Asia’s debt capital markets are facing an uncertain future. Interest rate hikes are on the cards in the US, China’s stock market is in turmoil and the eurozone may be falling apart.
Asian bond markets have been on an uninterrupted growth path since the financial crisis, but the economic slowdown across the region threatens demand for financing just as increased global market volatility begins to bite.
Asia’s domestic debt markets have taken recent global volatility in their stride, but not all of them were as sure-footed in handling local challenges, resulting in mixed performances.
Asian high-yield issuance has shown resilience in the face of global volatility, with the support of the region’s private banks and wealth managers and a reduced correlation to the US market.
Asian investors have grown comfortable with the new flavours of bank capital and remain as hungry as ever for yield, giving issuers the freedom to choose different structures and to narrow premiums.
Asia’s sukuk market is having a good year, thanks to rising interest from Middle Eastern buyers and a benevolent regulatory climate, but it still has some way to go to fulfil its promise.
Green bonds face a tough sell in Asia, where climate concerns have long taken a back seat to development. That mindset is changing, but the right incentives will be key to creating a vibrant local market.
Less-attractive Australian interest rates and competition from issuance of asset-backed securities have brought the Kangaroo market to a halt, in contrast to a still-thriving Kauri market supported by New Zealand’s strong fundamentals.