Asia local Bond Market still prone to financial distress

ASEAN country updates by Alan Greenspan

Alan Greenspan, former federal reserve chairman led insights over the gap in capital market development in the region. Adding that the financial outlook of the capital market highlights the need for financial intermediation. As once the banking system collapses there is no proper channel to turn to for support, he remarked.

The regional government has taken steps toward creating a system of financial cooperation especially among Asean+3 (Including China, South Korea, and Japan)

The goal-oriented initiative was launched back in 2002, to develop a local currency bond market and finance the infrastructure development in the region via local savings.

Value of the bond market

Since then the local currency bond market has strengthened under Asean+3. The statistics validate growth in terms of the aggregate value of local currency bonds exceeding US$26 trillion last year against US$ 19 trillion. The share accounts for 90% of the GDP last year equating to that of the US.

The local currency bond market is predominantly based on government bonds. However, all over economic outlook rolls out the statistics in favor of the corporate bond market as well. The market has reported being grown as a share of the region’s output from 13% in 2001 to 27% last year.

Issues and problems in bond markets

Lack of diversity across the corporate bond market is a predominant concern since the investor base has broadened exponentially. Banks by far are the sole largest investor in the bond market with domestic institution factors emerging alongside.

The second concern is related to the low maturity profile of local currency government bonds. More than $0% of corporate bonds had a maturity period of one to three years, between 2008 and 2018. In Contrast to the government bonds having 5 years of maturity period in general.

Finally, due to the heavy reliance on the global market on dollar-denominated foreign credit and trade. The Increase in US lending from US $90 to US$217  since the 2008 global financial crisis points out that the risk for global dollar shortage is evitable in times of crisis.


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