Event notes: The Asset, 11th Asian Bond Markets Summit: Issuing and investing in 2017 15 November 2016 - Singapore
Brief Event Notes:
2016 debt market that has seen a number of unpredictable and volatile events - the has been stress in the commodity sector, the oil and gas, Brexit and the US elections however issuance and appetite had not dwindled until recent bond sell down post US elections.
Brexit is proving a boon for Asian local currency bond market as issuance surge in the months after the UK's decision to leave the European Union (EU).
The move by India and China to further open up their respective markets to institutional investors is making headlines.
China, Indonesia and India is increasing participation for international investors - Panda, Masala, Sukuk issuance and regulatory changes. Sukuk structure and issuance for middle east markets is a challenge given issues around cross border sales and buy back that attracts stamp duty, VAT and regulatory approvals.
There is an increase in demand/enquiries on issuance from frontier markets - Myanmar, Cambodia, Laos, Vietnam.
Cross border collateralization is a challenge however implicit guaranteed or covered housing bonds are in vogue - Korean Housing Development Corporation.
There was a rise in demand of government securities causing the yields to drop.
Issuers also shifting from international markets to local markets.
We might see the direction of flows changing, but Asia still holds a growth story.
Wealth management industry is consolidating and volatility and margin calls has pained high net worth investors; leveraged lending may be limited impacting demand for bonds from HNI.
Overall, Asian Bond markets are 60% of underlying GDP and 60% of that amount comes from China and 60% of that is government bonds. Green bonds could exceed US$50 billion in volume this year with the signing of the Paris climate change accord.
Financial discipline and cash flow/liability management will have to be the hallmark of business to ensure challenges, complexity and volatility is managed to its advantage or that risks are converted to profitable opportunities.
Liability management can be enormously constructive in terms of addressing refinancing risk.
Cost is by no means the only consideration; one is diversification of sources of funding.
Improbable events are a certainty, brace for the unexpected in 2017! Overall 2017 business sentiments are of caution yet optimism will prevail - corporate managers need to be vigilant, disciplined and keep all option open as they enter 2017 and new issuance. Optimism has helped to brace and succeeded in 2016, optimism will carry us through 2017.
Bilateral long term and project financing loans, structured financing deals, trade financing are options that corporate must consider along with financial discipline.
Rating agencies are becoming a lot more cautious on ratings action; bank balance sheets are stressed especially India, China.
Expect aggressive rate (yield) outlook and expectations from investors.
Going forward, more Reg S issues (bond offerings made outside the US by both US and foreign issuers) are expected to take place because of the massive liquidity in the markets.
As 2016 draws to a close, the investment theme around China’s bond market should centre neither on optimism nor dread. Instead, discernment is encouraged among investors that plan to tap the world’s third largest bond market. In 2017, be neither bull nor bear but chicken with bond market.
Greater China is an important area for activity – shift from international to domestic markets. Corporate debt leverage in China is very high. But within corporate debt there is higher leverage concentrated within the SOEs. Defaults are a natural progression for the market and lead to a better pricing of credit risk in the Chinese bond market. In China, the big banks are still majority owned by the government so there’s a flexibility in handling the leverage situation.
China’s bid to spur growth and expand economic influence beyond Asia by building roads and ports under the One Belt and One Road (OBOR) initiative may need a reality check. China can still reap some of the expected benefits of OBOR, though that may entail giving the plan a repeat review, carefully selecting going forward the projects that will be viable.
Corporate ringgit bond market doesn’t have that much supply and investors are cautious. Since last week there’s been a major correction in the ringgit bond market.
Project finance opportunities continue to be there, but it’s only a small proportion of the whole infrastructure market.
Globally, green bonds raised US$60 billion in 2016. Green bonds are gaining traction in the financial markets and a boon for potential issuers eyeing the environment-friendly security however issuance cost, compliance, and price is the key.
Asset managers in Europe are reporting the proportion of their investments that are green. In Asia we don’t see that yet as pricing and liquidity is the key driver.
ETFs are growing, and fixed income ETFs will grow more than equity - Asian investors are for sure increasing their allocation to ETFs. Interest is both for EM bond & corporate bond ETFs.
2016 debt market that has seen a number of unpredictable and volatile events - the has been stress in the commodity sector, the oil and gas, Brexit and the US elections however issuance and appetite had not dwindled until recent bond sell down post US elections.
Brexit is proving a boon for Asian local currency bond market as issuance surge in the months after the UK's decision to leave the European Union (EU).
The move by India and China to further open up their respective markets to institutional investors is making headlines.
China, Indonesia and India is increasing participation for international investors - Panda, Masala, Sukuk issuance and regulatory changes. Sukuk structure and issuance for middle east markets is a challenge given issues around cross border sales and buy back that attracts stamp duty, VAT and regulatory approvals.
There is an increase in demand/enquiries on issuance from frontier markets - Myanmar, Cambodia, Laos, Vietnam.
Cross border collateralization is a challenge however implicit guaranteed or covered housing bonds are in vogue - Korean Housing Development Corporation.
There was a rise in demand of government securities causing the yields to drop.
Issuers also shifting from international markets to local markets.
We might see the direction of flows changing, but Asia still holds a growth story.
Wealth management industry is consolidating and volatility and margin calls has pained high net worth investors; leveraged lending may be limited impacting demand for bonds from HNI.
Overall, Asian Bond markets are 60% of underlying GDP and 60% of that amount comes from China and 60% of that is government bonds. Green bonds could exceed US$50 billion in volume this year with the signing of the Paris climate change accord.
Financial discipline and cash flow/liability management will have to be the hallmark of business to ensure challenges, complexity and volatility is managed to its advantage or that risks are converted to profitable opportunities.
Liability management can be enormously constructive in terms of addressing refinancing risk.
Cost is by no means the only consideration; one is diversification of sources of funding.
Improbable events are a certainty, brace for the unexpected in 2017! Overall 2017 business sentiments are of caution yet optimism will prevail - corporate managers need to be vigilant, disciplined and keep all option open as they enter 2017 and new issuance. Optimism has helped to brace and succeeded in 2016, optimism will carry us through 2017.
Bilateral long term and project financing loans, structured financing deals, trade financing are options that corporate must consider along with financial discipline.
Rating agencies are becoming a lot more cautious on ratings action; bank balance sheets are stressed especially India, China.
Expect aggressive rate (yield) outlook and expectations from investors.
Going forward, more Reg S issues (bond offerings made outside the US by both US and foreign issuers) are expected to take place because of the massive liquidity in the markets.
As 2016 draws to a close, the investment theme around China’s bond market should centre neither on optimism nor dread. Instead, discernment is encouraged among investors that plan to tap the world’s third largest bond market. In 2017, be neither bull nor bear but chicken with bond market.
Greater China is an important area for activity – shift from international to domestic markets. Corporate debt leverage in China is very high. But within corporate debt there is higher leverage concentrated within the SOEs. Defaults are a natural progression for the market and lead to a better pricing of credit risk in the Chinese bond market. In China, the big banks are still majority owned by the government so there’s a flexibility in handling the leverage situation.
China’s bid to spur growth and expand economic influence beyond Asia by building roads and ports under the One Belt and One Road (OBOR) initiative may need a reality check. China can still reap some of the expected benefits of OBOR, though that may entail giving the plan a repeat review, carefully selecting going forward the projects that will be viable.
Corporate ringgit bond market doesn’t have that much supply and investors are cautious. Since last week there’s been a major correction in the ringgit bond market.
Project finance opportunities continue to be there, but it’s only a small proportion of the whole infrastructure market.
Globally, green bonds raised US$60 billion in 2016. Green bonds are gaining traction in the financial markets and a boon for potential issuers eyeing the environment-friendly security however issuance cost, compliance, and price is the key.
Asset managers in Europe are reporting the proportion of their investments that are green. In Asia we don’t see that yet as pricing and liquidity is the key driver.
ETFs are growing, and fixed income ETFs will grow more than equity - Asian investors are for sure increasing their allocation to ETFs. Interest is both for EM bond & corporate bond ETFs.
http://www.theasset.com/capital-markets/31967/brexit-a-boon-for-asia-bond-market
http://www.theasset.com/event/abms
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