Financial markets

Financial Market Trends No.91, November 2006

 

Please find below an overview of each of the articles published in the November 2006 issue of Financial Market Trends:

Highlights of Recent Trends in Financial Markets

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Financial System Reform in China: Discussions with Chinese Authorities

Over the past few years China has emerged as a major player in the global economy with a pivotal position in global production, trade and, increasingly, finance.

In view of China’s growing importance in the world financial system, the OECD Committee on Financial Markets (CMF) held a (second) special session in April 2006 with a Chinese Delegation to discuss the situation in the Chinese financial system and on-going policies to reform and strengthen the system.

What clearly emerged from the meeting was the view that serious efforts are being undertaken by Chinese authorities to move forward with financial sector reform. Both Delegates and officials from China highlighted the gradualism that characterises the approach to financial sector reform, noting that the step-by-step approach may have been worthwhile given the complexities of the issues involved and the various interactions between financial sectors, as well as between the financial and the real sectors of the economy.

The SME Financing Gap: Theory and Evidence

Many commentators have postulated a “financing gap” for small and medium-sized enterprises (SMEs), meaning that there are significant numbers of SMEs that could use funds productively if they were available, but cannot obtain finance from the formal financial system. This article summarises an OECD report (OECD, 2006) on this topic which seeks to determine how prevalent such a gap may be – both in OECD countries and non-member economies – and recommends measures to foster an improved flow of financing to SMEs.

Factors behind Low Long-Term Interest Rates

Long-term bond yields have been low in recent years both in nominal and real terms, and – especially in the United States – they have reacted differently to shifts in monetary and fiscal stances relative to previous cycles. This article examines various possible explanations for this behaviour, such as the effects of changes in monetary policy frameworks on inflation and interest rate expectations; developments in ex ante saving-investment balances, and shifts in investors’ portfolio preferences (including official reserve accumulation, “petro-dollar” recycling and pension fund demand for longer maturities). The article concludes that it is unlikely that any individual explanation can account for the level and profile of bond yields in recent years, but that an important element has been a compression in term premia, together with shifts in expected short rates. Even though bond yields have started to rise in the early part of 2006, they are unlikely to go back to the levels that prevailed in the 1980s or the early 1990s, as several of the factors that drove them lower are set to persist.

The Impact of Pension Funds on Financial Markets

This paper empirically explores the impact of pension funds on market volatility, equity prices, government and corporate bond yields for a panel of 24 countries. The results show a positive and statistically significant relationship between market volatility and pension assets. It complements micro evidence (Dennis and Strickland, 2002) as well as macro findings (Davis, 2004). In addition, equity prices are found to be positively correlated with pension funds, a finding observable for both OECD countries and emerging market economies (EMEs) and present in both the short and long terms. Furthermore, there is evidence indicating a negative link between pension fund assets and both corporate and government bond yields. This might be due to the sizeable buying effects of pension funds, particularly when governments have the tendency to use pension funds to finance implicit pension debts when the traditional pay-as-you-go systems shift to funded systems.

OECD Guidelines on Pension Fund Asset Management

The OECD Guidelines on Pension Fund Asset Management set out a basic framework for the regulation of pension fund investment. The Guidelines start with the basic premise that the regulatory framework should take into account the retirement income objective of a pension fund. Two other essential aspects of the regulatory framework are the prudent person standard and the statement of investment policy. Regulations may also include quantitative limits, but only as long as they are consistent with and promote the prudential principles of security, profitability and liquidity pursuant to which assets should be invested.

These Guidelines were developed by the Working Party on Private Pensions and the Insurance and Private Pensions Committee and were adopted by the OECD Council on 26 January 2006. They complement the "Recommendation of the Council on Core Principles of Occupational Pension Regulation", adopted by the OECD Council in July 2004.

Overview of the Financial Wealth Accumulated under Funded Pension Arrangements

The OECD Guidelines on Pension Fund Asset Management set out a basic framework for the regulation of pension fund investment. The Guidelines start with the basic premise that the regulatory framework should take into account the retirement income objective of a pension fund. Two other essential aspects of the regulatory framework are the prudent person standard and the statement of investment policy. Regulations may also include quantitative limits, but only as long as they are consistent with and promote the prudential principles of security, profitability and liquidity pursuant to which assets should be invested.

These Guidelines were developed by the Working Party on Private Pensions and the Insurance and Private Pensions Committee and were adopted by the OECD Council on 26 January 2006. They complement the "Recommendation of the Council on Core Principles of Occupational Pension Regulation", adopted by the OECD Council in July 2004.

 

 

 

Countries list

  • Afghanistan
  • Albania
  • Algeria
  • Andorra
  • Angola
  • Anguilla
  • Antigua and Barbuda
  • Argentina
  • Armenia
  • Aruba
  • Australia
  • Austria
  • Azerbaijan
  • Bahamas
  • Bahrain
  • Bangladesh
  • Barbados
  • Belarus
  • Belgium
  • Belize
  • Benin
  • Bermuda
  • Bhutan
  • Bolivia
  • Bosnia and Herzegovina
  • Botswana
  • Brazil
  • Brunei Darussalam
  • Bulgaria
  • Burkina Faso
  • Burundi
  • Cambodia
  • Cameroon
  • Canada
  • Cape Verde
  • Cayman Islands
  • Central African Republic
  • Chad
  • Chile
  • China (People’s Republic of)
  • Chinese Taipei
  • Colombia
  • Comoros
  • Congo
  • Cook Islands
  • Costa Rica
  • Croatia
  • Cuba
  • Cyprus
  • Czech Republic
  • Côte d'Ivoire
  • Democratic People's Republic of Korea
  • Democratic Republic of the Congo
  • Denmark
  • Djibouti
  • Dominica
  • Dominican Republic
  • Ecuador
  • Egypt
  • El Salvador
  • Equatorial Guinea
  • Eritrea
  • Estonia
  • Ethiopia
  • European Union
  • Faeroe Islands
  • Fiji
  • Finland
  • Former Yugoslav Republic of Macedonia (FYROM)
  • France
  • French Guiana
  • Gabon
  • Gambia
  • Georgia
  • Germany
  • Ghana
  • Gibraltar
  • Greece
  • Greenland
  • Grenada
  • Guatemala
  • Guernsey
  • Guinea
  • Guinea-Bissau
  • Guyana
  • Haiti
  • Honduras
  • Hong Kong, China
  • Hungary
  • Iceland
  • India
  • Indonesia
  • Iraq
  • Ireland
  • Islamic Republic of Iran
  • Isle of Man
  • Israel
  • Italy
  • Jamaica
  • Japan
  • Jersey
  • Jordan
  • Kazakhstan
  • Kenya
  • Kiribati
  • Korea
  • Kuwait
  • Kyrgyzstan
  • Lao People's Democratic Republic
  • Latvia
  • Lebanon
  • Lesotho
  • Liberia
  • Libya
  • Liechtenstein
  • Lithuania
  • Luxembourg
  • Macao (China)
  • Madagascar
  • Malawi
  • Malaysia
  • Maldives
  • Mali
  • Malta
  • Marshall Islands
  • Mauritania
  • Mauritius
  • Mayotte
  • Mexico
  • Micronesia (Federated States of)
  • Moldova
  • Monaco
  • Mongolia
  • Montenegro
  • Montserrat
  • Morocco
  • Mozambique
  • Myanmar
  • Namibia
  • Nauru
  • Nepal
  • Netherlands
  • Netherlands Antilles
  • New Zealand
  • Nicaragua
  • Niger
  • Nigeria
  • Niue
  • Norway
  • Oman
  • Pakistan
  • Palau
  • Palestinian Administered Areas
  • Panama
  • Papua New Guinea
  • Paraguay
  • Peru
  • Philippines
  • Poland
  • Portugal
  • Puerto Rico
  • Qatar
  • Romania
  • Russian Federation
  • Rwanda
  • Saint Helena
  • Saint Kitts and Nevis
  • Saint Lucia
  • Saint Vincent and the Grenadines
  • Samoa
  • San Marino
  • Sao Tome and Principe
  • Saudi Arabia
  • Senegal
  • Serbia
  • Serbia and Montenegro (pre-June 2006)
  • Seychelles
  • Sierra Leone
  • Singapore
  • Slovak Republic
  • Slovenia
  • Solomon Islands
  • Somalia
  • South Africa
  • South Sudan
  • Spain
  • Sri Lanka
  • Sudan
  • Suriname
  • Swaziland
  • Sweden
  • Switzerland
  • Syrian Arab Republic
  • Tajikistan
  • Tanzania
  • Thailand
  • Timor-Leste
  • Togo
  • Tokelau
  • Tonga
  • Trinidad and Tobago
  • Tunisia
  • Turkey
  • Turkmenistan
  • Turks and Caicos Islands
  • Tuvalu
  • Uganda
  • Ukraine
  • United Arab Emirates
  • United Kingdom
  • United States
  • United States Virgin Islands
  • Uruguay
  • Uzbekistan
  • Vanuatu
  • Venezuela
  • Vietnam
  • Virgin Islands (UK)
  • Wallis and Futuna Islands
  • Western Sahara
  • Yemen
  • Zambia
  • Zimbabwe