22 At the same time though it would be important to strengthen governance structures and risk management capacity of these institutions before they invest a greater proportion of their assets in the securities markets.

The asset size of the life insurance industry for the East Asia region as a whole amounted to US$ 362 billion at end 2004. In fact, the asset size is relatively small in most economies. Much of the impact on capital markets from the insurance industry is likely to come from increased coverage and a growing variety of products. There is considerable scope for further development of the industry, particularly in China, Indonesia, the Philippines and Thailand. One factor that may be reducing the role of the insurance industry in capital market development is the presence of many small players in several countries, partly as a result of low entry barriers in terms of minimum capital requirements.

The further development of the institutional investor asset base needs to be complemented by measures that facilitate cross-border investments and financial integration. Indeed, since the 1997 crisis, policymakers in the region have undertaken several measures at the regional level to foster greater regional financial integration, particularly with respect to the bond markets. Equity markets are more integrated than bond markets—both globally and within the region. Nonetheless, in several countries in the region a still sizable proportion of the shares remains closed to cross border investors As of end 2004, foreign investors did not have access to 42 percent of the stock market in the Philippines, 41 percent in China and 36 percent in Thailand<sup>12,13</sup> .

> 12 However, China is currently undertaking major reforms to increase investors’ access to shares. Thailand has also recently loosened restrictions on foreign investors. These figures are based on the IFC’s Investible Return Index (IFCI), which includes a subset of stocks included in IFC’s Global Index (IFCG), both now managed by Standard and Poors. Stocks in the IFCI are selected using a two step process: first, S&P determines which securities may be legally held by foreigners and next S&P screens stocks according to their size and liquidity. Thus the IFCI is designed to measure the composite stock market return of what foreign investors might receive from investing in emerging market securities that are legally and practically available to them. Note that the degree of investor accessibility may not be a good proxy of actual foreign ownership: a stock that is designated as investible may or may not be owned by foreign investors. 13 The combination of closely held shares and a sizable proportion of shares that are inaccessible to foreign investors can sizably dampen liquidity. The percentage of closely held shares is generally high in East Asian countries; as of 2004, it was 30 percent in Indonesia, and 40 percent in the Philippines.  In the other countries the figures are lower: 28 percent in China and Hong Kong (China), 10 percent in Korea, 17 percent in Malaysia, 25 percent in Singapore, and 21 percent in Thailand—however they are significantly higher than the US at 1.5 percent, Canada at 2 percent and the UK at 3.3 percent.