Recent Development in ABF Projects February 23, 2010 Center for Monetary Cooperation in Asia (CeMCoA) International Department, Bank of Japan
EMEAP The Executives Meeting of East Asia-Pacific Central Banks Established in 1991, as a cooperative organization among central banks and monetary authorities in eleven economies. Reserve Bank of Australia People s Bank of China Hong Kong Monetary Authority Bank Indonesia Bank of Japan The Bank of Korea Bank Negara Malaysia Reserve Bank of New Zealand Banko Sentral ng Pilipinas Monetary Authority of Singapore Bank of Thailand Objective: (i) informal exchange of information and discussion of issues concerning economic and financial developments in the region, (ii) strengthen the cooperative relationship among its members. 2
EMEAP : Governance Structure Governors Meeting (once a year) Monetary and Financial Stability Committee Deputies Meeting (twice a year) WG on Financial Markets WG on Banking Supervision WG on Payment and Settlement Systems IT Directors Meeting 3
Asian Bond (ABF) Projects Objective: to develop local bond markets for the purpose of promoting resilience of Asian economy (through diversifying the funding sources, etc). Focus on sovereign bond markets. EMEAP central banks/monetary authorities established investment funds. EMEAP members apply a part of their foreign exchange reserves to ABF investment. Invest in sovereign and quasi-sovereign bonds in eight EMEAP economies (China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand) 4
Asian Bond (ABF) Projects ABF1 ABF2 Start of Investment Investment Style July 2003 March 2005 Passively managed against designated benchmark indices Qualifying Assets Manager Sovereign and quasisovereign bonds issued in eight EMEAP economies Denominated in USD Bank for International Settlements Sovereign and quasi-sovereign bonds issued in eight EMEAP economies Denominated in domestic currencies Private Managers (one for each fund) Investors EMEAP central banks only Phase 1: EMEAP central banks only Phase 2: EMEAP central banks and other public and private sector investors 5
ABF1 Framework EMEAP central banks/monetary authorities US$1 bn Bank for International Settlements (BIS Investment Pool) US-dollar denominated sovereign and quasi-sovereign bonds in eight EMEAP economies 6
ABF2 Framework of s Parent fund Around US$1 bn EMEAP central banks/monetary authorities Around US$1 bn Pan-Asian Bond Index (PAIF) China Hong Kong Indonesia Korea Malaysia Philippines Singapore Thailand Local currency denominated bonds issued by sovereign and quasi-sovereign issuers in eight EMEAP economies Components that are/will be open to investment by public and private sector investors 7
PAIF Product Type Bond ETF (Exchange Traded ) Listing Hong Kong Stock Exchange in July 2005 Tokyo Stock Exchange in June 2009 Investments Local currency denominated bonds issued by sovereign and quasi-sovereign organizations in China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand Investment Style Benchmark Manager Trustee & Custodian Passive iboxx ABF Pan-Asia Index composed by International Index Company Limited State Street Global Advisors HSBC Institutional Trust Services 8
07/07/2005 07/11/2005 07/03/2006 07/07/2006 07/11/2006 07/03/2007 07/07/2007 07/11/2007 07/03/2008 07/07/2008 07/11/2008 07/03/2009 07/07/2009 07/11/2009 06/2005 09/2005 12/2005 03/2006 06/2006 09/2006 12/2006 03/2007 06/2007 09/2007 12/2007 03/2008 06/2008 09/2008 12/2008 03/2009 06/2009 09/2009 12/2009 Price and Size (PAIF) (USD) 130 Unit Price (USD million) 2,000 Size 120 1,800 1,600 110 1,400 1,200 100 1,000 90 800 600 80 400 200 70 0 Note: Stock Exchange of Hong Kong Note: end of month 9
17/08/2005 17/11/2005 17/02/2006 17/05/2006 17/08/2006 17/11/2006 17/02/2007 17/05/2007 17/08/2007 17/11/2007 17/02/2008 17/05/2008 17/08/2008 17/11/2008 17/02/2009 17/05/2009 17/08/2009 17/11/2009 02/07/2009 16/07/2009 30/07/2009 13/08/2009 27/08/2009 10/09/2009 24/09/2009 08/10/2009 22/10/2009 05/11/2009 19/11/2009 03/12/2009 17/12/2009 31/12/2009 Trading Volume (PAIF) (Unit) 10000 Trading Volume (HK) (Unit) 700 Trading Volume (JP) 9000 8000 600 7000 500 6000 5000 400 4000 300 3000 200 2000 1000 100 0 0 Note: 30 days moving average. Note: 10 days moving average. 10
Achievements of ABF Projects Raised investor awareness and interest in Asian bonds by providing the Asian bond funds. Served as a catalyst that has triggered regulatory and tax reforms and market infrastructure improvements in the eight member economies. -- Changes in taxation system for foreign investors -- Deregulations for bond investment by foreign investors -- Development of legal system and IT infrastructure A successful case in cooperation with private sector. 11
Size of Local Currency Bond Markets 60 % of GDP Thailand 40 % of GDP Indonesia 50 35 30 40 25 30 20 20 % of GDP 15 Thailand 10 60 10 5 0 98 99 00 01 02 03 04 05 06 07 0 99 00 01 02 03 04 05 06 07 Central Bank Other Public Entities Financial Institutions Other Corporations 50 12
Size of Local Currency Bond Markets 100 % of GDP Malaysia 120 % of GDP Korea 90 80 100 70 80 60 50 60 40 60 30 20 10 0 % of GDP 40 Thailand 20 0 00 01 02 03 04 05 06 07 (Note) Data of central bank bonds are available up to 2005. 01 02 03 04 05 06 07 Central Bank Other Public Entities Financial Institutions Other Corporations 50 (Note 1) Based on Government Bond and Corporate Bond data from ADB AsianBondsOnline (ABO), the former is subdivided into Central Bank Bond (data for each central bank) and Other Public Bond, and the latter is subdivided into Financial Institutions Bond (Thailand and Malaysia: ABO <BIS base> data; Korea: Bank of Korea data; Indonesia: Bank Indonesia data) and Other Corporate Bond. (Note 2) ABO Corporate Bond includes bonds issued by government and public enterprises. Sources: ADB AsianBondsOnline, Bank of Thailand, Bank of Korea, Bank Negara Malaysia, Bank Indonesia. 13
Future Issues Complete the shift to Phase 2 of ABF2. Currently only China remains in Phase 1. Attract more investors to ABF2 in cooperation with private sector. Increase in secondary market transactions. Regulatory enhancements and further deregulation. 14