Asia Bonds’ Confidence Loss Creak
The March local currency Asia Bond Monitor prepared by a separate Asian Development Bank team cited “confidence loss” as the region’s biggest risk through the last quarter of 2015, with combined size of the ten country markets up slightly to $9 trillion. Two-thirds the total was from China, with Korea the second largest at $1.7 trillion followed by Malaysia and Thailand, each over $250 billion. Hong Kong, Singapore, Indonesia and the Philippines ranged from $100-200 billion while Vietnam was the smallest at $40 billion. The annual growth rate was almost 20 percent and bonds outstanding were 62 percent of GDP, split 38-24 between government and corporate. Foreign ownership stayed above 30 percent for Indonesia and Malaysia, while declining below 15 percent in Thailand. Almost half of investors are in longer Indonesian maturities, “reflecting economic optimism” according to the review but also previous restrictions on short-term holdings. Corporate appetite “pales in comparison” with lack of liquidity and secondary trading; in Korea the offshore share is just 0.2 percent as it was alone in the group experiencing net capital outflows in Q4 last year. East Asian issuance was $1 trillion for the period on a mixed performance, with $650 billion from Mainland China. Cross-border volume continued to wane at $2.5 billion dominated by renimbi placement, while 2015’s G3 current total was $185 billion versus $200 billion the prior year. China, Korea and Hong Kong sovereigns and companies accounted for the bulk, but $15 billion was from Southeast Asia including a $175 million inaugural bond from Laos. So far in 2016 yield curves have shifted down with weak growth, and stock markets also slumped until March. Indonesia reduced policy rates in turn, and Hong Kong and the Mainland were exceptions with higher yields on general risk aversion and specific currency worries, the ADB commented. Credit spreads narrowed through February between top-rated corporate and government instruments, while they widened in Malaysia’s sukuk-driven segments. Among important policy and regulatory changes, China’s central bank removed the onshore bond quota for qualified foreign investors, and Indonesia liberalized external allocation for Islamic mutual funds. Korea and Thailand launched Capital Markets Master Plans, with the former introducing internet crowd-funding rules.
The subdued showing was mirrored in 2015 global debt trading data released by industry association EMTA, with a 20 percent fall to $4.8 trillion for the lowest total since 2009. Officials attributed the weakness to benchmark index disappointment and the US Volker Rule clampdown on proprietary dealing. Local instruments were 65 percent of turnover in Q4 at almost $750 billion, with Mexico and India the most active. Eurobonds were $400 billion, with the sovereign-corporate divide at 55 percent-45 percent. Brazil, Mexico and Venezuela state oil monopoly bonds were the most popular. Indian government paper became the second most traded in the quarter with a 50 percent increase to $135 billion. China and South Africa also ranked high on the list, and together were equal to Brazilian assets. A separate CDS survey revealed a 30 percent activity reduction, although the covered universe was only a dozen firms compared with the 50 for the main study inviting less confidence in results.
