IMPROVING SENTIMENT BOOSTS EMERGING EAST ASIAN BOND MARKET AMID COVID-19 -- ADB

KUALA LUMPUR, Nov 25  -- Improving sentiment has boosted the emerging East Asian bond markets amid the COVID-19 pandemic.

Accommodative monetary stance has sustained the growth of the local currency bond markets in the region, with currencies and equity markets gaining in early November, according to the latest quarterly issue of the Asian Development Bank’s (ADB) Asia Bond Monitor.

Chief economist Yasuyuki Sawada said the bank saw an improvement in the global investment sentiment, but uncertainty over the trajectory of the COVID-19 pandemic still weighs on the region’s economic outlook.

“The region’s large and growing local currency bond markets can help finance a sustainable and inclusive post-COVID-19 recovery,” he said in a statement today.

Emerging East Asia comprises China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.

The bank noted that local currency bonds outstanding in the region reached US$18.7 trillion at the end of September, a 4.8 per cent expansion from June this year and 17.4 per cent higher than a year ago.

It said the region’s bond issuance in the third quarter also climbed to US$2.2 trillion, up 6.4 per cent quarter-on-quarter and 39.8 per cent year-on-year, as governments borrowed to support large-scale stimulus programmes.

As a share of gross domestic product (GDP), ADB said emerging East Asia’s bond market rose to 95.6 per cent at end-September from 91.6 per cent at end-June.

“The rising share of bonds outstanding to GDP was mainly due to regional governments’ increased financing to combat the adverse effects of the COVID-19 pandemic,” it noted.

ADB highlighted that government bonds remained the dominant contributor to the region’s bond market at US$11.5 trillion at end-September, while corporate bonds reached US$7.2 trillion with China, being the largest local currency bond market, comprising 77.5 per cent of emerging East Asia’s total bond stock.

COVID-19 remains the biggest downside risk to the region’s bond market and the global outlook, particularly on the possibility of new waves of positive cases and related lockdowns, as well as other restrictions on economic activities.

The ongoing US-China trade tensions are also an additional risk.

As for Malaysia, ADB said the country’s local currency bond market in the third quarter of 2020 expanded 1.9 per cent quarter-on-quarter to reach US$381 billion.

It said the growth was supported by expansions in both government and corporate bonds, which accounted for 53.6 per cent and 46.4 per cent of the country’s total bond stock, respectively.

It noted that total outstanding sukuk (Islamic bonds) at end-September 2020 amounted to US$239.02 billion, which is 1.7 per cent higher than the previous quarter.

ADB added that government bonds outstanding at end-September 2020 reached US$204.1 billion, which is 2.3 per cent higher than the previous quarter and eight per cent more than the same period in 2019, while  corporate bonds grew 1.3 per cent on a quarterly basis to US$176.9 billion in the third quarter of 2020.

-- BERNAMA