Capital markets in Asia are playing an increasingly important role in financing corporate growth, investment and innovation in the region. Over recent decades, the development of public and private capital markets has expanded companies’ and governments’ access to long-term financing, supported entrepreneurship and facilitated the growth of globally competitive firms across a wide range of industries. As these markets deepen and become more integrated into the global economy, developments in international trade, financial conditions and geopolitical relations become increasingly important drivers of market outcomes across the region. Asia today accounts for 36% of US imports, depends heavily on oil from the Middle East and is the primary destination for most liquified natural gas (LNG) shipments transiting through the Strait of Hormuz.
In 2025 and the first half of 2026, renewed trade tensions, tighter global financial conditions and rising geopolitical risks created a more challenging environment for Asian capital markets with uncertainty affecting financing conditions, capital flows and market volatility across the region. Despite the increase in effective tariffs, exports from the region did not contract significantly. Exports to the United States experienced a decline equivalent to 0.4% of Asia’s GDP in 2025. Although corporate investment remained unchanged in 2025 compared to 2024, 44% of listed companies in Asia reduced their investment by more than 10%. Uncertainty weighed on investment decisions across a broad range of firms, with the strongest effects concentrated among smaller listed companies already facing weaker investment dynamics.
Equity and bond markets were more volatile around tariff announcements in 2025 and the conflict in the Middle East in early 2026
Equity markets experienced heightened volatility and a significant increase in return co-movement. Volatility in sovereign bond yields also rose, while both corporate and sovereign credit spreads widened following tariff announcements. Net flows to Asian equity markets declined in 2025, whereas debt markets recorded net inflows. In 2025, equity inflows strengthened in Japan, the People’s Republic of China (hereafter ‘China’) and the Philippines, while only China experienced net outflows from debt markets. Rising bond yields in many advanced markets reduced the attractiveness of emerging market equities, prompting foreign investors to reallocate capital towards Asian bond markets, which offered more attractive risk-adjusted returns amid growing uncertainty. These trends were further supported by strong domestic investor bases across several Asian debt markets.
Asian capital markets remained resilient in 2025 and continued to provide financing to corporations, but they were less active than in other regions
USD 3.3 trillion was raised on Asian capital markets in 2025, 39% of all capital raised globally. However, the increase in capital raised compared to the 2022-2024 average was lower than in the rest of the world. Initial public offering (IPO) activity, relative to its 2022-2024 average, contracted by 11%, while it increased by 37% in the rest of the world. Asian companies relied more heavily on secondary equity offerings and corporate bond issuance in 2025. Secondary equity offerings rose by 55%, compared to 39% in the rest of the world, while corporate bond issuance remained broadly in line with the global increase.
Borrowing costs for investment grade corporate issuers declined while they increased for lower-rated issuers. Interest rate at issuance for investment grade issuers declined to 2.7%, compared with a global median of 4.4%. Although they widened around the April 2025 tariff announcements and again in early 2026, corporate credit spreads remained narrower than at the beginning of 2025. Corporate issuers shifted to shorter maturities in 2025 and firms in tradable sectors experienced greater dispersion in borrowing costs. Over 40% of outstanding corporate debt will need to be refinanced over the next three years, leaving parts of the corporate sector more exposed if financing conditions tighten further or uncertainty remains elevated.
Deep and diversified capital markets are important to help economies absorb external shocks and maintain access to financing during periods of uncertainty. Particularly, in less developed markets, further development of public equity and corporate debt markets, broader access to financing and stronger private equity and venture capital ecosystems remain important areas for policy attention. Improving market infrastructure and supporting cross-border investment can further enhance resilience and reduce vulnerabilities to changing global financial conditions and geopolitical risks.
While sovereign bond issuance reached record levels in Asia in 2025, it grew at an even faster pace in the rest of the world
Sovereign bond issuance in Asia reached a record high of around USD 4.1 trillion in 2025 - equivalent to 20% of global issuance - bringing the aggregate stock of outstanding sovereign marketable debt to around USD 18.3 trillion. Strong reliance on local currency and fixed-rate financing, together with average‑time‑to maturities above global levels and a strong domestic investor base in the largest markets, helped cushion the impact of heightened trade policy uncertainty in 2025.
That uncertainty generally led to declining yields in lower-risk markets due to safe-haven effects, while higher-risk economies experienced rising sovereign yields and tighter financing conditions. By contrast, geopolitical tensions in the Middle East contributed to broader increases in sovereign yields across the region, reflecting concerns over inflationary pressures through increasing energy prices and future tighter monetary conditions.
Recent market disruptions have highlighted the importance of debt structures, market functioning and investor composition in shaping resilience to external shocks. Continued policy efforts to deepen money markets, strengthen local currency bond markets and broaden investor bases remain important to support financing capacity during periods of stress.
Despite strong economic growth and the emergence of globally competitive firms, persistent valuation discounts and moderate shareholder returns remain common across many Asian equity markets
Nearly 40% of Asian listed companies trade below book value, while payout ratios remain modest by global standards, reducing the attractiveness for large global investors. In response, several Asian jurisdictions have introduced “value-up” initiatives aimed at improving capital efficiency, shareholder returns, corporate governance and market competitiveness. Early outcomes have been mixed, with stronger equity market performance not always translating into broad-based improvements in corporate valuations.
The design and implementation of value-up initiatives range from prescriptive approaches to voluntary and comply-or-explain frameworks. This highlights the importance of embedding valuation enhancement measures within broader reforms aimed at strengthening corporate governance, improving capital allocation, deepening investor participation and enhancing market functioning, transparency and investor confidence.
Institutional investors play a limited role and strengthening their participation would help deepen Asian capital markets
Institutional investors continue to play a more limited role in Asian equity markets than in other regions, accounting for 21% of market capitalisation compared to 47% globally. Institutional ownership is heavily dominated by non-domestic investors, while domestic institutional investor bases remain relatively underdeveloped in several markets. At the same time, benchmark indices and passive investing are becoming increasingly influential across the region, with the share of passive funds in Asian equity funds rising from 28% in 2008 to 70% in 2025.
Stewardship and fiduciary frameworks have developed rapidly across Asia, although engagement practices continue to be shaped by concentrated ownership structures, limited investor resources and practical barriers to engagement. Strengthening domestic institutional investor bases, stewardship frameworks, channels for dialogue, and voting and disclosure infrastructure can support more effective investor engagement, stronger market functioning and long-term value creation.
Human capital is becoming more important in assessing corporate risks and long-term performance, but more comparable disclosures are needed to support informed investment decisions
Human capital information is playing a growing role in how investors assess corporate risks and long-term prospects. In Asia, companies representing 80% of regional market capitalisation disclosed human capital information in 2024, although important differences across frameworks and metrics continue to limit comparability and consistency of disclosures.
Currently there is no internationally recognised disclosure standard specifically focused on human capital. Encouraging broader disclosure of material metrics and more contextual reporting can support informed investment decisions and broader policy objectives related to productivity, workforce resilience and inclusion, particularly as artificial intelligence (AI) reshapes labour markets.
Crypto-asset markets are expanding rapidly across Asia, but stronger governance, consumer protection and international co-operation are needed to address emerging risks
Asia has emerged as a major hub for crypto-asset activity and saw the highest regional growth in blockchain-based crypto-asset transactions in 2025, with a 69% year-on-year increase. As crypto-asset activity expands, concerns related to consumer protection, scams, illicit finance and cyber-security risks are also increasing.
Regulatory approaches across Asia continue to evolve. While some jurisdictions maintain a restrictive stance on crypto-assets, others have introduced or revised regulatory frameworks to support more orderly market development. Without robust governance and international co-ordination, fragmented approaches may increase vulnerabilities and risks to market integrity. Strengthening supervisory frameworks, oversight of crypto-asset activities and cross-border co-operation will therefore remain important to support resilient and well-functioning markets.