E Asian bond market urged to brace for QE's tapering
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Outflow inevitable despite delay: ADB
The Asian Development Bank yesterday urged emerging East Asia to brace for the US Federal Reserve’s tapering of its quantitative easing measure, while global investors are closely watching the political developments in Thailand and how that will affect economic growth.
“A delay in US bond tapering gives the region a bit of extra time to make sure its economy and financial system are resilient enough to face the likely market volatility ahead,” Iwan Azis, head of the ADB’s office of regional economy integration, told a press conference in Bangkok.
Even though the US central bank has delayed halting its QE, it is going to happen anyway. Then it might lead to a new round of capital outflows from the region as happened in June and July.
The Indonesian and Indian bond markets were hard hit during the first round of capital outflows while Thailand was not much impacted. Indonesia and India have structural problems as they run high current account and fiscal deficits, so the bond market is not isolated from the whole economy.
The Thai economy has sound fundamentals, but political uncertainty is one of many factors that investors are looking at before making investment decisions.
The Asian bond market is still dominated by global investors, so emerging East Asia remains vulnerable to a shift in investor sentiment. However, the development of the Asian bond market in the post-1997 financial crisis era has sparked optimism for the future.
Despite the market uncertainty, emerging East Asia’s local currency bond markets expanded 2.4 per cent quarter-on-quarter with US$7.1 trillion in bonds outstanding at the end of September. The growth was led by Indonesia, up 3.9 per cent, the Philippines, up 3. 6 per cent, and China, up 3 per cent.
The emerging East Asian bond market was 12. 5 per cent bigger than a year earlier, according to the “Asia Bond Monitor” released by the ADB yesterday.
The region’s government bond markets grew 2.1 per cent on quarter to $4.4 trillion, up from 1.1 per cent in the April-June quarter. The corporate market increased 2.9 per cent to $2.7 trillion, slower than the 8-per-cent expansion in the previous three months.
At the end of September, the outstanding stock of baht-denominated bonds stood at Bt8.9 trillion, 0.2 per cent more than at the end of June and 8.8 per cent more than at the end of September of last year.
