height of the financial crisis. In my view, the emergence of such findings does not question the desirability of diversification, but rather, heightens the need for new and expanded methods to fine-tune the traditional portfolio optimisation approach. A growing class of investors are steering away from the traditional portfolio theory’s emphasis on a normal bell-curve distribution and choosing instead to embrace the “Black Swan” idea expounded by author Nassim Taleb or the “New Normal” proposition by PIMCO, in which the distribution of outcomes are flatter with fatter tails. The idea basically characterises higher likelihood of outlier events following the observed major structural breaks from historical trends. To my mind, such non-normal distribution even further underscores the importance of diversification strategies to attain a reasonably stable return and the necessity for investors to be nimble in the face of uncertainty. ii)  Diversification by regional central banks and institutional investors  Central banks reserves continue to serve as an important safety buffer for the country and reflect the strength of the economy.
While regional capital markets have generally experienced strong growth since the financial crisis, our potential is limited because by international standards the regional equity and bond markets are small and fragmented. We made some headway four years ago with the Chiang Mai Initiative (CMI), which saw the expansion of existing multilateral currency swap arrangements to include all 10 ASEAN members, as well as the conclusion of 16 bilateral swap arrangements, totalling $ in combined facility. When the CMI was launched in May 2001, it was agreed that Finance Ministers should review the Initiative 3 years  2  BIS Review 20/2004  after implementation. So it would be timely this year, for ASEAN Finance Ministers together with our “Plus-3” counterparts to consider what and how the review of the CMI could be done. We should also explore further avenues of cooperation. For example, we may develop greater linkages between stock exchanges in the region, or harmonise standards and conventions so as to make it easier for investors to operate across the capital markets in the region. In such initiatives, we do not have to wait for all ASEAN members to be ready. Once two or more ASEAN members are ready to make the move, they can work together as pathfinders for the whole region. Conclusion Globalisation has presented many challenges to ASEAN, but it has also created many opportunities. Integrating our economies requires hard work, political will and often, tough decisions.