Green light for growth in Asia USD bonds
Expect high levels of liquidity to continue to seek out $US-denominated bonds in Asia, expert panel told.
Growing demand for USD-denominated bonds in Asia will continue, according to a panel of experts, with the size of the total Asian bond market set to hit $US1 trillion by the end of the year.
Speaking on a panel at ANZ’s 2018 Debt Conference, Jimmy Choi, co-Head of Capital Markets at ANZ said 2017 was a banner year for interest in Asian debt markets.
The Asian USD bond market grow more than 65 per cent in 2017, according to Choi, to $US312 billion. That spend came across a total of 553 transactions, up from just over 400 the year before.
These figures represent “a phenomenal number from a flow and number of deals perspective,” he said.
“We’ve been discussing the rise of Asian liquidly over the past three or four years,” Choi said. “I think we’re at a critical juncture where we want to explore - is it a true alternative funding market for Australia?”
To Arthur Lau, Managing Director at Pinebridge Investments, the answer to Choi’s question is yes.
“The liquidity I believe will stay and continue to grow,” he said. “We can clearly see the liquidity force remains extremely strong. Asian liquidity should remain very constructive to the market.”
Rapidly built-up liquidity has left demand outstripping supply of higher-grade US bonds, with Australia and NZ seen as natural choices for Asian investors seeking access to developed markets.
Lau, also Co-Head Emerging Markets & Fixed Income at Pinebridge, said the total Asia credit market had grown from $US200 billion back in 2009 to now almost $US900 billion.
“We currently expect the Asian bond market hit the $US1 trillion mark likely by the end of this year,” he said. “At the latest, early next year.”
“The liquidity I believe will stay and continue to grow.” Arthur Lau, Managing Director at Pinebridge Investments
Need for better structure
Lau, Managing Director at Pinebridge Investments, said Australia could attract more Asian debt interest with a better-developed structure. Choi agreed.
“Australia bonds are currently all out of index,” Choi said. “There is no index. My view is as you get more critical mass eventually it will be indexed-linked. Someone will have an index.”
“I think from an Asian perspective the level of [interest] will be even higher. If it’s indexed linked it’s much, much easier to buy so it will have way more access and value.”
Lau told the panel Chinese investment flows through the rest of Asia were not about to dry up, despite debate over how long the growth can be maintained.
“[Chinese groups] need to continue to reinvest and recycle,” Lau told. “I think Australia is clearly one big element that helps them fill the gap.”
The insights were delivered on a panel featuring Mirvac Group Treasurer Darren Lake, Sydney Airport Treasurer Michael Momdjian and ANZ Head of Markets Credit Strategy Owen Gallimore.
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