Good Time to Buy Local Currency Emerging Asian Bonds - Conference Told

TOKYO, JAPAN - Local currency bond markets in developing Asian economies have come a long way since the 1997-98 financial crisis, and now is a good time for regional investors to invest in this asset class, top government officials and investors said at a conference today.

Speakers at the Asian Development Bank (ADB)-hosted conference “Investing in Asia Bonds – Opportunities for Asian Investors” said governments across the region had taken significant steps to develop institutions and market infrastructure to stimulate the growth of local currency bond markets. They said active involvement of the private sector can further boost fixed-income markets in the region.

“We see two roles of the private sector: One is contribution to further development of the market through business opportunities. Second is through feedback to ABMI (Asian Bond Market Initiative) efforts on how these markets can best be improved,” said Naoyuki Shinohara, Vice Minister for International Affairs at Japan’s Ministry of Finance.

ABMI was launched by finance ministers from the Association of Southeast Asian Nations (ASEAN) plus Japan, People’s Republic of China (PRC) and Republic of Korea in 2003. It has set up working groups to take steps toward creating the infrastructure, regulations and best practices to stimulate the growth of local currency bond markets and encourage use of Asia’s massive savings within the region.

ADB, in association with Japan’s Ministry of Finance and Thailand’s Finance Ministry, hosted the conference to raise awareness and confidence in Asia's local-currency denominated bonds among investors based in Japan.

The conference is being organized in line with the ongoing support extended by ADB to ABMI launched by leaders of ASEAN+3.

“The ultimate aim is to recycle funds to private sector. A lot of development has taken place in the past 10 years,” said Thailand’s Finance Minister Chalongphob Sussangkarn in his keynote address.

He said national governments need to develop local currency bond markets to recycle the region’s massive savings and growing foreign exchange reserves.

Speakers said development of local currency bond markets will help the region meet its growing infrastructure financing needs and avoid currency and maturity mismatches, key factors that led to the crippling financial crisis in 1997-98.

Based on the outstanding balance of cross-border long-term bond investments in Asia, the U.K. and the U.S. at the end 2005, only 2.6% of investments of Asians and only 0.7% of Japanese funds are invested in Asia.

“As opportunities continue to develop within our region, one would expect to see that figure rise steadily,” said Jong-Wha Lee, Head of ADB’s Office of Regional
Economic Integration. “Investing in local currency East Asia’s bonds is good business.”

Despite recent volatility in global credit markets, Asian bonds, calculated in dollar returns on the iBoxx Asian Bond Fund (ABF) Pan-Asia Index gained 5.4% in the first nine months to September 2007. It gained 13.6% in 2006.

Investors said Asian bonds have continued to deliver superior returns on the back of strong and improving macroeconomic fundamentals, improving credit quality and government policies that have fostered greater economic and market stability.

Fund managers and investment bankers said despite recent volatility, the risk-return characteristics favored Asian bonds. Credit rating agency officials said sovereign credit ratings in Asia are improving.

“Asian debt markets are approaching the size of Latin American debt markets. Before it was a small component of the emerging debt market universe. That is no longer the case,” said Douglas M. Hodge, Managing Director, Asia Pacific at PIMCO Japan Ltd.

Officials from ASEAN+3 governments, State Street, Fitch Ratings, Moody’s Investors Service, Standard & Poor’s, Deutsche Bank, Prudential Asset Management, Nikko CitiGroup, Mizuho Securities, Morgan Stanley, Daiwa Securities SMBC Co. Ltd., Nomura Securities and Goldman Sachs Asset Management participated in the conference.

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