[A-List] Re: An interesting plan?

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Asia has a very underdeveloped debt market, for two reasons.
Traditionally, Japan, the largest economy in Asia, relies exclusively on
banks to intermediate credit.  Japanese debts, both corporate and
government are tarded in the global debt markets and not in an Asian
debt market, and Japanese yen is traded in the global foreign exchange
market, a credit market, not a debt market, simce government issued
money is state credit, not state debt.

There has been a lot of talk since the Asian financial Crisis of 1997
for the need of an Asian Debt market.  Hong Kong, for example, is trying
to issue government debts, despite the fact that it hold over $100
billion in foreign reserves, not that the HK government needs money, but
that an Asian debt market needs government debt as anchor.  The active
markets right now in Asia is the distressed debt market, and the
currencies market.  The is hardly any government debt market or
corporate debt market worth memtioning.  I assume semi-government bonds
are agencies.  No Asian agencies are marketed.  Agency funding needs
come from budget deficits.

International experience suggests that Hong Kong's domestic debt market,
and even the Asian debt market, is not yet mature enough to be able to
have substantial exports. Nevertheless, the debt market has contributed
an essential part in Hong Kong's role as the region's premier finance
raising centre. As of end-2001, there were 121 overseas and
supranational issues listed on Hong Kong Exchange with nominal value
amounted to US$value amounted to US$ 68 billion.

Industry Development and Market Outlook

Latest Development

A new clearing system for US Treasuries would be commenced in the fourth
quarter of 2002. The new system will shorten settlement time and will
allow investors in Asia to settle US Treasuries trades during Hong Kong
hours instead of having to wait until US markets open.

Multi-Currency Capital Market

Hong Kong is developing into a multi-currency capital market and a major
debt market. The first stage is to introduce a US dollar-denominated
capital market. A US dollar clearing system started to take place in
phases from August 2000. Stock clearing began in August 2000, foreign
exchange settlement in September 2000, and US dollar-denominated debt
clearing in December 2000. The next target would be to develop a
euro-denominated market: a euro clearing system is under development. It
is expected that the system will be ready for launch in the second
quarter of 2003.

Rapidly growing Hong Kong dollar debt market

Hong Kong's debt market is relatively small, compared to the banking and
equity markets. Banking sector assets are five times as big as Hong
Kong's Gross Domestic Product (GDP) while equity market capitalisation
is three times as big. Hong Kong's bond market amounted to only 8% of
GDP in 1994. However, the growth of the market has been very rapid and
the outstanding amount of debt securities has increased to 39% of GDP in
2001.

On the demand side, the implementation of the Mandatory Provident Fund
Scheme (MPFS) is expected to provide a powerful boost to the fund
management industry and related services which are major investors in
Hong Kong's debt market. The government has estimated that the
implementation of the MPFS will see its asset size grow from HK$ 146
billion (US$ 19 billion) in 2000 to HK$ 2,954 billion (US$ 379 billion)
in 2030. The investment demand for Hong Kong's debt instruments, in
particular long-term debt securities, is thus expected to increase
significantly. On the supply side, the establishment of Mortgage
Corporation should boost the market of high quality mortgage-backed
securities, and hence broaden and deepen Hong Kong's debt market.

http://www.tdctrade.com/main/si/spdebt.htm


Asian Debt Conference

Asian Bond Market

The failure to establish a strong and robust Asian bond market is among
the reasons that led to the recent financial turmoil. The crisis
reflects the region's funding mismatch with an over-reliance on
short-term funds. This demonstrates that the Asian markets must work
together to overcome the deficiencies and create a deep, liquid and
mature Asian bond market. There are adequate savings, technical know-how
and sufficient market participants in the region to make this happen.

http://www.info.gov.hk/hkma/eng/speeches/speechs/hondonald/speech_060798b.htm

Henry C.K. Liu

Hudsonmi@xxxxxxx wrote:

> Japan, China and South Korea agreed in Bali yesterday to endorse plans
> to develop an Asia-wide market in government and semi-government bonds
> to reduce reliance on foreign investment, Japan's Finance Minister,
> Masajuro Shiokawa said.
> http://quote.bloomberg.com/apps/news?