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.