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NEWS UPDATES Asean Affairs   30 November 2010

Corporate Bonds Drive East Asia Gains

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A rapid rise of corporate bond issuance in emerging East Asian markets, including Indonesia, has driven the growth in the region's local currency bond markets to just more than $5 trillion, the Asian Development Bank said on Monday.

The latest edition of the ADB quarterly Asia Bond Monitor showed there were $1.56 trillion in corporate bonds outstanding at the end of September, 23.8 percent more in local currency terms than a year earlier and 5.7% more than at the end of June.

"Companies are taking the opportunity to raise money in Asia's local currency bond markets because of the growing demand from investors, particularly overseas investors," said Iwan Azis, head of the ADB's Office of Regional Economic Integration, which produced the report.

"Foreign interest has risen, given Asia's favorable growth fundamentals, lower interest rates in mature markets and despite administrative measures in some countries to limit capital inflows," Azis said.

The fastest-growing corporate bond markets at the end of September were China and Indonesia, both of which grew 10.9 percent on a quarter-on-quarter basis, followed by Singapore, which grew 7.1 percent quarter-on-quarter.

Growth of the Chinese market reflected the strength of the medium-term note and commercial paper markets coupled with a recovery in issuance by state-owned enterprises.

Growth in the Indonesian and Singaporean corporate markets reflected growing interest by foreign investment funds.

Local currency government bonds in emerging East Asia totaled $3.6 trillion, 14.6% higher year-on-year and 1.9 percent higher quarter-on-quarter.

The slower growth came with many countries now paring their fiscal stimulus packages and with some central banks opting to slow sterilizing bond sales.

Emerging East Asia comprises China and its administrative region of Hong Kong, Indonesia, Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

"What we are seeing is a fundamental change in the investor makeup in emerging East Asia's bond markets. Having now become familiar with these markets, foreign investors are likely to see them as a core part of their portfolios," Azis said.

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