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Financial innovation boosts Asia-Pacific bond market in 2017

Markets2017-03-09

The Asia Primary Market Forum was held by International Capital Market Association (ICMA) in Hong Kong on March 2. Representatives from financial institutions like major international commercial banks and investment banks were all rosy about the bond market in Asia-Pacific region in 2017 and particularly, reform and innovation in this region made development of the bond market more and more appealing to international investors.

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The Asia Primary Market Forum was held by International Capital Market Association (ICMA) in Hong Kong on March 2. Representatives from financial institutions like major international commercial banks and investment banks were all rosy about the bond market in Asia-Pacific region in 2017 and particularly, reform and innovation in this region made development of the bond market more and more appealing to international investors.

A relevant official from the ICMA said that as for the whole international bond market, although market participators focus more on liquidity, the liquidity is quite stable on the whole. Based on the situation in 2016 and January and February of this year and a survey on Asia-Pacific market, the Asia-Pacific bond market will be promising in 2017. This official indicated that innovative development of the bond market such as green bond, social responsibility bond and infrastructure financing tool has brought vitality to the development of the bond market in Asia-Pacific region and the whole world. He indicated that innovation of these bond tools provides investors with more investible standardized assets and especially green bond and infrastructure financing tool facilitate development of global infrastructure construction and environmental protection industry. China’s “Belt and Road” Initiative and the infrastructure investment plan proposed by the U.S. President Donald Trump both generate financing demand in bond market.

Regarding to region, opening of Chinese onshore market is the major driver behind the development of Asia-Pacific bond market, said a person from a large European investment bank. The gradual opening of China’s interbank market to overseas investors is regarded as an important reform in Asia-Pacific bond market. As China is included in Special Drawing Rights (SDR), overseas institutions, including central banks of various countries and sovereign investors, and ordinary investors, have very strong investment demand in China’s interbank market out of demand for currency reserves and global asset allocation. He particularly mentioned that if bond connect, which is under discussion by Hong Kong and mainland governments, can be implemented this year, it will further strengthen liquidity of China’s bond market and will play a significant role in driving development of Asia-Pacific bond market.

Peter Burnett, Regional Head, Corporate Finance, Greater China and North Asia, from Standard Chartered Bank was optimistic about the development of China’s green bond market. He remarked that China’s green bond market enjoyed remarkable growth in 2016 and its issuance size has reached nearly 40 percent of that of global green bond. With growing social environmental awareness in China and encouragement and promotion of regulators, green finance will further offer financing for the environmental protection industry to help China tackle environmental protection issues. Therefore, driven by China’s central bank and other supervision institutions, China’s green bond market will continue to keep rapid growth this year.

Silk Road bonds are an attempt to create a new asset class for investment Burnett has said. They will be very similar to existing Project Bonds in terms of structure and effect.  The market for Silk Road bonds is very new and not yet tested and the market foundation not fully established creating problems for issuers, custody, cross border pledge and repurchase. But as construction of the “Belt and Road” Initiative project needs huge investment, for investment and financing tools like green bond and infrastructure financing, it still boasts great market potential.

Officials from the ICMA argued that there are uncertainties like depreciation of yuan and interest rate hikes in the U.S. in 2017, but they also stimulate Chinese enterprises’ demand for overseas financing. At present, in terms of bond market in Hong Kong, the size and amount of bonds issued by domestic enterprises both grow notably and will boost Asia-Pacific bond market. 

(XINHUA FINANCE)

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