Despite the continued uncertain global environment as 2024 comes to a close, emerging markets in Asia have held up better than expected. Not too long ago, the conditions that played out during the past two years could have been vexing even for the less vulnerable economies in the region.

Given what the International Monetary Fund describes as the US dollar’s outsized role in international finance and trade – and with interest rates in the US at 20-year highs – the Fund says the emerging markets have good reason to be concerned. Yet, emerging market capital flows tracked by the IMF have remained largely resilient.

More than two decades of painstaking reform undertaken by policy makers in Asia have laid the foundation to withstand what is transpiring today and what may come next. The region’s strong fundamentals cut across fiscal, monetary, and financial policies. Often introduced in small steps, they have nevertheless led to big and defining outcomes shielding economies amid sharp currency depreciations.

An important pillar vital to the region’s stronger fundamentals is the development of its bond markets. According to the Asian Development Bank’s Asia Bond Monitor emerging East Asia’s localcurrency bonds outstanding crossed US$24 trillion as at the end of the first quarter of 2024, an increase of 8.9%. Indeed, the pace of annual growth ADB adds continued to surpass that of developed markets such as the US and the EU.

Asia’s local currency bonds stepped into the breach when the US Federal Reserve successively raised interest rates starting in March 2022 making it too expensive for issuers in the region to tap the offshore market. But with expectation that the end of the interest rate peak cycle in the US is imminent, issuers in the region have started to return to the offshore bond market. It will be a welcome relief for international investors focused on Asian credits who have been starved of new paper as Chinese issuers, who constituted more than 60% of the market before Covid-19, scaled back their offshore financing activity preferring to go onshore tapping either the bond or loan markets.

An area to watch is how the market for labelled bonds – green, social, sustainability and sustainability linked – is likely to develop in the coming 12 months. For sure, the higher-for-longer interest rates dampened sentiment in the region. ADB Bond Monitor showed a slower pace of growth in the first quarter of 2024 even as the total outstanding stock crossed the US$800 billion mark at the end of Q1 2024.

Looking forward, a big factor that will impact the development of economies in emerging Asia and its financial markets is the outcome of the presidential election in the US. Despite the ability of economies in the region to weather the vicissitudes of the US, the world’s biggest economy remains, in the words of the IMF, the benchmark in global capital markets.

Determining what the shape of 2025 will be and what it means for the region will be a key discussion point at the Asia Bond Markets Summit in Singapore. Now on its 19th year, the Summit brings together issuers, investors, together with their intermediaries to share insights on Navigating headwinds and tailwinds, which is the theme for this year’s annual gathering.