Local bond market among top 5 in East Asia

Posted at 09/11/12 7:52 AM

MANILA, Philippines - The local bond market grew by 12.4 percent year-on-year to $87 billion in the second quarter, making the Philippines the fifth fastest-growing bond market in emerging East Asia, according to a report released by the Asian Development Bank (ADB).

In its latest “Asian Bond Monitor,” the ADB said local currency bond markets in emerging East Asia made “impressive gains” in the first half of the year despite the heightened risk and volatility of global markets.

“The region’s most rapidly growing bond markets on a year-on-year basis in the second quarter were those of Vietnam, Thailand, Singapore, Malaysia and the Philippines,” the report read.

Vietnam’s bond market, which grew the fastest in the region, posted an expansion of 28.5 percent on a yearly basis. Thailand’s bond market grew by 17.7 percent, followed by Singapore at 15.8 percent and Malaysia at 15 percent.

Figures released by the ADB showed that the corporate bond market in the Philippines grew faster at 18.7 percent compared to that of the government bond market, which grew by 11.5 percent in April to June.

“The Philippine corporate bond market has blossomed in the second quarter, growing 18.7 percent versus last year—the fastest pace of growth in emerging East Asia. We expect Philippine companies to be active issuers going forward, too. This is good for companies, obviously, but the wider variety of issuers there are in the market, the better it is in the long term for investors, borrowers and the country,” said Sabyasachi Mitra, principal economist in the Office of Regional Economic Integration at ADB.

For the whole emerging East Asia, the ADB said total bonds outstanding in local currency bond markets increased by 8.6 percent year-on-year to $5.9 trillion in January to June, driven mainly by continued strong growth in corporate bonds.

Overall, corporate bond-market growth outpaced the expansion of government bond markets in the region as corporate bond yields have fallen and tighter bank lending has encouraged firms to tap the capital markets.

“As of end-June, there were $2 trillion in corporate bonds outstanding, 15.2 percent higher than a year earlier, while the $3.9-trillion government bond market was only 5.5 percent bigger,” the report noted.

The ADB, however, said policy-makers in the region should brace themselves for further shock and volatility from the global financial markets. It added that uncertainty over policy actions to resolve the sovereign-debt crisis in Europe and mixed data on the sluggish United States economy has kept investors on edge.

“Our local currency bond markets are emerging as a safe haven in the midst of the crisis, but we should not be complacent,” said Iwan J. Azis, head of ADB’s Office of Regional Economic Integration, which produced the Asia Bond Monitor report.

“Volatile markets can deter long-term investment and hurt the economy by making it costlier for governments and companies to raise funds. Moreover, uncertain market reaction to policy action is undermining the predictability and thus the effectiveness of conventional policy-making,” Azis added.

The risks to emerging East Asia’s bond markets include worsening investor sentiment as global economic outlook dims, volatile capital flows and excessive government bond sales to finance stimulus measures.

Azis said greater regional participation in emerging East Asia’s bond markets and cooperation are needed to counter the volatility from external shocks and to strengthen regional financial safety nets.

China is still emerging East Asia’s largest bond market.