Commentary: Buying Asian bonds has just become a lot easier: printer friendly version
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Commentary: Buying Asian bonds has just become a lot easier |
| By William Pesek Jr. Bloomberg News THURSDAY, APRIL 28, 2005 |
Well, the publisher John Wiley & Sons has been scooped. The Asian Development Bank's AsianBondsOnline Web site (http://www.asianbondsonline.adb.org) last week introduced "How to Buy Bonds," a step-by-step guide on the mechanics of buying and trading Asian securities.
It's hardly aimed at dummies. Yet the savviest foreign, institutional, local or retail investor can be at a loss to fathom the ins and outs of Asia's nascent debt markets. Thus, it's hard to exaggerate this new online tool's importance.
Asia's local-currency debt markets have more than tripled in size since the region's 1997-1998 financial crisis, yet they are still highly fragmented and come with steep learning curves. Efforts to deepen, link and publicize them are very much a work in progress.
"It will be a big help once we make more progress on Asian bond markets," the Philippine central bank deputy governor, Amando Tetangco, said in a recent interview in Manila, where AsianBondsOnline is based. "They really will make a big difference in our economies."
The dire need for such an enterprise became clear at the height of the financial crisis, when underdeveloped debt markets left economies hypersensitive to surging interest rates, credit crunches and currency gyrations. Their absence exacerbated Asia's meltdown and investor panic.
For all the high growth rates in Asia, the region still lacks the shock-absorbing mechanism provided by liquid bond markets. They would offer an alternative to investors bailing out of Asian stocks. They also would reduce companies' reliance on banks for loans, making for more efficient allocation of risk.
The good news is that progress is being made. Take the Asian Bond Fund, an initiative that has come in two steps. The first, introduced in June 2003, was a pooling of $1 billion by Asian central banks to buy U.S. dollar bonds issued by the region's governments.
Phase two, being rolled out this year, is even more important. It allots $2 billion to buy local-currency debt of economies including China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea and Thailand. It also will create the Pan-Asian Bond Index Fund, which is scheduled to be publicly listed in Hong Kong by midyear.
Investors will be able to bet on Asian debt without the hassle of buying it directly from individual countries, eliminating red tape and regulatory headaches. And it will be easier for investors to monitor yield levels. More demand for Asian bonds would accelerate the development of local debt markets and bolster liquidity.
The enterprise also will help Asia bring home the more than $2 trillion of currency reserves parked in the United States and Europe. That money could be used here to support entrepreneurship and infrastructure. If Asia is going to compete with the West, it needs to invest in the future, and do so locally.
The "How to Buy Bonds" project represents another big step forward. AsianBondsOnline is an initiative of 13 economies: the 10 members of the Association of Southeast Asian Nations along with China, Japan and South Korea. Supported by the Asian Development Bank and financed by Japan, AsianBondsOnline seeks to offer easy, centralized access to debt markets.
"How to Buy Bonds" is a response to the plethora of queries that the Web site gets about the basics of the market.
Foreign, institutional, local and retail investors can be at a loss to fathom tendering procedures for new securities, how secondary markets work, qualifications for bidders and legal, tax, custodial and registration requirements across Asia.
To fill the knowledge gap, AsianBondsOnline came up with an "iconographic timeline" to tell investors everything they need to know about dealing in Asian bonds but were afraid to ask.
Say you run a hedge fund and want to buy Philippine debt, which, given this economy's fiscal woes, offers some of the world's highest yields. You can click an icon - "how to invest in government debt securities at issue" - to learn what steps to take first and how the application procedures work.
Next, you can click on the "after issue" icon for details on secondary-market trading, as well as payment of interest and how redemptions work here. The "self-service options" icon leads to facts on online investing, calculating debt and customer-service contact information. Within each section, there are myriad links to answer just about any other questions one might have.
Such information "will enhance the supply of and generate demand for East Asian local currency bonds," said Pradumna Rana, senior director of the office of regional economic cooperation at the Asian Development Bank. That will be even truer when the Web site begins covering corporate and other debt classes.
A thriving bond market is the next big step in the direction of self-reliance and regional integration that economies in the West have pursued for years. Now it's Asia's turn. Policy makers here need to think bigger and work harder to make this evolutionary step a reality. Thanks to "How to Buy Bonds," this region is getting closer.
