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Asia’s local currency debt markets often struggle to compete with their far deeper international counterparts, and this year is no different, with US dollar debt issues from Asia again running at a record pace. Initiatives to deepen local markets and break down barriers within Asia, however, offer much hope for the future.
The panel offered an update on credit enhancement initiatives, welcoming moves to entice Asian investors to support financings and promote growth in neighbouring Asian countries, rather than diverting their capital to the US market. Regulatory developments, including proposals for a regional standard for bond documentation and unifying individual clearing houses, were also broadly welcomed.
Speakers also discussed the potentially destabilising impact of rapid bond market development, noting the volatility in the Indian and Indonesian markets during the summer of 2013. Other practical hurdles received several mentions, such as the lack of adequate derivative markets for companies looking to manage the risks of financing in alternative Asian currencies.
The panel also spoke on the role of rating agencies in developing new credit markets, and pointed to the Singapore dollar and offshore renminbi markets as successful examples for other regulators to follow. The fast-growing offshore renminbi market, in particular, could have big implications for the region, with some panellists predicting that it may become the common funding currency for East Asia, in much the same way that the Eurobond market has developed since that format was established.
Questions from an engaged audience probed a range of topics, such as the potential for Islamic financing and Kazakhstan’s own tenge-denominated capital markets. Several delegates in the crowded room asked about the potential for Asia’s bond markets to support infrastructure financing – a hot topic for the ADB itself.
Speakers universally welcomed the idea as an inevitable consequence of bank deleveraging, while emphasising the need to develop a long-term investor base in many of Asia’s local markets.
The seminar was billed as a simple question: “Can Asia fulfil its bond market ambitions?” Delegates went away in no doubt as to the answer, but perhaps a little more aware of opportunities and challenges along the way.