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Source:
www.mas.gov.sg |
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Keynote Address by Mr Heng
Swee Keat Managing Director of the Monetary Authority of Singapore
at The EMTA Forum |
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An Excerpt |
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Challenges for the Asia Bond Market |
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Have we therefore succeeded in building a
vibrant Asian bond market? Not yet. It would be more accurate to
characterize the Asian bond market as still a work in progress. |
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While we have come a long way, and
some countries have gone further than others, much remains to be done.
Allow me to suggest the improvements we need to
work on, under two broad themes - liquidity and accessibility. |
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Liquidity.
The level of market liquidity varies from country to country. For
government bonds, the bid-ask spread ranges from 2-3 basis points for
Korea and Singapore, to 4-8 basis points for Malaysia and Thailand, to
more than 10 basis points in Indonesia. |
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The level of liquidity is much better than
most emerging markets in Latin America and Eastern Europe. But compared
to the developed markets, where bid-ask spreads are generally below 1
basis point, there is still room for improvement. |
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To some extent, liquidity depends on the
size of the market. Hence, as the Asian bond market continues to grow,
liquidity will gradually improve. |
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But size alone is not enough. We need other
measures to improve liquidity. |
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First, we need to improve price
transparency. Greater price transparency will draw in more participants,
encourage more trading and ultimately lead to a deeper market. |
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For this reason, many Asian countries have
or are considering moving their bond markets to multilateral platforms,
which can broadcast both pre- and post-trade prices in a timely way. |
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In Singapore, the Singapore Government
Securities e-platform which was launched in July last year was
very well-received. |
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Within a couple of months, the level
of foreign participation in the market almost tripled, from about
5% to 13%. |
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Since then, Thailand has also launched
an electronic platform; Indonesia and Malaysia are in the midst of
building theirs; and Korea and Hong Kong have announced that they
are studying plans for a platform. |
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Second, there should be the ability to
short-sell. Admittedly, some regulators are still wary of the
whole notion of short-selling. In our view, a market that has both
long and short positions is deeper, and ultimately more stable,
than one where everyone is long. |
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Short-selling will also encourage
relative value plays between securities as well as between
markets, thereby leading to more efficient pricings. Even in
markets which permit short-selling, more can be done to facilitate
the borrowing of securities to deliver. |
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Third, an active derivatives market
will lend liquidity to the cash bond market. This could be in the
form of futures, as in Korea and India or in swaps, as in Hong
Kong and Singapore. |
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Fourth, broadening the investor base
will help deepen liquidity. A more diverse pool of investors mean
that we are more likely to find buyers and sellers at each price
level, thereby deepening the market. |
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Most Asian markets are still dominated
by local investors, comprising mostly banks, insurance companies
and pension funds. Anecdotal evidence suggests that on average,
non-resident investors hold less than 5% of Asian bonds. |
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How do we bring in more foreign
participation? This brings me to the second broad theme of
improvement - accessibility. |
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After the financial crisis, most Asian
economies lifted restrictions on foreign participation in their
bond markets. |
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Currently, only China and India
maintain limits on foreign holdings, but even then, the
authorities are gradually loosening these limits. |
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But I believe we need to go much
further - beyond removing barriers to foreign participation, we
should be actively facilitating foreign participation, and
integrating our markets into the global system. |
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There are several ways we can
facilitate these developments. |
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First, in clearing and settlement.
Asia does not have a single point of access like Euroclear for
Europe and DTCC for the US. So an investor seeking to hold a
portfolio of Asian bonds will have to set up individual accounts
in each of the Asian countries, with different tax forms and
different disclosure requirements, often running into minute
details. Some streamlining will certainly be helpful. |
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We should also be removing withholding
tax. Apart from Singapore, most markets still charge some form of
profit or withholding tax. |
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To facilitate investment in corporate
bonds, the existence of good credit rating agencies are important. |
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International rating agencies have a
fairly low level of penetration, focusing mainly on large
companies that issue in the cross-border market. |
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There is room for greater access for
international rating agencies, while local rating agencies need to
be more transparent in their rating methodology to gain
credibility and acceptance amongst global investors. |
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Full Text of Speech |
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Source:
www.mas.gov.sg News Release 1
Nov 2006 |
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FrontPage Edition: Sun 5 November 2006
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