Hong Kong - Asian financiers should strive for market transparency and stress-test their systems to address the risks arising from volatile capital flows, Hong Kong leader Donald Tsang said Friday. Speaking at the opening of the Asian Financial Forum, Tsang highlighted volatile capital flows and their potential to destabilize markets, particularly emerging markets, as concerns for the region.
Interest rate fluctuations and uncertainty caused by the growing prominence of hedge funds and other largely unregulated entities in the financial market were also concerns, he said.
"To address the risks arising from volatile capital flows, regulators should stress-test their systems to assess the impact on liquidity and pricing arising from the unwinding of large positions," he said.
"This should reveal how market stability could be affected and help us prepare for any such shock," he said.
"The recent subprime mortgage problem and the associated liquidity crunch highlighted the importance of prudent and effective risk management and market transparency," Tsang added, referring to losses related to US subprime, or high-risk, home loans.
"Without the necessary transparency to enable the market to evaluate risks," he continued, "market operators will tend to assume a worst-case scenario and take unnecessary safeguard action, usually aggravating rather than relieving the stress of the crisis, so there must be better access to reliable information for risk assessment, stress testing and increased regulatory cooperation across jurisdictions."
Around 700 guests from global institutional investors, financial service institutions and high-growth companies attended the one-day forum in Hong Kong.
