Asia's bond markets need more support

IT is a curious fact that while Asia's "emerging" stock markets have become familiar to portfolio investors around the world, the issuance of local currency bond debt by companies in this region still requires a process of hand-holding by official institutions before investors are willing to cough up funds.

The latest example is the agreement by the Credit Guarantee and Investment Facility (CGIF) - established by the Asean states plus China, Japan and South Korea - to guarantee S$60 million worth of local currency bonds issued by Lao conglomerate Kolao Holdings, the CGIF's first such deal in Singapore. The need for such guarantees partly reflects the fact that while Wall Street investment bankers (aided by the World Bank and its various arms) have been only too eager in recent decades to promote international investment in emerging market equities, equal support has not been given to bond market development.

Equity investment implies a degree of shareholder participation in the ownership and control of companies receiving funds whereas investment in the debt securities of emerging markets companies (in Asia as elsewhere) involves nothing beyond a creditor-debtor relationship. To what extent the desire to enjoy such ownership and control from overseas explains the relative rush to develop emerging equity markets, and to what extent it reflects a preference by global institutional investors for short-term counters rather than long-term debt instruments, is debatable. But the fact is that this unbalanced capital market development in emerging economies in and beyond Asia has long gone unrecognised. It illustrates how smart and smooth has been the "packaging"of emerging market equities by global investment banks while bond markets have been orphaned by comparison.