Asian bond markets have bright future

Asian bond markets have bright future

SINGAPORE (Reuter): Asia's rapacious appetite for capital to fund spending on infrastructure will transform the region's fledgling government and corporate bond market into a dominant world force, senior financial executives said.

Peter Seah, president and chief executive officer of Overseas Union Bank Ltd in Singapore, said Asia had one of the world's highest savings rates at around 35 percent of gross domestic product, 60 percent higher than in the developed West.

"But this is still far short of our capital demands," he told a meeting of political and business leaders from Asia and Europe.

"The shortfall has been estimated at US$160 billion between 1993 and 1998 alone," Seah added.

He said countries across Asia needed to mobilize capital to pay for water and power projects as well as essential communications and transport.

"But the speed of growth in Asia depends critically on its ability to mobilize capital," Seah said.

"With the amount of infrastructure investment in the region there will be a growing demand for long-term bonds. I think the Asian bond market will grow very rapidly in the next few years, but it is difficult to quantify the rise."

Speaking on the same panel on mobilizing capital in East Asia, Timothy Beardson, chairman of Crosby Financial Holdings in Hong Kong, said there would be a major change in the scale and type of investors in the Asian bond market.

"We anticipate a new corporate bond market in Asia as companies raise funds," he said.

"Investors in the past in Asia have tended to be individuals who wanted a short-term equity return, but long-term investors such as pension funds are now beginning to move into the market. They want long-term investments and a 10-year bond is ideal."

He predicted that the demand for foreign funds would necessitate the lowering of barriers to investment in government infrastructure projects.

"We are going to see that countries will need to make changes in order to raise capital," he said. "What we are now beginning to see is the primacy of economics over politics."

The chairman of Malaysia's Securities Commission, Munir Majid, told the gathering a lack of over-the-counter capital markets of any significant size had hampered the development of Asian bond markets outside Japan, but added this situation was changing very rapidly.

"The development of secondary markets is a challenge," Majid said. "People have to know they can get in and get out when they want to," he said.