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Treasury & Capital Markets
Asian bond market outlook positive
Asia’s bond market is healthy, made stronger by the lessons of the financial crisis 20 years ago
Janette Chen 16 Nov 2017

SINGAPORE – Asian bond markets are expected to continue to grow, with China’s strong momentum and frontier markets such as Laos, Cambodia and Myanmar picking up.

The past twenty years have seen strong growth in Asian bond markets. “Asian local currency bond markets have grown six or seven times since the crisis,” says Sean Henderson, HSBC’s deputy head of the debt capital markets for Asia-Pacific, at The Asset 12th Asian Bond Markets Summit held at the Conrad in Singapore.

“Over the last five years, the G3 bond market in Asia grew 176%,” says Andrew Ng, DBS Bank’s group executive & head of treasury and markets.

A lot of international investors are looking for opportunities in Asia regarding the dollar bond market, says Henderson, taking this as an example of the “dramatic changes” that happened in Asia over the past twenty years.

In fact, the crisis has helped to shape the Asian market into what it is today. “The first 10 years after the financial crisis are characterized by the region building its resilience,” says Stephen Schwartz, Fitch Rating’s head of APAC sovereigns. “In the last 10 years, the region is building up the balance system in risks,” he adds.

China, as the largest economy in the region, has grown to be the dominant market in the Asian bond markets. “China is not only the leading issuer in the region but also in the world,” says Noritaka Akamatsu, ADB’s senior advisor of the sustainable development & climate change department. This year, Chinese borrowers contributed to about 60% of the Asia ex-Japan dollar bond market.

However, after Moody’s cut China’s rating by one notch to A1 this year, concerns have been raised regarding China’s climbing debt levels. In August this year, China was warned by the International Monetary Fund of its “dangerous” levels of debt.

But the continuing interest in the Chinese bond market seems not to have been impacted too much. “Without a doubt, China is good for the market. The problem throughout the years has been the lack of supply. Whether it's in local currency or G3, China accounts for 70% of Asia's supply,” says Clifford Lee, DBS’s managing director and head of fixed income.

“Growing involvement of local institutions helps provide stability in Chinese bond market,” says Zhou Jin, Orient Finance’s managing director, head of fixed income and head of asset management. “We've studied the crisis extensively to manage our SOE money,” he adds.

“The Malaysian bond market, both conventional and sukuk, is robust enough to absorb issuances for infrastructure. Movement into capital markets is good for diversification of risk. A lot of interest in Malaysia is in the triple and double-A space,” says Chung Chee Leong, chief executive officer at Cagamas.

Frontier markets like Laos, Cambodia and Myanmar have “just opened up”, says Rithikone Phoummasack, Laos’s former deputy director general of external finance and public debt management department, noting that these markets were not impacted by the financial crisis.

But these markets are picking up. “Frontier markets like Laos are looking to raise bonds in international markets, like China and Japan,” says Phoummasack.

Despite the geopolitical disturbance, the outlook for the Asian bond market is still positive. “With the growth rate and the emergence of China, the opening of the border, and the sheer scale of companies needing to raise money, it is natural that there will be a lot of issuers,” says Henderson.

Ng expects the strong momentum of the growth of Asian bond market to continue. “We are at the inception of what we can become the world's largest economies,” he says.

But regulators in the region are increasingly cautious, implementing stronger supervision. Schwartz suggests that region should be forward-looking. “Rather than acting in a herd mentality way, we can see the markets developing,” he says.

“The one issue that can be improved is developing the diversity of the Asian investor base,” says Henderson.

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