Asia Bonds’ Stiff Bounce Bearings
The Asian Development Bank’s QI Local Bond Monitor hailed renewed “bounce” after the Fed tapering spook as market size topped $7.5 trillion on 10 percent annual growth, with China representing 60 percent of the total and two-thirds the quarterly rise. Vietnam’s spurt was the fastest from a slim base and government and corporate instruments respectively came to $4.5 trillion and $3 trillion. East Asia activity is almost 60 percent of GDP and foreign investor shares have been steady with Indonesia’s at one-third heading into July presidential elections. Yields fell everywhere outside the Philippines over the period, and following its hosting of the ADB annual meeting, Kazakhstan has joined publication coverage with its $55 billion market, $35 billion in the corporate category. Infrastructure and secondary trading are underdeveloped as a sukuk regime is being finalized, the review comments. Most currencies gained during the quarter against the dollar with the exception of the Chinese renimbi as authorities tried to slow capital inflows, and Korea’s $1.5 trillion market at one-third China’s outstanding accounted for one-fifth of QI’s increase. Hong Kong has the largest sum of regional central bank bills at $90 billion as one of the most popular holdings in the EMTA industry association survey. The Philippines had the biggest corporate leap as eight companies issued over $2 billion before the central bank tightened monetary policy. Foreign allocation was firm in the ten tracked markets with outflows only in Thailand as the military prepared to seize control after a lengthy political standoff. Hard-currency dollar, euro and yen placement was also strong through April at $65 billion, close to half the 2013 total, with Chinese sponsors like the state oil company and property firms taking 40 percent and banks also active from Korea and Malaysia. Both short and long-term official paper yields declined, while corporate spread trends were mixed. Among key regulatory initiatives Korea’s covered bond framework was launched and Hong Kong and Malaysian authorities agreed to pursue Islamic debt cross-listings.
The Kazakhstan study pointed out that domestic government maturities were up to 10 years and foreign ones were phased out after the 2007 sovereign and banking crises. The central bank manages the money supply with securities offers, and corporate bonds are listed on the stock exchange with mandatory ratings and target pension and insurance funds, although bank credit remain double that volume. Financial and energy names are 90 percent of the market at current 5-year yields over 10 percent, and banks as major investors are confined to the top ratings grade. The buy and hold nature of the market impedes benchmark yield curve formation, and clearing and settlement systems are inefficient and decrease liquidity, according to the ADB. Sukuk financing could take off after implementing rules are adopted and bond market development has assumed urgency after consecutive bank collapses that led BTA to default twice on external obligations with bounced checks.
