Asia’s economic recovery starting in early 2022 is losing steam. The Ukraine war and the darkening global economic outlook, including in China, are clear threats to its bright future. On the other hand, Southeast Asia is proving to be in a better position benefitting from the reconfiguration of the supply chain with the accelerating “China plus one” strategy.
Nevertheless, caution will remain the watchword at least into the first six months of 2023. Capital markets in the Association of Southeast Nations (Asean) countries have held their own in 2022 as liquidity in the offshore market dried up, especially for speculative-grade issuers. As expectation of aggressive US Fed rate hikes moderates, credits in the region are starting to look attractive.
Investment-grade names could see increased interest from investors on the back of strong fundamentals, lower volatility and higher yields compared with other markets. On the other hand, Asia’s high-yield issuers could see a change in fortune, especially as China resolves and clarifies its regulations on real estate companies, which account for more than two-thirds of new issue activity pre-Covid crisis.
Meanwhile, as the unprecedented US rate hikes of the past 12 months come to an end, the region’s local currency bond markets could potentially benefit as the US dollar weakens after smashing records. Domestic institutional investors, which underpin the local markets, could see the return of intrepid offshore investors who may start to see value with more stable exchange rates.
One area that will continue to grow in interest is the region’s green, social and sustainability (GSS) and sustainability-linked bond markets. Although total volume declined from a year ago, it performed better than the broader bond market. Regulatory support could help boost the market. Hong Kong, for example, has launched a new scheme to monitor environmental, social and governance funds while Singapore is in the process of implementing its environmental risk management framework.
The Asset Events, is pleased to be hosting the 18th Asia Bond Markets Summit – Asean edition. As the region’s longest-running continuous fixed-income summit, it brings together issuers, investors, policymakers and other stakeholders involved in Asia’s bond markets.