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Emerging East Asian bond markets get boost

Accommodative monetary stance sustained the growth of local currency bond markets in emerging East Asia, with currencies and equity markets gaining in early November, according to the latest quarterly issue of the Asian Development Bank’s Asia Bond Monitor.

“We saw an improvement in the global investment sentiment, but uncertainty over the trajectory of the coronavirus disease (Covid-19) pandemic still weighs on the region’s economic outlook,” ADB chief economist Yasuyuki Sawada said. “The region’s large and growing local currency bond markets can help finance a sustainable and inclusive post-Covid-19 recovery.”

Emerging East Asia comprises the People’s Republic of China; Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; the Philippines; Singapore; Thailand; and Vietnam.

Local currency bonds outstanding in emerging East Asia reached $18.7 trillion at the end of September, a 4.8-percent expansion from June this year and 17.4 percent higher than a year ago.

Emerging East Asia’s bond issuance in the third quarter climbed to $2.2 trillion, up 6.4 percent quarter-on-quarter and 39.8 percent year-on-year, as governments borrowed to support large-scale stimulus programs.

As a share of gross domestic product, emerging East Asia’s bond market rose to 95.6 percent at the end of September from 91.6 percent at the end of June.

The rising share of bonds outstanding to GDP was mainly due to regional governments’ increased financing to combat the adverse effects of the Covid-19 pandemic.

Government bonds remain the dominant contributor to the region’s bond market at $11.5 trillion at the end of September. Corporate bonds reached $7.2 trillion.

The PRC is the largest local currency bond market, comprising 77.5 percent of emerging East Asia’s total bond stock.

Covid-19 remains the biggest downside risk to emerging East Asia’s bond market and the global outlook, particularly the possibility of new waves of positive cases and related lockdowns and other restrictions on economic activities.

Ongoing trade tensions between the PRC and the United States is an additional risk.

The latest issue of Asia Bond Monitor features four discussion boxes exploring Covid-19’s impact on global financial markets and capital flow dynamics; financial stability in Southeast Asia; local currency bond markets and exchange rate risks; and the duration of recoveries from economic shocks.

A special section of the monitor looks at how sustainable finance can contribute to green and inclusive development in the post-Covid-19 era, and a special theme chapter discusses the link between bank efficiency and bond market development.