Asia Progress & Challenges Thierry de Longuemar Vice President - - PowerPoint PPT Presentation

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Aug 12, 2023 277 likes •556 views

Developing Bond Markets in Asia Progress & Challenges Thierry de Longuemar Vice President (Finance & Risk Management) Asian Development Bank The views expressed in this document are those of the author and do not necessarily reflect

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Developing Bond Markets in Asia – Progress & Challenges

The views expressed in this document are those of the author and do not necessarily reflect the views and policies of the Asian Development Bank, or its Board of Governors, or the governments they represent.

Thierry de Longuemar Vice President (Finance & Risk Management) Asian Development Bank

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Outline

  • Bond market development in Asia
  • Remaining issues and challenges
  • Regional policy dialogues to develop bond

markets

  • Provide prospects and future direction.

2

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  • 1. Bond market development in Asia

3

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Local currency bond markets have grown rapidly…

1 2 3 4 5 6 7 USD Trillion

Growth of developing Asian local currency bond markets, 1995–2012

Government Corporate

Source: AsianBondsOnline(ABO), ADB

4

  • LCY bonds outstanding more than USD 6.5

trillion in 2012

  • Share of emerging East Asia in world LCY
  • utstanding : 2.1% in 1996 ⇒ 8.6% in 2012
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..in many economies and in both government and corporate bonds

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48.5 62.2 32.7 32.2 14.4 11.4 25.7 38.0 16.6 31.1 0.3 35.4 77.0 43.0 13.3 4.9 0.4 2.4 48.8 35.2 0.3 0.2 0.0 1.4

20 40 60 80 100 120 140 4q2000 2q2013 4q2000 2q2013 4q2000 2q2013 4q2000 2q2013 4q2000 2q2013 4q2000 2q2013 Korea, Rep.

  • f

Malaysia PRC Philippines Viet Nam Indonesia

Size of LCY bond outstanding, % of GDP

Corp Gov't

Source: AsiaBondsOnline (ABO), ADB

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The market became more open with increased foreign bond holdings…

31.85 9.47 30.34 17.9 5 10 15 20 25 30 35 Dec-03 May-04 Oct-04 Mar-05 Aug-05 Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13

Foreign holdings of local currency government bonds, % of total

Indonesia Korea, Rep. of Malaysia Thailand

6

Source: AsianBondsOnline(ABO), ADB

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…more diversified maturity structure…

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PRC=People’s Republic of China; HKG=Hong Kong, China; INO=Indonesia; KOR=Rep. of Korea; MYS=Malaysia; PHI=Philippines; SIN=Singapore; THA=Thailand; VIE=Viet Nam

10 20 30 40 50 60 70 80 90 100

1q2006 2q2013 1q2006 2q2013 1q2006 2q2013 1q2006 2q2013 1q2006 2q2013 1q2006 1q2013 1q2006 2q2013 1q2006 2q2013 1q2006 2q2013 PRC HKG INO KOR MYS PHI SIN THA VIE

Gov't securities maturity profile, years, % share

[1-3] [3-5] [5-10] [>10]

Source: AsiaBondsOnline (ABO), ADB

10 20 30 40 50 60 70 80 90 100 4q2010 2q2013 4q2010 2q2013 4q2010 2q2013 4q2010 2q2013 4q2010 2q2013 4q2010 2q2013 4q2010 2q2013 4q2010 2q2013 4q2010 2q2013 PRC HKG INO KOR MYS PHI SIN THA VIE

Corp securities maturity profile, years, % share

[1-3] [3-5] [5-10] [>10]

Source: AsiaBondsOnline (ABO), ADB

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…more diversified investors in some economies…

8

Source: AsianBondsOnline(ABO), ADB

100 200 300 400 500 600 700 2005 2006 2007 2008 2009 2010 2011 2012 Mar-13 KRW trillion

Republic of Korea

Central Bank Banks Insurance Companies Pension Funds Foreign Holders Government Others

500 1000 1500 2000 2500 3000 3500 2007 2008 2009 2010 2011 2012 Mar-13 THB billion

Thailand

Central Bank Banks Insurance Companies Contractual Savings Funds Foreign Holders Government Others

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...more trading mainly for government bonds…

9

PRC=People’s Republic of China; INO=Indonesia; KOR=Rep. of Korea; MYS=Malaysia; PHI=Philippines; SIN=Singapore; THA=Thailand Note: Data for Hong Kong, China; the Philippines; Singapore; and Thailand as of March. The rest as of June. No corp. bond trading and turnover data for the Philippines and Singapore.

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 4q2005 2q2013 4q2005 2q2013 4q2005 1q2013 4q2005 2q2013 4q2005 1q2013 4q2005 1q2013 4q2005 2q2013 PRC KOR THA MYS PHI SIN INO

Bond Trading Volume, Tn US$

Gov't Corp

Source: AsiaBondsOnline (ABO), ADB

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 Gov't Corp Gov't Corp Gov't Corp Gov't Corp Gov't Corp Gov't Corp Gov't Corp PRC KOR THA MYS PHI SIN INO

Bond turnover ratio

4q2005 1q/2q 2013

Source: AsiaBondsOnline (ABO), ADB

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...and increase in foreign bond and off-shore bond issuance including Dim Sum Bonds

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RMB bonds Issued & Lodged with CMU

16 43 172 223 148 12 10

50 100 150 200 250

2007 2008 2009 2010 2011 2012 2013/Aug

  • Issued over RMB 624 billion since 2007
  • Outstanding of RMB 366 billion (Aug 3013)
  • Almost all are fixed rate issues

Source: Hong Kong Monetary Authority (HKMA)

RMB deposits: month-end figures

100 200 300 400 500 600 700

Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13

RMB bn

As of end Jul 2013, RMB deposits in HK accounted for 19.9% of FX deposits and 10.2% of total deposit base in HK

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  • 2. Remaining issues and challenges

11

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Asian financial systems continue to be bank-dominated

Financial sector assets Total bonds

  • utstanding

Deposit-taking financial institutions1 Nonbank financial institutions2 1997 2010 1997 2010 1997 2010 China, People’s Rep. of 145 184 1 16 9 52 Hong Kong, China 615 708 76 459 23 29 India 44 90 2 29 18 46 Indonesia 84 36 5 8 2 13 Korea, Rep. of 132 151 23 73 29 110 Malaysia 186 214 28 109 54 101 Philippines 258 147 55 36 20 34 Singapore 762 582 81 79 24 58 Taipei,China 233 294 24 97 7 71 Thailand 156 155 6 37 22 57 Average3 262 256 30 94 21 57

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Size and composition of financial systems (% of GDP)

1 Data for 1997 refer to 1999 for Rep. of Korea and 2000 for Taipei. Data for 2010 refer to 2009 for PRC. 2 Data for 1997 refer to 1999 for India and 2000 for Taipei. Data for 2010 refer to 2009 for PRC and Hong Kong and 2008 for India. 3 Simple average of ratios.

Sources: ADB calculations based on data from national sources, AsianBondsOnline, Bloomberg, IMF (World Economic Outlook Database).

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Banking sector relatively small; bond markets even smaller compared to advanced countries

13

50 100 150 200 250 300 350 Deposit-taking Financial Institutions Non-bank Financial Institutions Total Bonds Outstanding Selected Asian Eurozone United States

Structure of finance sector (% of GDP, 2009)

The selected Asian region ncludes Bangladesh, the People‘s Republic of China (PRC), India, Indonesia, Kazakhstan, Lao PDR, Malaysia, Nepal, Pakistan, Papua New Guinea, Pakistan, Philippines, Solomon Islands, Sri Lanka, Thailand, and Tonga. Source: Financial Sector Operational Plan, ADB, 2010

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Increased capital volatility became a key policy issue besides market development

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Note: Composition-PRC, Indonesia, Rep. of Korea, Philippines, Singapore and Thailand

  • 300
  • 200
  • 100

100 200 300 400 1q2005 4q2005 3q2006 2q2007 1q2008 4q2008 3q2009 2q2010 1q2011 4q2011 3q2012

Selected Emerging Asia, capital flows, Bn US$

OI: Liab. OI: Asset PI: Liab. PI: Asset DI: Liab. DI: Asset Net FA Position

Sources: CEIC and IMF; Note: DI-Direct Inv; PI-Portfolio Inv; OI-Other Inv (including lending)

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  • 10
  • 5

5 10 15 20 25 1q2005 4q2005 3q2006 2q2007 1q2008 4q2008 3q2009 2q2010 1q2011 4q2011 3q2012

Selected Emerging Asia, capital flows, % of GDP

OI: Liab. OI: Asset PI: Liab. PI: Asset DI: Liab. DI: Asset Net FA Position

Sources: CEIC,IMF & National agencies. Note: DI-Direct Inv; PI-Portfolio Inv; OI- Other Inv (including lending)

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There is a need to enhance the role of regional channeling of regional resources…

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Developing Asia’s Debt Securities Portfolio Outflows by region (%, 2011)

Source: The International Monetary Fund Coordinated Portfolio Investment Survey; Note: This refers to the debt securities investments of ASEAN+3 within and outside of the ASEAN+3 region

0% 5% 10% 15% 20% 25% 30% 35% ASEAN+3 Europe United States Rest of the World 8.4% 32.0% 30.0% 29.6%

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  • 3. Regional policy dialogues to

develop bond markets

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In addition to individual policy efforts, regional policy dialogues to develop markets have been continued

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ASEAN+3

 Asian Bond market Initiative (ABMI) : ASEAN+3 Bond Market Forum (ABMF), etc

ASEAN

 ASEAN Bond Standard +

 ASEAN Capital Market Forum (ACMF)

ADB

 Issuing bonds in local currencies  Program/project operations for bond mkt.  Support regional initiatives

EMEAP

 Asian Bond Fund (ABF)

Bond market development in Asia & Pacific

ASEAN Infrastructure Fund (AIF)

APEC

 Asian Region Fund Passport (ARFP)  Asia Pacific Financial Forum (APFF)

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For example, ABMI under ASEAN+3 has been discussing various issues since 2003 …

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Finance Ministers and Central Bank Governors Meeting Deputy Ministers and Deputy Governors Meeting CMIM*

Regional safety net

ABMI

Asian Bond Market Initiative TF 1 (Supply) TF 2 (Demand) TF 3 (Regulation) TF 4 (Infra.)

ASEAN+3 Bond Market Forum (ABMF) Cross-border settlement Infrastructure Forum

* Chiang Mai Initiative Multilateralization

ASEAN+3 SRO Working Group

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…produced some meaningful outputs

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Credit guarantee and Investment Facility (CGIF) (2010) to support local currency (LCY) bond issuance ASEAN+3  Bond Market Forum (ABMF) (2010) endorsed by Finance Ministers as a common platform for discussion on harmonization of regulations AsianBondsOnline (ABO) (2004) information hub in the region

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…and contributed to market development through various channels

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Knowledge/information sharing

  • Study and recommendation of best

practices

  • ABO and ABM
  • Asian bond Summit
  • Other workshops / seminars

Direct market participation

  • ACNP / LCY bond issuance by ADB
  • Lao Thai bond project
  • ABF 1 and ABF 2 by EMEAP
  • AIF by ADB
  • CGIF

Streamlining regulation

  • Continued discussion but slow progress
  • Strengthened discussion framework by

establishing ABMF * SRO working group / Regulators meeting

Strengthening infrastructure

  • CGIF
  • Cross-border settlement Infrastructure

forum (CSIF)

  • Discussion on credit rating
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  • 4. Prospects and future directions

21

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Global financial crisis reversed political will of capital market development

  • 1997 Asian financial crisis
  • After 2008, investment banking,

securitization, derivatives, etc. became bad words

  • New global regulatory framework leaning

against market-based systems

  • Capital market development is critical

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Asia’s heavy dependence on the dollar increases its vulnerability

  • Asia suffered from 2 crises – in 1997 and 2008,

which revealed structural problems

  • Vulnerabilities persist
  • Asian countries credit ratings impacted

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Continued market growth but different across economies and regions

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 Increased concern on capital volatility could hamper the momentum of policy efforts for market development  In many economies, the development is expected for government bonds but it will take time to realize corporate bond development due to practical constraints  Strengthened regional cooperation would be needed for sound market development, especially for corporate bonds

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Special attention to economies at early stage of market development

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 To address the financing issues of those economies confronted with decreasing concessional resources and limited market development  Provide tailor made knowledge support and build capacity for market development

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Thank you

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