Asia’s domestic bond markets to develop slowly: Moody’s

Hong Kong, Nov 27: The absence of pension funds and lack of investible resources in many Asian economies is impeding the growth of the region’s local currency bond markets, a senior official of Moody’s Investor Service said on Tuesday.

“Development will continue but we expect the future pace to be fairly slow simply because of the amount of structural change that needs to take place,” Kathryn Kerle, representative director of Moody’s Investor Service, told Reuters Television.

Such structural changes include increasing the number of domestic institutional investors and amount of investible funds, including pension funds, collected by asset management companies and insurance companies. “In many of the markets in Asia, pension funds are small or non-existent, and will take some time to establish and for them to collect the funds necessary to make available to borrowers,” Kerle said.

“Without a substantial pool of investible funds, its difficult for domestic corporates to get the funding they need.”

The slow development of Asia’s bond markets, by limiting corporates’ access to cheap local funding, has pushed most companies to tap global capital markets and thereby take on fresh currency risk, Kerle said. She also pointed to other problems hindering development of Asia’s domestic bond markets, such as resistance from domestic banks that see a potential loss in their loan business and have little debt-underwriting capacity. Government inertia was another factor holding back development, she added.

“There may also be doubts on the part of policy-makersabout the wisdom of leaving capital allocation to market forces.”

Kerle said Singapore, which has the most developed domestic bond market in Asia, was exemplary of the progress needed to be seen elsewhere in Asia.

“The Singapore government has done a pretty good job in getting most things right.” Kerle said the Singapore government had tapped domestic bond markets — even though it had no borrowing needs — in order to set benchmark yields for local corporations to price their debt.

— Reuters

“It had encouraged Singapore corporates who had been typically shy of debt to borrow in the domestic market and made it possible for foreign companies to borrow domestically.”
Kerle also praised the government’s strides in encouraging the development of asset management companies, and increasing the options available for central provident fund (CPF) holders to invest.
Kerle also noted progress in Hong Kong, where a pension scheme has been implemented, and Thailand, where discussions to set up a similar scheme is underway. (Reuters)