SINGAPORE -(Dow Jones)- Despite the global credit crisis, local-currency bond markets in emerging East Asia have continued to expand and will likely remain a key source of funds for governments looking to pump-prime their economies, the Asian Development Bank said Tuesday.
Regional governments with comfortable budget positions and public debt will likely introduce fiscal stimulus packages to spur economic growth, boosting government bond issuance, the ADB said in its November edition of the Asia Bond Monitor.
China and South Korea in recent weeks have already announced fiscal stimulus packages, which will likely be financed partly in their local bond markets.
The value of emerging East Asia's total outstanding local currency bonds totaled US$3.7 trillion at the end of June, the Asia Bond Monitor said.
That was up 8.1% on year, but that growth rate was slower than a 20.7% rise marked a year earlier, showing that Asian bond markets, while resilient, aren't completely insulated from the credit crisis that has swept the globe and undercut economic growth in the region.
The Asia Bond Monitor examined local-currency bond market developments in emerging East Asia, defined as the 10 members of the Association of Southeast Asian Nations, plus China, Hong Kong and South Korea.
Asean groups Singapore, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Thailand and Vietnam.
Outstanding local-currency government bonds - including the liabilities of central banks - rose 9.1% to US$2.7 trillion at the end of June from the level at the end of 2007. The growth in public debt exceeded the rise in outstanding corporate bonds, which grew 5.7% in the first six months of this year from end-2007 levels.
Growth in Asia's overall local-currency bond market will likely slow further in the second half of the year as high funding costs deter companies from selling bonds but "it's still a positive growth rate," said Jong-Wha Lee, head of ADB's Office of Regional Economic Integration.
China remained the biggest market, accounting for around 54% of the total local-currency bonds outstanding in emerging East Asia.
Shorter-term bonds have been more stable than either intermediate or longer-term paper as risk aversion prompted investors to shun investments with longer maturities. The tendency for central banks to sterilize excess liquidity has also contributed to the bigger share of short-term issuance.
Government bonds with maturities of one to three years now account for between 40% and 50% of bonds outstanding in China, Hong Kong, South Korea, the Philippines and Vietnam, the ADB report said.
In contrast, bonds with maturities in excess of 10 years account for less than 5% of the total in Korea and Hong Kong and between 12% and 18% for China, Malaysia, the Philippines and Vietnam.
Liquidity in emerging East Asia's bond markets also remained abundant in the first half.
"Even in this period where foreigners are withdrawing from equity markets they are maintaining holdings of local-currency government bonds," said Lee. "It shows that if governments in the region can continue to develop their bond markets they will emerge as a prime source of capital to raise funds for the fiscal stimulus packages that will be needed to keep their economies moving."
The ADB report warned, however, that the region's bond markets face great risks, particularly if the global credit crisis inflicts further damage on Asia's financial sector and economy.
Lee said the Manila-based bank may cut its 2009 growth forecast for the region by around one percentage point when it releases its latest economic forecast, possibly in December. In September, the ADB projected that East Asia's economic growth will likely decelerate to 8% this year and further to 7.7% in 2009 from 9.6% in 2007.
Other risks to the outlook for the region's bond markets include tight dollar liquidity, deleveraging by investment funds and weakening regional currencies, which could damp foreign investor interest in Asian debt.
The ADB urged regional policymakers to continue reforms to deepen their local bond markets.
Greater transparency, strengthening regulatory frameworks, and stronger regional cooperation will improve liquidity and broaden the investor base, it said.
-By Ditas Lopez, Dow Jones Newswires; +65-6415-4044; ditas.lopez@dowjones.com
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(END) Dow Jones Newswires
November 17, 2008 17:15 ET (22:15 GMT)

Publié le 17 novembre 2008 Copyright © 2008 Dowjones