The last time that the Asian markets saw a strong dealflow was toward the end of April, when Thai Military Bank, Woori Bank and KT Corp all tapped the international debt markets. Since then only Siam Commercial Bank has come to market, while San Miguel cancelled its hybrid offering.
The market appears to have gotten itself stuck in the doldrums. The reason for this, according to bankers is twofold. One, banks do indeed have the mandates, but the deals just arenÆt ready to bring to market yet. And two, the market environment is not all that encouraging.
ôBanks just donÆt have deals that are ready to go at the moment,ö says Andrew Jones, BarclayÆs director of syndicate for Asia-Pacific. ôEven if they did have, I think it is very unlikely that they would be keen to launch them into a market that has been bearish for the past three weeks.ö
Indeed, May began on a downward trend after new Fed Chairman Ben Bernanke testified before the Congressional Joint Economic Committee that he believed the US economy was strong but would probably slow soon. He added that that the Fed may pause any future interest rate hikes soon in order to assess the impact of nearly two years of rate increases.
However, a few days later in an interview he backtracked on his previous comments, noting that the market misread his statements and shouldnÆt perceive him to be dovish on inflation.
This about face kicked off a round of declining stock markets and losses throughout the bond market.
ôAt the end of April, the market began to wobble and turned bearish on the back of BernankeÆs comments,ö says Ronan McCullough, Goldman Sachs' head of syndicate for Asia ex-Japan. ôThen there was the strong data out of the US, treasury market volatility continued and last week we saw a significant sell off in the equity markets. The credit market is certainly pausing.ö
Adds Jones, ôWe are hearing a lot of scary stories going on about inflation at the moment. We have continued dollar weakness and I think that is precluding people from tapping the market.ö
Indeed, the Dow Jones industrial index fell 262 points on two consecutive days last Thursday (May 11) and Friday (May 12) to 11,381. The dollar has continued to slump versus the euro and yen, having fallen 6% and 8%, respectively this year on an implied end to US rate hikes, and the mounting current account deficit, which now stands at 7% of America's GDP.
Meanwhile, 10-year Treasury bond rates have climbed 83bp since February, now trading at 5.19% as Asian Central banks demand higher premiums from risky dollar investments.
However, there is hope that the primary market could pick up some momentum in the coming fortnight - albeit for a non-financial reason. ôIt would be hard to say that the market will be massively affected by the World Cup [in June], but I would think people will be reluctant to try to bring deals into a market that promises to be very quiet,ö says Jones. ôI think that in the run up to the World Cup, you should expect to see a few deals surfacing. People have mandates, but it is just a question of timing.ö
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