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Sunday, 21 April 2019

IFR Asia Asian Development Bank Roundtable 2016: Internationalising Asia’s capital markets

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Asia’s bond markets are at the centre of a concerted marketing effort. From Pandas and Dim Sum bonds to Masalas and Formosas, many of Asia’s local debt products are already firmly established in the world’s financial lexicon.

Turning concept into reality, however, remains a challenge. Developing deeper local capital markets has been one of the region’s top ambitions since the 1997-98 Asian financial crisis exposed the dangers of relying on foreign currency funding, and by some measures little progress has been made.

Few corporate borrowers have access to long-term bond financing, international investors are still frozen out of many of the region’s local markets, and regional integration is a long way off.

Yet the goal of connecting long-term savings with long-term investment opportunities has never been more important.

At the Asian Development Bank’s annual meeting in Frankfurt, home of the European Central Bank, Mario Draghi gave an impassioned speech about the need to address a global savings glut. In the ECB governor’s eyes, it is this reluctance to spend that has dragged down economic growth and forced policymakers in many developed markets to shift interest rates below zero.

For ADB delegates, that argument can only add to a sense of frustration that Asia is struggling to fund its infrastructure needs of US$8trn over the 10 years to 2020.

Internationalising Asia’s local markets will be key to channeling these excess savings to where they are truly needed. At a time when global investors are searching for higher yields than on offer in their home markets, Asian economies offer far higher rates of growth than the developed West – even with China’s rampant economy now cooling.

And as global investors look for longer assets to match their liabilities, the additional liquidity will create new opportunities for local players.

Working in partnership with the ADB, IFR Asia brought together a panel of multilateral issuers, arrangers and economists to debate the future of Asia’s local capital markets. A packed room heard first-hand reports of the challenges in opening the offshore rupee market and the risks facing Asia from a stronger US dollar and extraordinary monetary policy settings in Europe.

While many challenges remain, the audience also heard predictions for the growth of green financing and continued – albeit more gradual – progress for China’s renminbi internationalisation.

There is a long way to go, but the marketing effort is already in full swing.

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To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.

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