Emerging markets lead deposits, borrowing

Emerging markets lead deposits, borrowing

Agence France-Presse, Basel, Switzerland

Emerging market countries, notably in Asia, are proving to be
among the most active international borrowers this year as well
as the leading depositors in overseas banks, the Bank for
International Settlements said on Monday in its quarterly report.

The BIS, which acts as a central bank for national central
banks, said the issuance of international debt securities
remained robust in the second quarter of 2004, bolstered by a
recovering global economy and an easing in investor concern about
the impact of higher interest rates.

New debt issuances surpassed repayments in the April-June
period by US$348 billion, although that figure was overshadowed
by the $521 billion in net issuances in the first quarter.

The report also predicted that "corporate borrowing could pick
up in the near future" in response to a slowdown in corporate
profit growth.

"With profit growth now beginning to slow, corporations'
borrowing requirements are likely to increase if the rebound in
capital investment, which began in mid-2003, persists."

It noted that debt carried in commercial paper by non-
financial corporations in the United States and the eurozone had
recovered in the first half of 2004 from its 2003 levels.

Overall, however, new borrowing by companies in the United
States, Europe and Japan was described as "restrained" in the
first half of 2004. U.S. corporate bond issuance was down 15
percent compared with the same period last year, while in the
eurozone it was 40 percent weaker.

That trend was offset by activity in emerging market
countries, according to the report, where "the pace of
borrowing ... in international bond and syndicated loan markets
showed no sign of slowing, with $23 billion raised in July
alone".

The BIS said Asian borrowers were particularly evident,
notably export-orientated firms in South Korea and Taiwan.

Emerging market economies also posted a record expansion in
deposits placed in BIS reporting banks during the first quarter
of the year.

Banks primarily in the Asia-Pacific region, the Middle East
and Africa deposited a record $97 billion in BIS banks. The surge
in deposits eclipsed credit issued to all sectors in emerging
market countries, leaving a net outflow of funds of $34 billion,
the largest since first quarter 2001.

The largest placement of overseas deposits came from banks in
South Korea, India, China and to a lesser degree Malaysia,
according to the report.

The study also found that oil market participants considered
to be speculators had recently raised their profile. It cited
data from the U.S. Commodity Futures Trading Commission showing
that non-commercial traders -- such as investment banks and hedge
funds -- had "sharply increased their long positions in
expectation of a rise in oil prices".

The commission defines commercial, non-speculative oil traders
as those who seek primarily to hedge production or consumption.

"It is possible that the larger presence of non-commercial
traders in the oil market contributed to herd-like behavior," the
BIS study observed.

"Their presence, coupled with the upward trend in oil prices,
might have made traders wary of positioning against further
increases in oil prices, thereby effectively reinforcing the
upward trend."

But the report said recent market fluctuations could also have
reflected concern over imbalances on supply and demand for oil.