Asia's Corporate Bonds drive market growth - ADB
Local currency bond markets in emerging East Asia grew rapidly in the
first half of 2009 as governments continued to fund economic stimulus
packages. Notably, corporate bonds have become a significant driver of
overall market growth as the region recovers from global recession,
according to the latest issue of the "Asia Bond Monitor" from the Asian
Development Bank (ADB).
This trend toward greater corporate issuance is likely to continue in
the near term as companies seek alternative sources of finance to bank
loans with investors now returning to the market searching for higher
returns.
"The anniversary of the Lehman Brothers collapse is a reminder to
companies to look beyond bank finance," said ADB's Chief Economist and
Head of its Office of Regional Economic Integration Jong-Wha Lee, which
produced the "Asia Bond Monitor".
"Emerging East Asia's local currency bond markets have shown strong
resilience and have emerged as an important source of funding for both
governments and companies during these volatile times."
The US financial services firm, Lehman Brothers, filed for bankruptcy
protection on September 15, 2008, due to its heavy exposure to sub-prime
mortgages, triggering turmoil across international financial markets.
At the end of June, emerging East Asia had $3.94 trillion in local
currency bonds outstanding, 5.2 percent more in local currency terms
than at the end of March and 12.8 percent more than at the end of the
first half of 2008. Emerging East Asian bond markets comprise those in
the People's Republic of China; Hong Kong, China; Indonesia; Republic of
Korea; Malaysia; Philippines; Singapore; Thailand and Vietnam.
Government issuance jumped 59.8 percent in the second quarter of the
year from the first quarter, and was 38.0 percent higher than in the
second quarter of 2008. Corporate issuance rose 26.8 percent on quarter
and leapt 90.6 percent year-on-year.
Despite the overall growth, Asia's bond markets remain highly
segmented. While government and corporate markets in some countries have
seen hefty year-on-year growth, others have expanded much more slowly or
even declined.
The steepening of government yield curves also led to aggressive
issuance of short-term bills by finance ministries and central banks in
some countries. While this allows governments and central banks to pay
lower interest rates, it also boosts the stock of short-term debt and
increases future refinancing or rollover risks.
State-owned enterprises remain the dominant players in many of the
region's local currency corporate bond markets, with banks,
infrastructure and energy companies as primary issuers.
The PRC bond market - the second largest in Asia after Japan-expanded
14.8 percent from June 2008, with outstanding corporate bonds up a
massive 90.9 percent. This was largely due to an explosion in issuance
of medium-term notes.
Across emerging East Asian markets, credit spreads on higher-rated
securities in most corporate bond markets have tightened compared with
September 2008 levels. For lower-rated corporate credits, investors
still demand substantial risk premiums.
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