In Short : The Asian Development Bank (ADB) reports that moderating inflation in emerging East Asia has improved financial conditions in the region. Bond yields are declining as inflation eases, and central banks are expected to reduce interest rates. While global uncertainties, including concerns over US financial stability, continue to pose risks, the region’s markets have remained stable overall.
In Detail : MANILA, PHILIPPINES — Emerging East Asia’s financial conditions have improved, leading to declining bond yields amid moderating inflation and expected interest rate cuts, according to a new report by the Asian Development Bank (ADB).
Emerging East Asia’s financial markets rebounded starting in July, when the United States (US) Federal Reserve hinted at a policy rate cut in September, according to the latest edition of Asia Bond Monitor, released today. Emerging East Asia’s currencies appreciated against the US dollar, and risk premiums narrowed. Meanwhile, regional equity markets gained except for in the People’s Republic of China (PRC) and Hong Kong, China, where weak economic performance weighed on equity performance. Emerging East Asia’s equity market recorded inflows of $7.6 billion during the review period.
“Policy rate cuts are forthcoming in both advanced and regional markets, which will strengthen financial conditions in emerging East Asia,” said ADB Chief Economist Albert Park. “However, downside risks remain, such as weaker-than-expected economic performance in the PRC and escalation of geopolitical concerns. In general, risks to the regional financial outlook remain balanced.”
Emerging East Asia is composed of member economies of the Association of Southeast Asian Nations (ASEAN); the PRC; Hong Kong, China; and the Republic of Korea (ROK).
Emerging East Asia’s local currency bond market expanded 2.3% from the previous quarter to $25.1 trillion at the end of June. The region’s government bonds posted quarterly growth of 2.8%, largely driven by the PRC’s increased issuance of treasury bonds to support economic activities. The PRC was also a major contributor to the 1.5% quarterly expansion in emerging East Asia’s corporate bond market, as banks ramped up debt sales to meet regulatory capital requirements.
Sustainable bonds in ASEAN, the PRC, Japan, and the ROK—collectively known as ASEAN+3—reached $868.1 billion at the end of June. The annual 17.4% growth of its outstanding sustainable bonds outpaced those of the European and global markets, at 16.5% and 17%, respectively. Within ASEAN+3, economies in Southeast Asia posted the fastest quarterly growth. In the second quarter, ASEAN+3 sustainable bond issuance witnessed longer tenor as size-weighted average tenor of issuance increased to 6.9 years from 5.0 years in the previous quarter. This was largely driven by issuance from the public sector.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.
