Thiam Hee Ng, Senior Economist with ADB's Office of Regional Economic Integration, discusses the benefits and challenges of ongoing growth in the local currency bond markets, notably corporate issuance.
Title: East Asia's Local Bond Markets Continue to Grow in Early 2013
Description: Thiam Hee Ng, Senior Economist with ADB's Office of Regional Economic Integration, discusses the benefits and challenges of ongoing growth in the local currency bond markets, notably corporate issuance.
Thiam Hee Ng
Office of Regional Economic Integration
Asian Development Bank
Q: How have the emerging East Asia local bond markets grown in the first quarter of 2013?
A: In the first quarter of 2013 we have seen that the local currency bond market has continue to grow. The total bond outstanding has now reached $6.7 trillion. This is up to 0.1% from the same period last year. Growth from the 1st quarter has been driven mainly by the corporate bonds market, which expanded by 19.5%. Government bond markets continue to grow but at a slower rate of 8.3%, that’s said the government bond markets remain much larger accounting for almost two-thirds of the bond outstanding in the region.
Q: Bond to GDP levels continue to rise. Is this a worry?
A: I would not say this is a concern. We have seen the ratio of bond to GDP increasing. This reflects the natural development of financial system in the region, if you compare this to the ratio of bonds to GDP in one’s economy, the region level is still quite low at the same time, it should be noted that there’s considerable diversity in the ratio of local currency bonds to GDP among the countries in the region. For example, in Malaysia and Korea the ratios are in excess of a 100%. While, that of Indonesia is only 14%, so we see that there’s still considerable scope for the local currency bond market to develop. As noted earlier we have seen that corporate issuing has been picking up in the 1st quater. This is a good sign because we have seen that firms are diversifying their sources of funding, previously they have been very reliant on bond financing but now with greater diversity of social funding, this can make for much more resilient financial system.
Q: Are you concern that high foreign bond ownership in places like Indonesia and Malaysia could suddenly reverse?
A: There’s definitely a potential that these funds could suddenly reverse due to events outside the region. So therefore we emphasize that the region’s policy makers should be managing this capital inflow judiciously and micro-potential measure should be used to try to limit the disruptive event of this volatile capital flows.