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Bond market growth in emerging East Asia slows on inflationary pressures and tightening policies: ADB
GROWTH in emerging East Asia’s local bond market slowed to 3.1 per cent in the first three months of the year, influenced by weakened financial conditions and global economic headwinds, according to an Asian Development Bank (ADB) report released on Monday (Jun 27).
This comes on the back of a 6.5 per cent fall in issuance from the previous quarter, coupled with rising inflationary pressure and tightening financial conditions which pushed up bond yields in economies in the region, said ADB on Monday in its latest issue of Asia Bond Monitor.
ADB’s June report further revealed slower growth among some key markets in the Asian region, with countries such as China, Indonesia, Singapore and Vietnam seeing slower growths in its respective local currency bond markets.
Most notably, growth in Hong Kong’s bond market declined to 0.8 per cent, which the bank noted was due to a contraction in the corporate bond segment. The bond market grew 4.1 per cent on an annual basis.
The bank also highlighted how financial conditions in the emerging East Asia market has softened between 28 February and 9 June, seen by the falling stock prices, portfolio outflows, and the weakening of currencies against the US dollar.
They believe this was largely driven by monetary tightening policies globally and heightened risks to economic outlooks — including continued inflation, rising commodity prices, slower-than-expected growth in the People’s Republic of China (PRC), and larger-than-expected impacts of the Russian invasion of Ukraine.
While monetary stances in emerging East Asia remain largely accommodative, ADB chief economist Albert Park warned that persistent inflationary pressure and accelerated monetary tightening by the US Federal Reserve could lead to “further monetary tightening in the region.”
Overall, the region’s local currency bond market reached US$23.5 trillion at the end of March. Outstanding bonds in economies belonging to the Association of Southeast Asian Nations (ASEAN) totalled US$2.0 trillion, accounting for 8.6 per cent of emerging East Asia’s total bond stock, according to the ADB report.
However, sustainable bonds in the ASEAN region plus the PRC, Hong Kong, China; Japan and the Republic of Korea continued to grow solidly, expanding 9.7 per cent to US$478.7 billion.
Source: https://www.businesstimes.com.sg/asean-business/bond-market-growth-in-emerging-east-asia-slows-on-inflationary-pressures-and