Outlook for Asian Credit: Keeping the momentum
Source: REUTERS/Eddie Keogh
Young boys roll a giant snowball in a park after a heavy snowfall in Oxford, England.
The outlook for Asia’s credit markets is far less clear today than it was 12 months ago, but the region’s ongoing financing needs should ensure that the ball keeps rolling even in some rough terrain.
This time last year, any unwind of the US’s quantitative easing programme seemed a long way off, Japan was preparing an unprecedented monetary injection and Asia’s political landscape looked unusually stable. Benign interest rates lured companies away from floating-rate loans and towards long-term fixed-rate bonds, and global investors were piling into emerging markets.
The same cannot be said of 2014, with US tapering and Asian elections now at the forefront of investors’ minds.
Asian currencies have slumped and interest rates surged since talk of tapering first spooked markets last May. Benchmark US dollar rates continue to whipsaw investors, complicating efforts to access international capital, while local debt markets have stalled in the run-up to elections in Indonesia and India and a political crisis in Thailand.
But in many ways little has changed. January was busier than ever for international bond issues out of Asia, showing that market participants are still keen to do deals despite near-term uncertainty, and markets remained open even as emerging markets slumped again at the end of the month.
The range of credit products in the market already this year paints an encouraging picture. Investors have snapped up sovereign debt and investment-grade bonds, but also taken on high-yield instruments, bank capital notes and unrated corporate hybrids – and in multiple currencies. The ability of Singapore’s relatively small local market to attract a global issuer such as Trafigura, for example, speaks volumes to the growing status of Asia’s debt markets.
Most heartening, however, is the fact that Asian issuers remain so active despite worsening market conditions. That bodes well for another busy year of capital raisings, and should banish any lingering fears of a return to pre-2009 volumes – when annual totals of US dollar bond sales from Asia were closer to US$50bn than US$150bn.
The quantum shift in recent years has given Asia the critical mass it needs to maintain much of its momentum. Even if Asian issuers merely refinance maturing debt in 2014, that would still mean another US$80bn of international debt issuance.
Many challenges remain for Asian credit, but the region’s debt markets have weathered those problems so far. The much-feared rotation from debt to equity has failed to derail bond issuance, and wealthy private bank clients remain as interested in high-yielding assets as ever.
With that kind of momentum behind it, Asia’s credit markets should keep rolling ahead – even if global conditions do turn frosty.
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