Bond industry experts are emphasising how strong the appetite is for Asian corporate bonds from investors within the region. Given the historic propensity of Asian populations to save and the relative dearth until now of reliable investment instruments outside the government sector, it’s no wonder that the new wave of Asian corporate debt issuance is being buoyed by a surging undercurrent of local demand. This would have likely happened with or without a yield-hungry world; as it is, current macroeconomic conditions only swell this growth even further.
Asian bond markets can be expected to become deeper and richer as businesses in the region become more regular, more mature and sophisticated issuers, Judging by the volume of issuance, it’s clear that Asian companies are ready to tap this source of funding for their operational and organic needs. They will also have full home ground advantage when it comes to assessing potential investees, as well as perhaps greater security (or at least, self-confidence) when it comes to issues such as bond covenants and potential legal entanglements. And if the bonds are denominated in local rather than foreign currency, they don’t have to worry about currency fluctuations. All this is before we even begin to consider areas where the authorities are pressing for bond investors to use certain instruments for policy reasons, as with China’s new green bond space.
It should be obvious where this is going. Asian corporate bonds are a major and growing new asset sub-class. Western investors can choose to enter this market and enjoy the benefits of higher-growth economies than their currently moribund backyards, or stay aloof and miss out. The volume of institutional and individual firepower already accumulated in Asia Pacific and seeking investment opportunities is such that Western institutions cannot afford to wait.
The Asian corporate bond market is being built by Asians, for Asians. Perhaps that’s a worthy outcome for the so-called Asian century. It’s certainly an inevitable one, and Western institutions had better figure out what they propose to do about it. After all, so many Western pension funds are underfunded and having difficulty finding investments that can deliver the performance needed to reach their return targets. A nice, safe and familiar instrument like corporate bonds ought to appeal to them.