Asean's rapid devt offers huge potential for bond market
Published on: Tuesday, September 30, 2014
KUALA LUMPUR: Asean's rapid development offers enormous potential for the regional bond market to leverage on the growing demand of infrastructure financing.Bank Negara Malaysia (BNM) Deputy Governor Datuk Muhammad Ibrahim said infrastructure investments in Asia is estimated to amount to a staggering US$8 trillion over the next decade with a large portion being in Asean."Asean bond markets can play a big role in bridging this long-term financing need, given that most economies within the region are bank-dependent for long-term financing.
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"Not only will the economy be better served by a new source of funds, but the risk of depending on the banking sector for long-term financing is also greatly reduced," he said in speech at the opening of the Asean Fixed Income Summit (AFIS) here Monday.Also present were the Central Bank of the Philippines and Thailand Deputy Governors, Diwa Guinigundo and Pongpen Ruengvirayudh, respectively. Muhammad said Asean's fixed income markets had expanded more than six-fold since 2000, and now stood at US$1.1 trillion."The size of Asean's local currency bond markets is now five times larger than the total US dollar-denominated bonds issued by Asean entities, indicating the growing maturity, resilience and important role of domestic bond markets in each economy.
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"The compounded annual growth rate in Asean local currency bond issuance has been 12.9 per cent since 2003. The regional individual markets have experienced growth rates ranging from 5.3 per cent to 42.2 per cent," he added.He said however, the financial linkages between Asean fixed income markets is insignificant and intra-regional investments, still small.
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According to Muhammad, within the Asean region, more than 90 per cent of cross-border portfolio investment flows are still with advanced economies outside Asia.He said Malaysia had taken several steps to develop its market to facilitate cross-border investment activities such as liberalising foreign exchange administration rules to ease domestic investors investing abroad and for foreign investors to invest in ringgit assets."Together with the Securities Commission, Bank Negara introduced a transparent and facilitative framework for the issuance and subscription of ringgit and foreign-currency denominated Sukuk and bonds in Malaysia, resulting in a growing trend of regional issuers participating in the local market."As at September this year, the total issuances by non-residents, including Asean issuers, was 58 and totaling RM20.5 billion (US$6.5 billion equivalent)."Among the issuances were a RM500 million Islamic securities by a leading Indonesian oil palm plantation company, as well as two other palm oil plantation companies from that country, a Hong Kong-based global supply chain company, Korean banks and corporates," Muhammad said.Meanwhile, Cagamas Bhd chairman Datuk Ooi Sang Kuang said the Asean bond market would be an important channel to mobilise long-term funding or financing of infrastructure development in the region.He said Cagamas, which had been a key player in the domestic bond market, had the vision to take its expertise regionally and with the intention of issuing multi-currency bonds."The idea is to broaden the investor base for Cagamas papers and also widen the funding base for the company," he added.He said the company recently issued its inaugural 1.5 billion renminbi medium term note - its maiden step into the issuance of foreign currency bonds.The issuance, he added, is the largest renminbi bond in Southeast Asia to date and the world's first renminbi bond issued by a mortgage corporation.Apart from renminbi, he said Cagamas is also exploring other currencies like the US dollar, the euro and yen."We don't have any specific date (for the issuance). We are talking to possible issuers in regard to their needs of funding, whether its in the US dollar, renminbi, euro or yen," Ooi added.Based on the International Monetary Fund's (IMF) forecast, the Asean region is expected to grow by 6.4 per cent this year and next year.The region's gross domestic product is expected to reach US$3 trillion by 2017, tripling in size relative to a decade ago.Meanwhile, on Malaysia's bond market outlook, Ooi said there is still a large potential for growth as it only constitutes about 20 per cent of total financing in the country, with bank financing having a 80 per cent share."This proportion should grow over time. If you look at Europe, it is almost 40-50 per cent of the total financing of the economy. So there is a lot of room to grow," he added.Stay up-to-date by following Daily Express’s Telegram channel.
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