Vietnam Bond Market Sees Strongest Growth in East Asia

Of which, government bonds rose 15.4 percent quarter-on-quarter to US$28 billion, while corporate bonds fell by 6.8 percent to US$700 million, its lowest in the last four years. However, the actual scale of the corporate bond market may be greater than this figure because some bonds were issued through private transactions between businesses and banks.

 

However, the report warned that although local currency bond markets in emerging East Asia had recently overcome the most dangerous time, the risks are still high and countries in the region should brace themselves for further shock and volatility from global financial markets.

 

Mr Iwan J. Azis, Head of ADB’s Office of Regional Economic Integration said that since early this year, the good economic indicators, attractive interest and recovery of some Asian currencies had showed that Asia was still the best place to invest, but also indicated increased risks of chain impact.

 

Also according to the report, to avoid being caught up in the turmoil often seen in emerging markets due to crisis impact from one or two economies, Asian governments needed to implement structural reforms to strengthen economic stability and boost growth productivity.

 

The risk of domino effect is highest for countries with large current account deficits and low foreign exchange reserves, while borrowing countries with high foreign currency debt are most likely to be affected if this currency devaluates.

 

Generally, the local currency bonds in the East Asian emerging markets were well maintained in the fourth quarter of 2013 while some other emerging markets were threatened by unrest, although the interest on most government bonds rose in January, particularly in Indonesia and the Philippines. Due to the U.S. Federal Reserve’s cutting monthly bonds buying in the coming months, the global market will likely go through instability.

 

According to the report, the percentage of foreign holdings of local currency government bonds of the region remained stable in the last three months of 2013, reflecting strong prospects of the regional economy and attractiveness of higher interest compared with other markets. The emerging East Asian economies were identified as: China, Hong Kong (China), Indonesia, Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

 

Regional bond markets continued to expand in scale. By the end of 2013, the region had US$7.4 trillion of outstanding bonds, up 2.4 percent from the end of September 2013 and 11.7 percent from the end of 2012. Growth rate of Vietnam was the fastest at the quarter-on-quarter level, up 14.8 percent, while Indonesia’s was the fastest year-on-year, up 20.1 percent.

 

While the governments in recent years tended to issue bonds in local currency rather than foreign currency, many companies, such as real estate companies in China, took advantage of the current high demand to issue bonds in USD.

 

Statistics showed that in 2013, East Asia sold a record amount of bonds in USD, JPY and EUR, worth US$141.5 billion, of which US$128.4 billion was released by regional companies. When domestic currency devaluates, borrowing costs will rise as a result of domestic economic weakness. The total amount of corporate bonds issued in local currencies last year was US$765.6 billion.