Friday, June 17, 2011

Developing Bond Markets In ASEAN

Here’s my weekend reading - researchers at the IMF have released a duo of papers on the bond markets in ASEAN (abstract):

Developing ASEAN5 Bond Markets: What Still Needs to be Done?
Gray, Simon; Joshua Felman, Ana Carvajal, & Andreas Jobst

Summary: This paper examines a range of issues relating to bond markets in the ASEAN5 (Indonesia, Malaysia, Philippines, Singapore and Thailand) - physical infrastructure including trading, clearing and settlement; regulation, supervision and legal underpinnings; and derivatives markets - and finds that the frameworks compare well with other Emerging Markets, following a decade of reform. A number of areas where further enhancements could be made are highlighted. The paper also examines the interrelationship between central bank management of short-term interest rates and domestic currency liquidity, and development of the wider money and bond markets; and suggests some lessons from the recent crisis in developed country financial markets which may be important for the future development of the ASEAN5 markets.

ASEAN5 Bond Market Development: Where Does it Stand? Where is it Going?
Felman, Joshua; & Simon Gray, Mangal Goswami, Andreas Jobst, Mahmood Pradhan, Shanaka J. Peiris, & Dulani Seneviratne

Summary: Since the Asian crisis, ASEAN5 countries have expended considerable effort in trying to develop their domestic bond markets. Yet today these markets are not much larger, relative to GDP, than they were a decade before. How can we explain this? And does this mean that domestic markets have not, in fact, developed? The paper argues that bond market growth has been held back by a sharp fall in investment rates, which has left firms with little need for bond borrowing. Even so, markets have developed in other ways, to such an extent that substantial amounts of foreign portfolio investment have begun to flow into ASEAN5 bonds. These developments have important ramifications. With the investor base growing and infrastructure investment likely to rise, ASEAN5 bond markets could expand rapidly over the next decade, holding out the prospect that the region could finally achieve "twin engine" financial systems.

These are absolutely technical papers, though not in a mathematical or econometric sense. Rather they concentrate on the nitty-gritty of regulation and market microstructure, things that sometimes get lost in the parsimonious world of economic modelling. These two papers (which benefited from input at a Deputy Governors central bank regional seminar last year) form a fantastic resource for anybody researching capital market development in Asia.

Technical Notes:

Gray, Simon; Joshua Felman, Ana Carvajal, & Andreas Jobst, "Developing ASEAN5 Bond Markets: What Still Needs to be Done?", IMF Working Paper No. 11/135, June 2011

Felman, Joshua; & Simon Gray, Mangal Goswami, Andreas Jobst, Mahmood Pradhan, Shanaka J. Peiris, & Dulani Seneviratne, "ASEAN5 Bond Market Development: Where Does it Stand? Where is it Going?", IMF Working Paper No. 11/137, June 2011

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