Asian capital markets

by Henrik Raber

Among the many headwinds that credit markets have faced in the last 100 years, the post-pandemic period could rank fairly high. In March following interest rate increases to address inflation, the two-to-ten year US Treasury yield inversion widened to the most since 1981. The pace of interest rate moves has tested the financial system with pressure showing, for example, among the group of US Regional Banks.

Against this background the global capital markets have remained remarkably resilient. Whilst there may be a pause in activity, the primary markets have been agile, re-priced and re-opened swiftly. These are not just due to short-term macro factors at play. It is a result of decades of development and focus by capital market participants and stakeholders –mature regulated markets that can respond to local and global financing needs.

In Asia, the primary markets are off to a strong start in 2023. Not only for G3 issuance (following a subdued 2022) but also the surge of local currency issuance. Primary issuance volumes in offshore CNY, HKD and SGD markets are almost double that of 2022. The ability to finance via onshore or offshore opportunities has created impressively deep support for fastgrowing economies.

Strong foundations also support innovation to meet the shifting needs of clients. An example is the progress in sustainable financing in Asia. Estimates vary, but a figure of over USD800 billion per year could be needed to help Asia transition towards a green economy.

Regional capital markets have responded well to this challenge. In 2022, sustainable bonds contributed 30% of G3 currency-denominated debt raised in Asia. This is ten-fold growth over 2017. There have been two big driving forces behind sustainable financing in the region:

(i) A concerted effort on the part of local governments and regulators to establish progressive policies: Asian sovereigns have played a leading role in the development of the regional ESG markets – several of these sovereigns, including Singapore and the Philippines, issued their debut green bonds in 2022, catalysing the ESG debt in the region.

(ii) Advocacy for regulatory clarity among key industry stakeholders: Standard Chartered, with its 150 years of history in Asia, recognizes the importance of a unified voice to enable progress in a multi-stakeholder market. ICMA has played a hugely important role in driving consultation over regional Green Bond Frameworks, or steering advocacy efforts during the Hong Kong SFC Code of Conduct discussions. Thereby, it is well-deserved that ICMA was recently named “Industry Association Of The Year” at the Regulation Asia Awards for Excellence 2022.

As we look ahead, there continue to be emerging areas of interest in the region, and industry-wide engagement and advocacy will be needed to usher in the next stage of growth. A couple of examples being:

• Greenwashing remains a risk globally. Significant work is already under way in areas such as ESG ratings and use-ofproceeds monitoring. There has also been good progress in the ICMA Repo & Sustainability Taskforce that kicked off in January 2022. We are excited to see how this develops in the coming months.

• Technology will continue to play an increasingly relevant role in the capital markets value chains across the origination, execution, distribution and post-issuance lifecycle. We are already seeing experiments on security token issuances using digital ledger technology aiming towards efficiency in current processes. As global regulations, infrastructure and technology try to keep pace with these changes, the industry will look to gain more clarity on latest developments and the regulatory framework. We look forward to partnering with ICMA and the industry to work towards this end.

Asian countries play a key role in global financial markets, mobilising capital for a region that represents 60% of the world’s population. These markets have developed at pace and embraced innovation. We fully expect them to continue evolving to meet the ever-changing financing needs and opportunities for investors in the coming years.

Standard Chartered looks forward to continued opportunities to work with ICMA and our regional stakeholders to enable more resilient and mature Asian capital markets.