If there’s one thing 2021 has shown, it is that taking the relative stability and strong performance of Asia's capital markets in recent years for granted can be a big mistake.
Just ask investors who have been gobbling up high yielding dollar bonds from Chinese property companies, or the equity investors who had pumped money into some of the largest technology companies from Mainland China. No one saw the crackdown on the industry coming this year. They also didn't foresee the growing pressure on the financial health of real estate developers.
Of course, it helps that China Evergrande Group bought itself more time by managing to stave off a dollar bond default at the eleventh hour last week.
It paid off the coupon about a day before a 30 day grace period ran out. But as GlobalCapital Asia has reported previously, its troubles are far from over. It still has a huge amount of bond obligations to meet this year and next, both onshore and offshore.
Trouble is escalating elsewhere too. China Modern Land has now officially failed to meet a dollar bond payment, while further stress is emerging among a number of other developers as well.
Caution should be heightened among investors, issuers and capital markets bankers for the rest of the year, and beyond.
In DCM, the worst is likely yet to come. As more troubles emerge among property companies, it won't be long before sentiment takes a hit in the rest of the China debt market, and eventually the rest of Asia, too.
In ECM, the Chinese government's tough stance on technology firms and education companies is still taking shape. While the regulators have already reined in some of the largest new economy firms, the government's quest for common prosperity could very well lead to a wider crackdown on other industries.
Other regulators will also add to the pressure on capital markets.
The Hong Kong Securities and Futures Commission, for instance, is looking to finalise rules on code of conduct in capital markets in the city . The aim is to make the bookbuilding process on both ECM and DCM deals more transparent, and tackle inflated demand. While the move is a bid to make markets in the region stronger and more resilient, it is likely to add a new burden on issuers and the banks running deals.
The Covid-19 situation in Asia naturally adds to the concerns.
Singapore is still witnessing rising infections, while cases are fast reemerging in parts of mainland China too. This could further impact economic growth in Asia, and hit capital markets and investor sentiment.
With just two months to go before the end of the year, capital markets watchers should remain prepared for more turbulence to come their way. Will markets get brighter once the storms pass? Only time will tell.