Investors returning to most emerging East Asia markets, ADB says

By Angela McDaniels

Tacoma, Wash., June 4 - Local and offshore demand for emerging East Asia's local-currency bonds is rising again and should continue given strong economic growth prospects in the region, the Asian Development Bank said in its latest Asia Bond Monitor.

"Most emerging East Asia bond markets have regained their bounce," Iwan Azis, head of ADB's office of regional economic integration, said in a bank news release.

"Thailand's bonds, though, could buck the trend given recent political upheavals, and investors there are likely to be cautious for some time."

ADB defines emerging East Asia as China, Hong Kong, Indonesia, the Republic of Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

ADB warns of risks

Despite the recent improvements, the Asia Bond Monitor warned that markets could still be jolted by the ongoing tapering in U.S. quantitative easing, the slowdown in economic growth in China or moves by the European Central Bank to counter the threat of deflation.

ADB said that Asia can mitigate these risks only by taking the lead in implementing better regulation and oversight of the financial system.

Bond yields declined in most economies in the first four months of the year, dropping most in Indonesia, Thailand and Vietnam, according to the bank.

However, ADB said investors in Thai bonds are now on the sidelines and yields could rise going forward.

Meanwhile, yields in the Philippines went up in January through April amid rising inflation, according to ADB.

Markets grow to $7.6 trillion

The markets also continue to grow in size. ADB said $7.6 trillion of bonds were outstanding in the nine economies at the end of March, up 2.1% on the quarter and 9.5% higher than a year earlier.

Vietnam's was the fastest-growing market on a quarterly basis, ADB said, and Indonesia's market grew fastest on an annual basis.

Thailand had $281 billion of outstanding baht-denominated bonds as of the end of March, 1.2% more than at the end of December and 5.7% more than at the end of March 2013.

Other developments

ADB said the region also continues to see encouraging developments within the bond markets. It pointed to China's recent decision to auction RMB 15 billion worth of sovereign bonds in Hong Kong as part of its efforts to internationalize the renminbi and the recent decision to allow Chinese municipalities to sell bonds.

Among other developments, Korea lifted the final hurdle to the issuance of covered bonds, Singapore launched the clearing of non-deliverable interest rate swaps, and Hong Kong continued to promote local understanding of sukuk, according to ADB.

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