[Kabar-indonesia] Asian bond market trade limited by weak laws [+Merrill Poll]

[Joyo at aol.com]

also: Merrill Poll: Sentiment Toward Global Emerging Mkts
Stks Improves

The Business Times [Singapore]
Wednesday, November 15, 2006

Asian bond market trade limited by weak laws

Siow Li Sen

ASIAN bond market trading remains limited despite the rapid
growth of bond markets since the financial crisis because
the current legal and regulatory frameworks in many
countries are not robust and Indonesia is one example.

Emerging East Asian bond markets have expanded rapidly since
the 1997/1998 Asian financial crisis, spurred by an
increased issuance of government debt, but the increase in
outstanding debt has not led to a corresponding rise in
market liquidity, according to an Asian Development Bank
(ADB) report.

'Despite the fact that bond issuance has increased rapidly,
liquidity has not caught up,' Masahiro Kawai, ADB head of
regional economic integration, said yesterday.

Development of legal and regulatory infrastructure, deeper
market structures, growth of derivatives market, greater
investor diversity and stronger regional cooperation are
needed to boost liquidity in emerging East Asian local
currency bond markets, said Mr Kawai who was presenting the
results of a market survey.

Mr Kawai, who is also special adviser to the ADB president
and is in town for a bond conference, was speaking at a
press conference. Regional bond markets have expanded in
absolute size and, importantly, as a percentage of GDP in
2006, with volume of outstanding local currency bonds
reaching US$2.4 trillion as of June 30, 2006, up from US$2
trillion at the end of 2005. But trading or liquidity is
still lagging which is seen in relatively wide bid-ask
spreads and bond yield volatility.

The region needs to strengthen legal protection, standards
of governance and transparency to provide market confidence
in order to bring in more investors, said Mr Kawai.

'One of the most important aspects of any economies
including Indonesia is to provide clear legal and regulatory
framework,' he said in answer to questions on the
development of the Indonesian legal system.

Indonesia has been suffering from this problem since the
Asian crisis and the government has been trying to
strengthen the legal structures for some time but because of
social, and political problems, the progress may have been
slower, he said.

To a question on why bond market trading in Singapore is not
more vigorous given that the country is well known for its
robust legal system, standards of governance and
transparency, Mr Kawai said investor diversity is important
and can encourage market liquidity.

Lee Chuan Teck, Monetary Authority of Singapore executive
director for financial markets strategy, later told BT that
Singapore's debt market liquidity can be seen on two levels.

First, the Singapore Government Securities market has a bid-
offer spread of 2-3 basis points across the yield curve,
making it one of the most liquid Asian bond markets outside
Japan. 'The breadth of the investor base has contributed to
trading activities. About 15 per cent of of SGS are now held
by foreign investors, triple the level from three years
ago,' said Mr Lee.

Still, the MAS is looking at ways to further boost its
liquidity, such as improving price transparency through the
electronic-bond platform and launching a new SGS futures
contract. Second, the corporate bond market remains
relatively illiquid, and that is partly due to the fact that
many corporate bond issues are too small to be readily
tradable, he said.

One way to make this market more liquid may be through the
development of an active credit default swaps market, he
added.

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Merrill Poll: Sentiment Toward Global Emerging Mkts Stks
Improves

NEW YORK, November 14 (Dow Jones)--Sentiment towards global
emerging market equities has improved, with more investors
saying they would go overweight in the asset class in the
next 12 months, according to Merrill Lynch's October survey
of fund managers.

The investment firm's latest poll found that 15% would go
overweight in global emerging markets, up from just 8% in
October. A net 10% would be underweight in the asset class,
compared to a net 17% in the previous month.

Concerns over quality of earnings abated, with a net 50% of
respondents saying it is the worst in emerging markets. That
compares to 58% who said so in October, and 56% who held the
same view in September.

Managers also held a slightly more optimistic view on
emerging-market corporate profits. A net 4% said the outlook
for the region was the least favorable, down from 7% in
October.

According to Merrill Lynch, 216 fund managers participated
in the global survey from Nov. 3 to Nov. 9, managing a total
of $611 billion. In the related regional survey, 159
managers, responsible for $389 billion, participated.

The regional survey for the Asia ex-Japan region showed that
a net 5% of investors would go overweight on Chinese
equities, compared to 13% in the previous month.

As for India, a net 4% would be underweight, compared to 10%
who would go underweight in the South Asian country in
October.
The largest overweight allocations for the next 12 months,
according to the survey, would be Thailand, Indonesia, and
Singapore.

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Joyo Indonesia News Service
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