EMEs corporate bond issuance hits $6.9trillion in 10 yrs
…Driven by financial sector activities
The International Organisation of Securities Commission (IOSCO) has announced that the financial sector has significantly spurred activities of corporate bonds in the Emerging Market Economies (EMEs), as bond market in EMEs tripled in size in the last 10 years, reaching $6.9trillion in 2014.
A new report from IOSCO Staff Working Paper Series on corporate bond markets, titled ‘Corporate bond markets: An emerging market perspective’ which contains findings from an in-depth study on the development and functioning of corporate bond markets in emerging markets, published by the Research Department of the IOSCO, explained that EME corporate bond markets which is an important element of financial sector development is getting bigger, noting that corporate bond markets in EME have more than tripled in size in the last 10 years, reaching $6.9 trillion in 2014, compared to $1.9 trillion in 2005.
Also, total corporate bond market activity hit $1.06 trillion in 2014, up from $0.9 trillion in 2013.
According to the report, EME corporate bond issuance reached $1.06trillion by end 2014, up from $0.9tn the year before. It also said around 80 per cent of this issuance came from Emerging Asia, adding that other regions had also experienced growth.
It explained that emerging market economies have risen from a string of financial crisis during the mid to late-90s to become a driving force in the growth of the global economy.
“The financial sector in many EMEs has also undergone important transition, growing beyond bank-oriented roots. Many of the larger EMEs have established financial markets with global reach and even small EMEs are developing innovative financial activities.”
The report added that corporate bond market development in EMEs was being spurred by broad financial sector development, infrastructure improvement and increasing institutional health.
Another key finding was that the level of activity of emerging markets-issued bonds on US and European secondary markets showed great divergence from region to region and country to country.
It also noted that discussion of risks emanating from EME corporate bond markets might require a shifting away from treating emerging market corporate debt as a homogenous source of risk.
According to the report, further research on risks and vulnerabilities will need to recognise the diversity across EMEs and the requirement for more granular, country-level and even firm-level assessment.
The report explained that the growing corporate bond markets might represent a transition towards financial deepening in EMEs, with associated benefits.
“At the same time, the rate of growth, especially in the context of macro-economic and political developments on a global scale, may expose vulnerabilities,” it said.
“These vulnerabilities may manifest through currency mismatch risk and credit risk; roll-over risk; and secondary market liquidity risk. Individually, these risks do not necessarily imply systemic risk. However, these risks can also interact with each other.”