Growth is picking up in two-thirds of economies in developing Asia, supported by higher external demand, rebounding global commodity prices, and domestic reforms, making the region the single largest contributor to global growth.
HONG KONG, CHINA (28 February 2017) — Infrastructure needs in developing Asia and the Pacific will exceed $22.6 trillion through 2030, or $1.5 trillion per year, if the region is to maintain growth momentum, according to a new flagship report by the Asian Development Bank (ADB). The estimates rise to over $26 trillion, or $1.7 trillion per year, when climate change mitigation and adaptation costs are incorporated.
Bond yields in most emerging East Asian markets fell between 1 March and 15 May amid a weak global economy. The exceptions were the People’s Republic of China (PRC) and the Philippines, where yields generally picked up.
In March, the Asian Development Bank forecasted that developing Asia’s growth would decelerate from 5.9% in 2015 to 5.7% in 2016 and 2017. In April, the International Monetary Fund cut its 2016 global growth forecast to 3.2%, down from 3.4% in January. Against this backdrop, bond yields in emerging East Asia generally decreased between 1 March and 15 May, including yields for 10-year local currency (LCY) government bonds.
Naoyuki Yoshino, Dean of the Asian Development Bank Institute, talks about the effect monetary policy has on the price of oil and in doing so introduces a new ADBI publication: Monetary Policy and the Oil Market.
Tamon Asonuma has been an economist at the Strategy, Policy and Review Department of the International Monetary Fund since 2010. View the video here
“Asian bond markets were buffeted by strong headwinds, including anticipation of the US Federal Reserve rate hike, which has led to an outflows of funds in some countries,” said ADB Chief Economist Shang-Jin Wei. “The uncertainty in global bond markets points to the need for continued efforts to strengthen local currency bonds, which together with prudential regulations, can improve a country’s resilience to foreign monetary and financial shocks.” Read full report
This paper underlines the importance of small and medium-sized enterprises, introduces hometown investment trust funds as a means of financing them, and proposes a scheme to evaluate their credit risk.
In Asia, small and medium-sized enterprises (SMEs) account for a major share of employment and dominate the economy. Asian economies are often characterized as having bank-dominated financial systems and underdeveloped capital markets, in particular venture capital markets. Hence, looking for new methods of financing for SMEs is crucial. Hometown investment trust funds (HIT) are a new form of financial intermediation that has now been adopted as a national strategy in Japan. In this paper, we explain the importance of SMEs in Asia and describe about HITs. We then provide a scheme for the credit rating of SMEs by employing two statistical analysis techniques, principal components analysis and cluster analysis, and applying various financial variables to 1,363 SMEs in Asia. Adoption of this comprehensive and efficient method would enable banks to group SME customers based on financial health, adjust interest rates on loans, and set lending ceilings for each group. Moreover, this method is applicable to HITs around the world. Read more
Alexander Wagner is an associate professor of finance at the University of Zurich and a faculty member of the Swiss Finance Institute. View the video here
Robert Z. Aliber is professor of international economics and finance emeritus at the Booth School of Business, University of Chicago.
KUALA LUMPUR, MALAYSIA – Emerging East Asia’s bond markets were volatile due to rising global concerns over the unresolved Greek debt crisis and the possibility of an interest rate hike in the United States, the Asian Development Bank’s (ADB) latest Asia Bond Monitor said.
“Low liquidity in the region’s bond markets could worsen the impact of an outflow of funds leading to more volatile price swings,” said ADB Chief Economist Shang-Jin Wei. “Undertaking policies to improve efficiency and transparency of financial markets, coupled with some appropriate prudential regulation, can help countries strengthen resilience against external shocks.”
The Asia Bond Monitor reviews recent developments in East Asian local currency bond markets along with the outlook, risks, and policy options. This issue includes a special section on Bond Financing for Renewable Energy.
Emerging East Asia’s bond markets were volatile due to rising global concerns over the unresolved Greek debt crisis and possibility of an interest rate hike in the United States (US). Global interest rates, which had been falling up until April, started picking up in early May. Contributing factors to the recent increases include protracted negotiations over the Greek debt crisis, firmer oil prices, improving economic indicators in the US in April–May, and faster first quarter of 2015 (1Q15) Gross Domestic Product (GDP) growth in the eurozone. As a result, the region’s bond yields have also moved upward since the beginning of May.
The local currency bond market in emerging East Asia continued to expand in 1Q15 to reach US$8.3 trillion at end-March. Growth, however, moderated on both a quarter-on-quarter and year-on-year basis.
The three largest bond markets in the region were those of the People’s Republic of China (PRC), the Republic of Korea, and Malaysia. The PRC led the region in terms of size for both government and corporate bonds. Malaysia is home to the largest sukuk (Islamic bond) market in the region, with more than half of its local currency bond stock comprising sukuk at end-March.
BEIJING, PEOPLE’S REPUBLIC OF CHINA — Emerging East Asia’s local currency bonds have performed well so far in 2014 but an earlier-than-anticipated US rate hike, a slowing property market in the People’s Republic of China (PRC), and higher risk aversion and inflation due to Middle East tensions could undermine that, says a new report from the Asian Development Bank (ADB).
“Asia looks well placed to face any volatility but the risks are definitely rising,” said Iwan J. Azis, Head of ADB’s Office of Regional Economic Integration. “Higher US interest rates and a stronger dollar could also make it tougher for the rising number of US dollar borrowers to service their debt.”
ANILA, PHILIPPINES — The Asian Development Bank (ADB) has raised Rs3 billion (about $50 million) from its maiden issuance of offshore Indian rupee-linked bonds. This issuance is the first bond issued under ADB’s $500 million offshore rupee-linked bond program and aims to deepen India’s capital markets.
“There is clear demand for bonds linked to the Indian economy, Asia’s third largest, and the reception to ADB’s inaugural rupee-linked bond is reflective of this,” said Kazuki Fukunaga, ADB Deputy Treasurer. “ADB is committed to supporting development and poverty reduction in India through financing private sector projects such as those related to infrastructure and the financial sector and developing India’s capital markets.”
The bonds, which are denominated in Indian rupees but settled in US dollars, will have a coupon of 6.35% and will mature on 17 August 2016. The bond was sole-led by JP Morgan. 13% of the bonds were placed in Asia; 42% in Europe, Middle East, and Africa; and 46% in the Americas. By investor type, 10% of the bonds went to central banks, 39% to banks, and 51% to fund managers,.
India is now ADB’s fourth largest shareholder and is its largest borrower, excluding cofinancing. Since the start of ADB lending operations to India in 1986, ADB has approved 210 loans amounting to $31.5 billion, $173.8 million for 10 grants, and $262 million for 348 technical assistance projects as of the end of 2013. Energy, and transport and information and communications technologies were the key sectors for assistance. During 2013, ADB approved $2.37 billion in public and private sector loans, technical assistance, and grants in India.
ADB plans to raise $12 billion to $13 billion from the bond markets in 2014.
MANILA, PHILIPPINES — Local and offshore demand for emerging East Asia’s local currency bonds is rising again and should continue given strong economic growth prospects in the region, said the Asian Development Bank’s (ADB) latest Asia Bond Monitor.
“Most emerging East Asia bond markets have regained their bounce,” said Iwan J. Azis, Head of ADB’s Office of Regional Economic Integration. “Thailand’s bonds though could buck the trend given recent political upheavals and investors there are likely to be cautious for some time.”
Despite the recent improvements, the Asia Bond Monitor warns that markets could still be jolted by the ongoing tapering in US quantitative easing, the slowdown in economic growth in the People’s Republic of China (PRC), or moves by the European Central Bank to counter the threat of deflation. Only by taking the lead in implementing better regulation and oversight of the financial system can Asia mitigate these risks.
BEIJING, PEOPLE’S REPUBLIC OF CHINA – Small- and medium-sized enterprises (SMEs) are the backbone of Asia’s economies, but they need better access to finance to grow and generate badly needed new jobs for the region, says a new Asian Development Bank (ADB) report.
“Most of Asia’s smaller firms are faced with difficulties in obtaining finance,” said Noritaka Akamatsu, Deputy Head of ADB’s Office of Regional Economic Integration, which produced the inaugural edition of Asia SME Finance Monitor, released today. “SMEs need to be able to tap a wider range of nonbank financing options in addition to bank loans, including capital markets if they are to realize their potential.”
SMEs – defined differently in different countries but generally with a small workforce or low assets – make up 98% of all businesses and provide jobs for 66% of the labor force in Asia, but they represent only 38% of the region’s gross domestic product (GDP), indicating that governments can boost economic growth by developing SMEs.
However, small firms have trouble getting the finance they need to grow. They lose out to larger companies where bank loans are concerned, particularly with banks cutting back their lending to SMEs in the wake of the 2008-2009 global financial crisis as they avoided risk and sought financial stability.
Although many governments have developed comprehensive policy frameworks to promote SME growth, most measures focus on helping SMEs get loans from banks, such as public credit guarantee schemes in Indonesia and Thailand, secured transaction reforms in the Pacific region, refinancing schemes in Bangladesh and Malaysia, and mandatory lending in the Philippines.
The report highlights the example of the People’s Republic of China (PRC), where SMEs contribute 50% of tax revenues, 60% of GDP, and 80% of urban jobs, and where alternative sources of funding are provided via SME equity markets on the Shenzhen Stock Exchange, SME bond instruments, and microcredit firms.
However, given that the PRC defines SMEs differently to other countries, further study is needed on the link between the wider availability of finance and SME growth.
More needs to be done across the region to incorporate nonbank financing options into national policies and nurture other options, such as increased use of asset-based finance and capital market instruments. The report, which includes data on SMEs in 14 countries in the region, found that as the world economy becomes increasingly interlinked, SMEs that are part of intricate global supply chains will need access to further trade finance, supply chain finance, and innovative funding models that enable them to expand their business globally.
The new report is being launched in tandem with a joint ADB-OECD study on SME access to finance, which looks at lessons for the industry from the 2008-2009 global financial crisis and Europe’s sovereign debt troubles.
JAKARTA, INDONESIA – Emerging East Asia’s local currency bond markets have weathered the recent market volatility well but risks to the markets are ticking up and countries need to be prepared, warns the Asian Development Bank’s (ADB) latest Asia Bond Monitor.
“Good economic data so far this year, attractive yields, and a recovery in some currencies mean Asia is still the best place to invest, but the threat of contagion is certainly higher than it was,” said Iwan J. Azis, Head of ADB’s Office of Regional Economic Integration.
The amount of local currency bonds outstanding in emerging East Asia has grown sharply from less than US$1.0 trillion at the end of 2001 to US$6.5 trillion at the end of 2012.
However, there still remain various issues to be addressed. For example, the region’s bond market is still small in size due to the continued dominance of the banking sector, regional resource channeling needs to be further enhanced, volatile capital flows must be appropriately managed, and there is a need to improve market efficiency.
For a more efficient discussion on implementing cross-border straight-through-processing and streamlining regulations and market practices, the ASEAN+3 Bond Market Forum was established in 2010 to foster standardization of market practices and harmonization of regulations relating to cross-border bond transactions in the region.
The bond markets and infrastructures in the region are rapidly developing by adopting international standards and principles, the efforts toward harmonization and standardization of ASEAN+3 bond markets have only just begun.
How can Asia’s small and medium-sized enterprises (SMEs) access finance? The rapid growth of emerging Asia is generating SMEs’ long-term funding needs and requires robust capital markets as an alternative channel for providing their growth capital. The G20 Leaders also addressed the importance of promoting long-term financing for SMEs in the context of investment.
The development of capital markets that SMEs can tap into is one of the policy challenges under the pillar of diversified financing modalities, which requires more sophisticated and innovative institutional arrangements in order to respond effectively to their real needs.
Access Full report at http://www.adb.org/sites/default/files/pub/2014/reiwp-121.pdf
About this paper
This paper explores the potential of capital market financing for SMEs in emerging Asia, reviewing the challenges of existing SME capital markets and assessing demands on SMEs, regulators, policy makers, market organizes, securities firms, and investors for developing an SME market, based on the findings from intensive surveys.
Given the responses to the national growth strategies and the cross-cutting issues of global policy agendas such as climate change, energy efficiency, and green finance, the potential for developing the exercise equity market and the social capital market in Asia is also explored in this paper.
- Landscape of SME Capital Markets in Asia
- Potential for Developing SME Capital Markets
- New Modalities of SME Capital Markets