It’s rough out there. Buffeted by surging inflation, swayed by China’s zero-Covid policy, waves of central bank rate hikes, and the ebb and flow of geopolitics, Asia’s bond markets felt the full brunt of the stormy days of 2022. Issuance of G3 bonds, outside of Japan and Australasia, plunged to its lowest level in six years during the first half of the year.
Yet, in a true test of resiliency, local currency bond markets have held up despite massive selling by foreign investors during the period. In another era, such as during the Asian financial crisis decades ago, it would have spelled trouble on a grand scale. Rather, Asia’s bond markets managed to grow by over 3% and is now worth US$23.5 trillion as at the end of March 2022.
What’s happened in 2022 is yet another testament to the painstaking efforts in laying the foundation for the region’s bond markets firmly establishing Asian bonds as an asset class. From the early days of the Asian financial crisis, through the 2013 taper tantrum, and on to the ongoing Covid-19 pandemic, Asian bonds have not only withstood market stress and volatility but have become a part of most global and regional investment portfolios.
For Asia’s fixed-income markets, environmental, social and governance (ESG) issues continue to be prominent themes, boosting demand for green, social and sustainability (GSS) bonds and the development of sustainability-linked bonds (SLBs), which are likely to follow their GSS counterparts into the mainstream. And, consequently, as investors favour issuers with stronger ESG credentials, borrowers with low scores will likely find it challenging to access the fixed-income market. As well, the Chinese issuer-dominated Asian high-yield space is expected to broaden with potential issuers from other parts of the Asia-Pacific region looking for market access.
However, Asia’s uneven economic recovery on the road to normalization will likely continue with inflationary concerns, worries over new virus variants, off-andon lockdowns, the expected Fed tapering, rising US interest rates and increasing bond defaults challenging the investing outlook. Amid this backdrop, Asia’s strong credit fundamentals will offer a firm foundation for the region’s fixed-income markets, and moving forward, bring credit differentiation to the fore.
The Asset Events, is pleased to be hosting the 17th Asia Bond Markets Summit, the annual gathering of thought leaders, policymakers, issuers and investors alongside the 5th ESG Summit - Asia-Pacific’s leading ESG forum. This year’s joint sessions will also include a bonus track on digital assets. This must-attend multi-event summit will bring industry experts to discuss the rapidly-evolving investment markets in the region and the outlook for 2023.
Rising inflation, tightening monetary policies and the threat of recession have dampened global economic sentiment. Amid these uncertainties, investors are continuously on the lookout for safe assets to achieve stable returns. Asia’s bond markets, anchored by strong fundamentals, offer a bright spot. Issuers are flocking to the market once again and investors are once again finding favour in the region’s local currency bonds. Asia’s investment grade bonds, meanwhile, are outperforming their US counterparts as volatility continues.
Following years of rapid growth, Asia’s high-yield bond market has shrunk dramatically. China’s property sector, which dominates issuance in this space, is still embroiled in a crisis, and regulators have stepped in to address the crisis. Meanwhile, the demand for private credit has exploded as investors explore opportunities on the private side.