China continues to be a dominant player in Asia’s bond markets, accounting for the majority of issuance activity in the G3 space. The country also leads the region in green bond issuance. Its regulators have issued special green bond guidelines for listed companies, introducing a supervisory scheme broadly modelled after the widely-accepted Climate Bonds Standard and Certification. China’s Belt and Road projects remain a priority for the Chinese government, with the bond market seen as a source of financing for some of these projects. Panda bonds, meanwhile, are on the rebound with more sovereign issuance in the pipeline. At the same time, cash-rich Chinese investors have underpinned the growth of the Reg S market, one of the most defining trends in the Asian capital market in recent years. It means that Asian issuers are no longer dependent on US institutions when raising dollar bonds.
But there are headwinds in the horizon. Due to tightening liquidity, China is likely to see the first default in local government funding vehicle (LGFV) bonds. LGFVs have become regular issuers in the US dollar bond market. With Asia’s burgeoning savings, its growing affluence, coupled with a generally low interest rate environment, the region is a key market for global issuers and investors. China, in particular, is becoming an important part of global investment mandates. The launch of the investment scheme Bond Connect paves the way for global investors to easily access a largely untapped Chinese onshore market. The entry of global rating agencies into China is expected to promote improved credit risk assessment, which in turn, will provide global investors a better understanding of Chinese issuers’ profile.
The Asian Bond Markets Summit is the definitive fixed income event in Asia that draws the largest participation of issuers and institutional investors. Organized in association with the Asian Development Bank (ADB), the summit is part of the ADB’s Asian Bond Markets Initiative that aims to deepen the development of Asian bond markets.
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