Emerging East Asia bonds surge to $5T on foreign money

Foreign money poured into emerging East Asia’s bond markets in the third quarter, boosting local currency bonds on issue to $5.1 trillion despite government efforts to slow a tide of cash they worry is pushing their currencies too high. The Asian Development Bank report released Monday said the value of local currency bonds outstanding was up from $4.8 trillion at the end of the April-June quarter and 17.2 percent higher than a year earlier. The increase was driven by corporate bonds while growth in sales of government bonds slowed as economic stimulus spending was wound down, the ADB said. “Companies are taking the opportunity to raise money in Asia’s local currency bond markets because of the growing demand from investors," said Iwan Azis, who heads ADB’s Office of Regional Economic Integration. Azis said foreign investors were attracted to Asian bonds because of the region’s strong economic growth and its higher interest rates compared with developed economies where rates remain at record lows in the aftermath of the global recession. Emerging East Asia comprises China, Hong Kong, Indonesia, South Korea, Malaysia, Philippines, Singapore, Thailand, and Vietnam Azis said bond investors had not been deterred by measures taken by some governments to slow the amount of foreign capital entering their markets. Export-reliant countries worry the inflows will contribute to pushing their currencies higher, making their products more expensive overseas, or that rapid reversal could endanger their financial systems. South Korea in early November indicated it would impose a tax on foreign investment in government bonds. Indonesia in July announced a minimum holding period for foreign investment in short-term government debt to deter speculators and Thailand in October slapped a tax on foreign investment in bonds. There were $1.556 trillion of emerging East Asia corporate bonds outstanding at the end of September. In local currency terms, this was up 5.7 percent from the previous quarter and 23.8 percent higher than the year before. The corporate bond market now comprises 30 percent of emerging East Asia’s total local currency bonds outstanding. “What we are seeing is a fundamental change in the investor makeup in emerging East Asia’s bond markets, Azis said. “Having now become familiar with these markets, foreign investors are likely to see them as a core part of their portfolios." Local currency government bonds reached $3.550 trillion, 14.6 percent higher year-on-year and 1.9 percent higher quarter-on-quarter. The slower growth came as many countries pared their fiscal stimulus programs with some central banks apparently opting to slow bond sales, the ADB report said. China and Indonesia had the fastest-growing corporate bond markets at the end of September, both of which grew 10.9 percent on a quarter-on-quarter basis, followed by Singapore, which grew 7.1 percent quarter-on-quarter. Growth of the Chinese market reflected the strength of the medium-term note and commercial paper markets coupled with a recovery in issuance by state-owned enterprises. The growth in the Indonesian and Singaporean corporate markets reflected a strengthening of interest by foreign investment funds. — AP