Asian Bond Markets
Encyclopedia
Asian Bond Markets are growing rapidly as Asian borrowers switch away from short term bank loans towards longer term debt financing. Although Asia
also includes countries of the Middle East, some CIS
countries and the vast majority of the land mass of Russia and Turkey, in financial markets it is often only the Far East and South Asia that are included in the term.
are keen to see the expansion of Asian bond markets over the next few years in order to help provide finance for the large infrastrctural development that the region needs over the next decade. Alongside the expansion of the bond markets, Asian governments and central banks are currently discussing the creation of an Asian Currency Unit. The ADB has suggested that bonds may also be issued in ACU over the next few years. This would help lower the financing costs for Asian issuers who have substantial trade links with other countries in the region.
Asian issuers tends to have a much higher credit rating
than other sovereign debt, particularly those in Latin America
because of the strong economic underpinnings and low political risks. Most Asian countries have ratings which are investment grade.
in 1997 and subsequently academic research has identified the over-reliance on short term bank financing as a major cause of economic failure. Governments and central banks are keen to encourage the expansion of the Asian bond markets in order to reduce the reliance on short term bank loans and so avoid the economic catastrophe that occurred in 1997/1998.
As part of the Asian Bond Market Initiative, nine Pan Asian Bond funds have been launched. These passively managed funds are designed to provide an efficient mechanism for investors to buy local currency funds. Whilst their low fees provide funds at an attractive price, the fee scales discourage active management and provides limited incentive for managers to promote these funds. As a result these funds are not widely known.
The managers of the 8 single market funds are;
ABF China Bond Index Fund, China Asset Management Corporate Limited
ABF Hong Kong Bond Index Fund, HSBC Investments (Hong Kong) Limited
ABF Indonesia Bond Index Fund, PT Bahana TCW Investment Management
ABF Korea Bond Index Fund, Samsung Investment Trust Management Company Limited
ABF Malaysia Bond Index Fund, AmInvestment Management Sdn. Bhd.
ABF Philippines Bond Index Fund, Bank of the Philippine Islands
ABF Singapore Bond Index Fund, DBS Asset Management Limited
ABF Thailand Bond Index Fund, Kasikorn Asset Management Company Limited
The activities of the Asian Bond Markets Initiative (ABMI) is focused on (1) Facilitating access to the market through a wider variety of issuers and (2) Enhancing market infrastructure to foster bond markets in Asia.
Asia
Asia is the world's largest and most populous continent, located primarily in the eastern and northern hemispheres. It covers 8.7% of the Earth's total surface area and with approximately 3.879 billion people, it hosts 60% of the world's current human population...
also includes countries of the Middle East, some CIS
Commonwealth of Independent States
The Commonwealth of Independent States is a regional organization whose participating countries are former Soviet Republics, formed during the breakup of the Soviet Union....
countries and the vast majority of the land mass of Russia and Turkey, in financial markets it is often only the Far East and South Asia that are included in the term.
Issuance
Issuance in Asia is predominantly issued by sovereign issuers but Corporate bonds are becoming an important source of growth in Asian fixed income markets. Currently issuance is predominatly in US dollars, although local currency issuance is also growing. Asian governments, central banks and the Asian Development BankAsian Development Bank
The Asian Development Bank is a regional development bank established on 22 August 1966 to facilitate economic development of countries in Asia...
are keen to see the expansion of Asian bond markets over the next few years in order to help provide finance for the large infrastrctural development that the region needs over the next decade. Alongside the expansion of the bond markets, Asian governments and central banks are currently discussing the creation of an Asian Currency Unit. The ADB has suggested that bonds may also be issued in ACU over the next few years. This would help lower the financing costs for Asian issuers who have substantial trade links with other countries in the region.
Asian issuers tends to have a much higher credit rating
Bond credit rating
In investment, the bond credit rating assesses the credit worthiness of a corporation's or government debt issues. It is analogous to credit ratings for individuals.-Table:...
than other sovereign debt, particularly those in Latin America
Latin America
Latin America is a region of the Americas where Romance languages – particularly Spanish and Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,500 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...
because of the strong economic underpinnings and low political risks. Most Asian countries have ratings which are investment grade.
History
Asian economies suffered badly from the East Asian financial crisisEast Asian financial crisis
The Asian financial crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion....
in 1997 and subsequently academic research has identified the over-reliance on short term bank financing as a major cause of economic failure. Governments and central banks are keen to encourage the expansion of the Asian bond markets in order to reduce the reliance on short term bank loans and so avoid the economic catastrophe that occurred in 1997/1998.
Investing in Asian Bonds
Large investors can buy bonds directly, whereas smaller investor tend to invest via mutual funds. The two major Asian bond indices are the HSBC Asian Bond Index and the JP Morgan JACI Index.As part of the Asian Bond Market Initiative, nine Pan Asian Bond funds have been launched. These passively managed funds are designed to provide an efficient mechanism for investors to buy local currency funds. Whilst their low fees provide funds at an attractive price, the fee scales discourage active management and provides limited incentive for managers to promote these funds. As a result these funds are not widely known.
The managers of the 8 single market funds are;
ABF China Bond Index Fund, China Asset Management Corporate Limited
ABF Hong Kong Bond Index Fund, HSBC Investments (Hong Kong) Limited
ABF Indonesia Bond Index Fund, PT Bahana TCW Investment Management
ABF Korea Bond Index Fund, Samsung Investment Trust Management Company Limited
ABF Malaysia Bond Index Fund, AmInvestment Management Sdn. Bhd.
ABF Philippines Bond Index Fund, Bank of the Philippine Islands
ABF Singapore Bond Index Fund, DBS Asset Management Limited
ABF Thailand Bond Index Fund, Kasikorn Asset Management Company Limited
Asian Bond Markets Initiative
Asian Bond Markets Initiative (ABMI), which was endorsed at the ASEAN+3 Finance Ministers Meeting in Manila, the Philippines on 7 August 2003, aims to develop efficient and liquid bond markets in Asia, enabling better utilization of Asian savings for Asian investments. It would also contribute to the mitigation of currency and maturity mismatches in financing.The activities of the Asian Bond Markets Initiative (ABMI) is focused on (1) Facilitating access to the market through a wider variety of issuers and (2) Enhancing market infrastructure to foster bond markets in Asia.