Developing Bond Markets in APEC Fund Manager Perspective for Asian Domestic Bond Markets Ben Yuen CFA Head of Fixed Income, Asia First State Investments (Hong Kong) Ltd. May 2004
Basic Bond Market Criteria for Fund Manager Creating Excess Return � Issue Availability � Liquidity � Fair Risk Premium Valuation 1
Issue Availability Total Outstanding Issuance in 2003: US$ 1,037 Bn Total Outstanding Issuance in 2003 Taiwan Philippines Indonesia 12% 3% 6% Malaysia Thailand 9% 6% Singapore 8% Korea Hong Kong 49% 7% Source: Bank Negara Malaysia, Bloomberg, Deutche Bank, Financial Supervisory Commission, First State Investments, 2 Hong Kong Monetary Authority, HSBC, Korea Stock Exchange, Monetary Authority of Singapore, Philippines Bureau of Treasury, Surabaya Stock Exchange, Thai Bond Dealing Center, The Central Bank of China.
Issue Availability Growth of Amount Outstanding in Local Currency 100% 1996 80% 1997 60% 1998 1999 40% 2000 2001 20% 2002 2003 0% -20% Hong Indonesia Korea Malaysia Philippines Singapore Taiw an Thailand Kong Source: Bank Negara Malaysia, Bloomberg, Deutche Bank, Financial Supervisory Commission, First State Investments, 3 Hong Kong Monetary Authority, HSBC, Korea Stock Exchange, Monetary Authority of Singapore, Philippines Bureau of Treasury, Surabaya Stock Exchange, Thai Bond Dealing Center, The Central Bank of China.
Issue Availability Maturity Profile: Government Bond Swap Curve (Up to) (Up to) Hong Kong 10yrs 10yrs Indonesia 10yrs 10yrs Korea 10yrs 10yrs Malaysia 20yrs 10yrs Philippines 20yrs 10yrs Singapore 15yrs 15yrs Taiwan 20yrs 10yrs Thailand 20yrs 10yrs 4 Source: Bloomberg
Issue Availability � Securitization E.g. Hong Kong “Securitization of Government Toll Tunnels and Bridge” 5
Liquidity Annual Turnover Ratio in 2003 12.0 10.0 8.0 6.0 4.0 2.0 - Hong Kong Indonesia Korea Malaysia Singapore Taiwan Thailand US (up to 2003Q3) Source: Bank Negara Malaysia, Bloomberg, Deutche Bank, Financial Supervisory Commission, First State 6 Investments, Hong Kong Monetary Authority, HSBC, Korea Stock Exchange, Monetary Authority of Singapore, Philippines Bureau of Treasury, Surabaya Stock Exchange, Thai Bond Dealing Center, The Central Bank of China, The Bond Market Association
Fair Risk Premium Valuation Unfair Pricing Valuation Offer Yield Yield Differential Example #1 US$ China Light & Power 6.25% 8-May-2012 LIBOR + 43 bps 17 HK$ China Light & Power 5% 30-Sep-2013 HIBOR + 26 bps Example #2 US$ DBS Bank 7.875% 10-Aug-2009 LIBOR + 32 bps 21 HK$ DBS Bank 2.13% 21-Feb-2007 HIBOR + 11 bps 7
Conclusion Asia Domestic Bond Market Growth of Amount Outstanding OK A) Issue Availability Maturity Profile Waiting for improvement Securitization Waiting for improvement Market Turnover Waiting for improvement B) Liquidity Pricing Valuation Waiting for improvement C) Fair Risk Premium Valuation 8
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