Covid-19 continues to weigh on emerging East Asian bonds, ADB says

ADB said due to the uncertainties, investment sentiment globally and in the region have waned and containment measures limit economic activity.

KUALA LUMPUR: The Asian Development Bank believes more needs to be done to strengthen the emerging East Asia’s economies and financial markets following the coronavirus Covid-19 pandemic.

In the latest issue of ADB’s Asia Bond Monitor, it said uncertainties due to the pandemic continue to weigh on local currency bond markets in these economies.

ADB said due to the uncertainties, investment sentiment globally and in the region have waned and containment measures limit economic activity.

ADB chief economist Yasuyuki Sawada said governments and central banks in the region have taken significant measures to mitigate the impact of Covid-19 through fiscal stimulus packages and eased monetary policies.

“But more needs to be done to strengthen the region’s economies and financial markets, ” he said.

“While overall investment sentiment is still down, there are signs of recovery in some economies as quarantine measures are strategically relaxed.”

Emerging East Asia comprises China, Hong Kong, Indonesia; South Korea; Malaysia; the Philippines; Singapore; Thailand; and Vietnam.

ADB said government bond yields trended downwards in most regional markets between Feb 28 February and May 29 this year, while equity markets in emerging East Asia suffered losses and local currencies depreciated against the US dollar.

It said credit spreads have widened for nearly all markets in the region as investors took a risk-averse approach, with the share of foreign holdings in most of emerging East Asia’s local currency bond markets also declining.

“Risks to the global outlook remain heavily tilted to the downside, mainly due to the uncertainty brought about by the Covid-19 pandemic, including the prospect of longer periods of minimal economic activity and further waves of outbreaks.

“Other risk factors include trade tensions between China and the US, as well as financial volatility due to capital outflows from emerging markets, ” it said.

Local currency bonds outstanding in emerging East Asia totalled US$16.3 trillion at the end of March, up 4.2% from December 2019 and 14% higher than in March 2019.

ADB pointed out bond issuance in the region reached US$1.7 trillion in the first quarter of 2020, up 19.7% from the fourth quarter of 2019.

Emerging East Asia’s local currency bonds outstanding as a share of gross domestic product rose to 87.8% at the end of March.

Government bonds outstanding rose to US$9.9 trillion at the end of March, while corporate bonds reached $6.4 trillion.

China remains the largest bond market in emerging East Asia, accounting for 76.6% of the total bond stock at the end of the first quarter of 2020.

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