IFR Asia’s editor forewarned me last week that this would be the 1000th edition of the publication and I naturally volunteered to write something that would hopefully chime with this auspicious landmark. So here goes.
Such pieces are supposed to be about looking back, of course, and looking back I was struck by the timing of IFR Asia’s establishment as a publication designed to be the authoritative mouthpiece on Asian capital markets: March 1997. That was just months before the cataclysm of the Asian financial crisis hit and brought on a series of events which set the agenda for so much of what has come to pass in Asian markets since. So in a sense, full marks for the timing.
I joined around six years later, if memory serves, as loans editor, and completed a three-year stint in that capacity before moving on to be debt capital markets editor.
Much has changed over that time, although a signal aspect of the Asian loans market is that many of the head honchos from my time in the chair remain in place (yes, that’s you Messrs Phil Lipton and John Corrin, to name just two who immediately spring to mind). Meanwhile loan spreads to Libor continue the secular tightening that had been underway since before I arrived at IFR Asia.
I’m sure the explanation for the second phenomenon (I’m not going to proffer one regarding the first) is the same as that I received as a breathless neophyte almost 15 years ago: abundant liquidity.
THAT IN ITSELF was a measure of how remarkably far the markets had come since the crisis. Banks lending at short tenors, largely in US dollars, were responsible for the “double mismatch” which is now regarded as having been largely responsible for the crisis, more so than the artificially pegged foreign exchange rates which prevailed among South-East Asian countries at the time.
This publication used to run a section called “Phoenix” in the late 1990s and early noughties, which highlighted Asian companies that were undergoing debt and corporate restructuring and escaping the flames of the Asian crisis.
That section lost its raison d’être as a swifter and deeper recovery than anyone had thought possible panned out, facilitating a swathe of corporate recoveries in South-East Asia. One wonders if it might make a return.
There’s no doubt that, after vanishing in the years following the crisis, the double mismatch made a subtle comeback.
Yes, Asian enterprises got wise to the benefits of a long maturity profile, but they are still rather fond of dollar borrowing, and a ratchet down of Asian currencies (perhaps as the result of rampant trade competition) would inflict severe damage on a large number of Asian borrowers reliant on international loans.
As for bonds, the big knock-on of the Asian financial crisis was the rapid development of local bond markets, nurtured by financial authorities keen to push the disintermediation agenda in the hope of avoiding the mistakes of the crisis, principally the double mismatch.
This development was helped by asset growth in the life insurance and pensions sectors, the opening up of local bond markets to offshore capital and a burgeoning ratings culture accompanied by growing credit sophistication.
Still, there’s a long way to go: corporate bond issuance in Asia is minuscule in relation to the US and the banks still hold sway as capex providers. And in recent years we’ve seen how Asia’s government bond markets remain vulnerable to the exit of hot money from offshore investors. The only way to guard against that, from a government perspective, is to keep an eye on your deficits.
It’s not foolproof of course, and at any time external financial conditions, geopolitics or national politics can trigger the dumping of local government bonds. The benefits of opening up to foreign fund inflows still outweigh the downside, however, in most cases.
NOWHERE HAS THIS been more apparent than in the Bond Connect scheme, which aims to channel offshore liquidity via Hong Kong directly into China’s domestic bond markets.
And if the evolution of Asia’s debt markets since IFR Asia’s genesis 20 years ago is about the tantalising balance between onshore and offshore – capital as well as issuers – then the region has become a showcase.
Examples abound, from the ability of big household foreign issuers to tap the local Taiwanese market for US dollars, or the Panda bond market for renminbi. A scheme like Bond Connect takes that further and opens up such issuance to offshore capital.
Finally, I think of the big beast: the offshore public G3 bond market in Asia. I covered that market for IFR Asia when it still had some fledgling ambiance – a high-yield deal was something of an exotic rarity, while the participation of cash from the US and Europe bids was essential.
How much has changed: Asian high yield is mainstream, regional liquidity is more than capable of getting a new issue over the line and the markets regularly print five or six large deals a day without anyone batting an eyelid. Every year issuance records are smashed, and long may it last.
So here’s to the next 1,000 issues. You never know, it may even happen without the “Phoenix” column needing to rise again.
