Asia Bonds’ Chiang Mai Churn
The Asian Development Bank annual meeting in Manila combined years of market-building and crisis fighting with a doubling of the Chiang Mai currency swap arrangement to $240 billion that will also entail Asean+3 country mutual debt purchases. It was hailed by Japan’s Finance Ministry as a step toward a full-fledged Asia Monetary Fund even as it came forward with a $60 billion contribution toward the IMF’s $350 billion expansion the month before. The signatories also agreed to allow greater access without any conventional multilateral lending program in place and to hasten the pace of reserve diversification for non-dollar balance and allocation to regional infrastructure projects estimated at over $10 trillion the next decade. Participants advocated competition as well for the World Bank through a proposed BRICs startup which was referred to a working group at the recent New Delhi summit. European bank trade finance shrinkage was likewise on the agenda with an ADB facility preparing to fill gaps particularly acute at smaller exporters. The April bond market update cited modest 7 percent growth to $5.7 trillion in nine East Asian locations in 2011, with the corporate space up 15 percent while the government one was relatively flat. China and Korea absorb all but $1 trillion of the amount outstanding, with the area’s bond-GDP ratio approaching 55 percent. Vietnam and Malaysia were among the rapid advancers as contractual savings institutions like insurance and pension funds lifted holdings across-the-board. With a bad last quarter overall issuance slipped 10 percent to $3.5 trillion, about one-quarter of the total ex-China. State agency and Treasury instrument activity in particular declined over the period. Indonesia and the Philippines saw triple-digit corporate takeoff as banks in the former ceded ground under Basel capital adequacy strictures and the latter benefited from assigned sovereign investment-grade status.
Foreign ownership “leveled off” according to the tally although respective government paper shares rose to 10 percent and 25 percent in Thailand and Malaysia. Short-term engagement rose in Indonesia although it fell by 80 percent for central bank bills after curbs were imposed. Half the markets tracked concentrated maturities at 1-3 years, as yield curves flattened last year on lower inflation and that trend has continued thus far in 2012. Corporate yields have widened for the high-yield segment, while hard-currency external issuance at $30 billion through Q1 compares with $75 billion for all of 2011. The Pan-Asian index gained 7 percent as equity markets were off double digits, although asset class performance has shifted this year. Countries have begun to launch dedicated platforms for small enterprise bonds and consider policy and practical measures to boost regional cross-border exposure at just 7.5 percent of the total portfolio as initiatives inch ahead.
