Over the past two decades, Asia has become a major engine of global growth, fuelled by industrialisation, technological advancement and deeper integration into global markets. Now accounting for nearly a third of global GDP, the region plays a significant role in global financial markets. The region’s capital markets have provided financing for new and expanding businesses, supported entrepreneurship and innovation, and helped diversify funding sources beyond traditional bank lending. This has contributed to the growth of many globally competitive Asian enterprises. However, capital market development remains uneven across the region and in many economies both the banking system and capital markets remain underdeveloped, constraining businesses financially and limiting their growth potential.
Capital markets across Asia are at different stages of development; continued efforts to deepen and strengthen them are needed.
The number of listed companies in Asia almost doubled over the past 25 years, reaching close to 29 thousand in 2024, while it declined in Europe and the United States over the same period. As a result, Asia is now home to 55% of the world’s listed companies and accounts for 27% of global market capitalisation. Asian economies have also established equity markets dedicated to growth and smaller companies. Asian corporate debt markets have also grown substantially, reaching USD 13.9 trillion in 2024, nearly a quarter of global corporate debt across bond, syndicated loan and private credit markets. Asian companies tend to use debt to finance real investment (as opposed to financial operations) to a greater extent than companies from other regions. The People’s Republic of China (hereafter ‘China’) is a key driver of this trend. Overall, Asian economies with more developed capital markets innovate more than those with less developed markets.
However, while some economies in the region boast deep, liquid markets and robust financial infrastructure, many others have shallow market depth and weaker regulatory environment that undermine investor confidence and limit market appeal. Outside of China and Japan, capital raised through public equity markets has been declining as a share of GDP. Activity in the corporate debt markets also remains concentrated in just five economies, with China alone accounting for over 75% of corporate bond issuance. Moreover, the vast majority of non-financial companies’ debt financing across Asian economies is bank loans rather than debt securities, which make up an average of only 14% of total debt financing.
Funding remains limited, especially for companies at early stages of development.
While public equity markets have developed rapidly in Asia, companies still lack financing at several stages of development. This problem is particularly pressing for smaller firms. Despite the success of Asian equity markets aimed at smaller companies, access remains challenging due to complex regulation and limited investor interest. Smaller companies also struggle to access bond markets, further constraining their growth potential. Private equity financing – a vital source of early-stage and growth financing – remains underdeveloped across much of the region, with assets under management representing 22% of the global figure.
Closing these financing gaps calls for tailored national strategies that streamline listing procedures, broaden the investor base and align regulations with international standards. For smaller companies, proportionate and flexible listing frameworks, as well as credit guarantees and targeted risk assessment systems for issuing bonds, could ease access to market-based financing. To foster the development of private equity financing, authorities could support early-stage funding and remove regulatory barriers. Emerging technologies like artificial intelligence (AI) also offer promising ways to connect entrepreneurs seeking capital with investors.
Corporate governance weaknesses and concentrated ownership structures continue to weigh on investor confidence in some Asian markets.
Despite efforts to improve corporate governance frameworks, regulatory enforcement remains a challenge, especially in emerging markets with limited resources. In addition, ownership concentration is high, with the top three shareholders owning over half of total equity in 46% of Asian listed companies. An additional challenge lies in the large role played by the public sector as an owner of listed companies. The region is home to 70% of all listed SOEs globally and these companies represent more than a quarter of Asia’s market capitalisation, compared to just 5% in the rest of the world. Many SOEs face governance challenges, including limited board independence and weak minority shareholder protections.
While Asia has been successful in bringing many companies to public markets, policy makers must continue to strengthen corporate governance frameworks, enforcement capacity and market practices. Given the dominance of large controlling shareholders, protecting minority shareholders through stronger board independence and improved disclosure remains crucial. Improving the governance of SOEs and encouraging strategic listings can help these key market players disseminate good practices and broaden investor participation.
A limited and concentrated investor base impairs market resilience and growth across the region.
Institutional investors are less present in Asian equity and corporate bond markets than in other regions, due to low foreign investor participation and underdeveloped domestic institutional investor bases. Institutional investors own only 18% of the region’s equity market (compared to 47% globally). Generally, institutional investor presence is stronger in markets with greater liquidity and low ownership concentration. Foreign investment is significantly lower in key Asian corporate bond markets compared to the United States and the euro area, with banks playing a much larger role. Moreover, domestic investors remain small. Asia’s pension assets represent only 10% of global pension assets and investment fund assets 22% of the global figure. Only the insurance sector, with 27% of global assets, is close to Asia’s contribution to global GDP.
While some advanced Asian economies have developed sizeable asset-backed pension funds, many others are still transitioning from pay-as-you-go systems. Moreover, conservative investment strategies limit the participation of domestic institutional investors in capital markets. Retail participation faces multiple barriers owing to low financial literacy and limited ability to save in many countries. Despite wider access to digital finance, many adults in emerging Asia still lack a basic understanding of financial products and money management.
To strengthen the domestic investor base, asset-backed pension coverage should be expanded, and more flexible investment mandates allowed. Market liquidity can be improved by raising minimum free-float requirements and unwinding cross-shareholdings. Accelerating full IFRS adoption and supporting reforms that promote index inclusion will help attract foreign capital. Equally important is promoting retail participation through simple savings products and digital investment tools that can reduce the cost of accessing capital markets for retail investors.
Sustainable finance is expanding rapidly but requires stronger disclosure and regulation to protect market integrity.
Emerging and developing Asian economies face a substantial climate financing gap, with current funding falling short and threatening sustainable growth. Capital markets can help bridge this gap by playing a crucial role in financing the transition to low-carbon, resource-efficient economies, which calls for significant public and private investment.
Asian companies are increasingly using sustainable bonds; between 2015 and 2024, they accounted for 29% of global issuance. Issuance by governments and multilateral agencies has followed a similar trend, although they only represent 17% of issuance. Green bonds are the most popular instrument, with most adhering to ICMA Principles and supported by second-party opinions. Yet, disclosure of the use of funds remains inconsistent and few bonds include contractual penalties for misuse of proceeds.
To strengthen the sustainable bond market, enhancing disclosure standards with clear reporting on use of proceeds and alignment with international frameworks is key. Introducing contractual penalties for non-compliance can deter greenwashing and build investor confidence. Regulatory oversight of second-party opinion providers, akin to that for auditors or credit rating agencies, would boost accountability. Additionally, promoting taxonomy harmonisation will support market growth.
Technological innovation, including AI, are reshaping finance but coordinated regulatory frameworks are needed to sustain progress.
Technological innovations such as AI are rapidly transforming financial markets across Asia. The region has seen significant growth in AI-related infrastructure investment. To promote this expansion, regulatory sandboxes and innovation hubs have become important tools.
However, the design and effectiveness of these facilitators vary widely, and without proper safeguards, fragmented approaches may lead to inefficiencies and risks to market integrity. It is therefore important to select facilitator models tailored to each country, evaluate facilitator performance and encourage active stakeholder engagement. Domestic coordination and foreign co-operation can also enhance the overall impact of these facilitators. Investing in multidisciplinary expertise could further bolster AI governance and regulatory readiness, supporting safe, scalable and sustainable innovation throughout the region.