Asian bond market?

With stock markets down and banks not lending, Asian countries need to develop domestic corporate bond markets. That requires macroeconomic and tax policies that encourage bond investment, transparent price discovery and an investment culture oriented toward the long term. Structured properly, such markets could direct the region’s ample savings to where it is desperately needed.

The rationale behind this proposal lays in two aspects: firstly, Asian corporate need financing in the current credit-tight world, secondly, a place is needed for the large savings in Asian to invest.
Over the past decade, Asian corporate growth has been financed primarily from two sources: bank loans and equity issues. But the region’s stock market declines and banks’ reluctance to lend have revealed that few countries have adequate domestic corporate bond markets to take up the slack. In fact, so far in 2009, only three Asian corporate bond issues, totaling less than $1bn, have been sold outside Japan, Australia and New Zealand.

As Asian economies grow, increasing numbers of companies are large enough to float bond offerings that offer adequate liquidity. But it’s believed that the government should play an important role to develop an active bond market. The tax advantages for capital gains, which favor shares over bonds, should be adjusted. Inflation is also a big issue for government.

For Asian people, the most important need will be for investor education. During the boom, emerging stock markets appeared to be an endless source of casino-like profits. Now investors have learned that gambling also bring losses. They must be shown that a balanced investment portfolio includes both stocks and bonds, with the objective of moderate stable returns over a lengthy period.

The demand for Asian corporate bonds is potentially considerable since Asian countries mostly have high saving rates. It applies especially to China.