The time is ripe to develop Asian bond markets, to recycle the region’s vast private savings and official foreign exchange reserves into infrastructure development, experts from both public and private sectors said in Kyoto yesterday.
They also drew attention to anomaly of Asians having to court currency risk by investing outside the region, because of the shortage of instruments denominated in local currencies.
But before a regional bond market can really take off, there needs to be better cooperation and coordination between public policy makers and private capital market players, said Tadashi Unoki, deputy director general of the internatonal finance department at the Japan Bank for International Cooperation (JBIC) told an ADB seminar.
“The public sector needs to interact with the private sector and to incorporate the ideas of the private sector into policy, “ Unoki said.
JBIC, which channels Japanese ODA loans to developing countries and also provides official export-import finance, is seeking to provide a “platform” for public/private sector cooperation in bond market development, he added.
Japan’s financial assets are huge in relation to financing needs in other parts of Asia, but there are few ways of channelling funds said Han Akinori, general manager in the planning department for international business promotion at Japan’s Mizuho Securities.
These assets are “one hundred times bigger than the Thai bond market and eleven times bigger than Korea’s bond market,” he noted.
Japanese investors – including households, which have 1500 trillion yen of savings – are taking large sums outside of the region, in currencies such as South African rand, Hungarian forint and the Romanian lei as well as in Australian and New Zealand dollar securities, Akinori noted.
“It would be natural for capital to flow from Japan to the growing economies of Asia, [but] Japanese investors are cautious toward Asian credit risk and are not familiar with Asian currencies,” he said.
This can be overcome if bond market development is given priority by the public sector and also by capital market players who stand to profit from financial intermediation, he added.
Saw Teng Lam, head of the bond market development at Malaysia’s Securities Commission, agreed. There are huge domestic financial resources in the Asia region and “this is the right time to develop the Asian bond market “ he said.
Reserve recycling should be part of this process. An Asian bond market could emerge as a new international investment class, suggsted Kanit Sangsubhan, director of Thailand’s Fiscal Policy Institute.