The Asian financial crisis has increased interest in the region's bond markets, according to three leading fixed income institutional investors at FinanceAsia's Asian debt conference this week.
Lim Heong-Chye, fixed income director of ABN Amro Asset Management, says the size of Asia's local currency-denominated bond markets before 1997 was roughly $600 billion. Today that figure is nearer $1 trillion. Dollar-denominated bonds, meanwhile, have increased to $400 billion from a pre-crisis level of $200 million.
Lim says the collapse of the equity markets was a wake-up call to many Asian countries, where as much as 90% of their assets in the investment market was in equities, with only about 10% in fixed interest. He believes financial institutions should now pay more attention to credit analysis as high-yield corporate bonds and bond funds are gaining popularity in countries such as Thailand, Taiwan and Korea.
But Anthony Wood, director of Asian Debt Management Capital, says the development of an Asian bond market is problematic as retail interest in the region is still relatively low compared with the United States. He says liquidity in the Asian bond market is still largely contributed by commercial banks in Singapore and Hong Kong as other Asian currencies are still not widely used by the international community.
Wood notes there has been a reduction in the amount of capital made available to the investment markets in Asia by financial institutions since the crisis. And despite the high saving rates in many Asian countries, Wood says, that capital pool has not been translated into liquidity for the bond markets. This makes the pricing of bonds difficult as there is not a sizeable retail market.
Hong Kong bond market maturing
Kevin Chan, a director at Long Investment Management, says the Asian bond market in Hong Kong is already quite liquid. He expects it will become more mature when the Mandatory Provident Fund comes into force next year, as there will be stronger demand from pension funds for direct access to fixed interest income.
Chan predicts Malaysia will be the next major Asian bond player because of the stable ringgit. He is also optimistic that a united Korea will offer opportunities for the development of the bond markets.
