East Asian bond market grows, but lacks liquidity--ADB Reuters
November 14, 2006
SINGAPORE -- East Asian bond markets have grown quickly since the 1997 Asian crisis thanks to government bond issuance, but market liquidity has not kept pace, the Asian Development Bank (ADB) said on Tuesday.
Among the things needed to boost liquidity in these emerging local currency bond markets were the development of legal and regulatory infrastructure, the growth of derivatives markets, greater investor diversity and stronger regional cooperation, it said in the November edition of its Asia Bond Monitor.
A survey of 45 market makers conducted by AsianBondsOnline, an initiative of the 10-member Association of South East Asian Nations (ASEAN) plus China, Japan and South Korea, supported by the ADB, showed there was concern about the narrow investor base.
More than 75 percent of respondents felt corporate bond markets were especially illiquid, with buy-to-hold investors dominating the underwriting process, leading to bonds being quickly absorbed into portfolios and depriving the secondary market of turnover.
Speakers at an Asian bond conference in Singapore on Tuesday shared the concern.
Heng Swee Keat, managing director of the Monetary Authority of Singapore, told the forum there was much to do to develop the corporate bond market, with firms three times as likely to go to a bank than to the market for funding.
"Asian bond markets are still a 'work in progress', but they are all moving in the right direction," he said.
The Asian financial crisis of 1997/98 left many companies crippled by dollar debt as the value of local currencies collapsed.
That helped trigger a drive by Asian governments to develop local debt markets and reduce corporate reliance on bank loans to raise funds.
The Asian Bond Monitor examined bond market developments in ASEAN, plus China, Hong Kong and South Korea.
It said the volume of outstanding local currency bonds in the region reached $2.4 trillion as of 30 June 2006, up from $2 trillion at the end of 2005.
In dollar terms, outstanding local currency bonds rose by 21 percent in China, 19 percent in Thailand, 18 percent in Vietnam, 13 percent in South Korea, 10 percent in Indonesia and 9 percent in Singapore.
Malaysia and Hong Kong reported growth rates of above 5 percent, while outstanding Philippine bonds fell by 5 percent.
Although the size and growth of regional bond markets compared favorably with debt markets in economies around the world with similar per capita income, liquidity lagged behind those of developed economies, the report said.
ASEAN groups Singapore, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Thailand and Vietnam.
