Tony Latter (Institute of Economics and Business Strategy, University of Hong Kong)
Abstract
There have been persistent calls for development of bond markets in Asia. This study focuses, in particular, on prospects for the corporate bond market in Hong Kong. The distinctive approach has been to elicit the views of the actual or prospective end-users of the market, or those representing their interests, since, without the corporate issuers and the ultimate investors, the market could not be expected to mature further. The market lacks sufficient mass to generate the liquidity, fine pricing and narrow spreads observable in, say, the US market; but it is in all other respects efficient. There is little evidence of unsatisfied demand to issue or to invest. This reflects the limited population of companies which could, given size, credit standing, costs, etc, realistically aspire to issue; the limited investor appetite for such paper; and the competing attractions of the US dollar market for both sides. A comparison of the characteristics of bank finance and the bond market suggests that the purported advantages of the latter in providing a ¡¥spare tyre¡¦ for times of crisis may be exaggerated. In particular, many of those who have argued, notably since the 1997 Asian financial crisis, for action to develop the corporate bond market, have seemingly failed to appreciate that only a minority of firms can realistically expect to access the market, and that the market itself, especially at sub-investment grade, can, if existing at all, be extremely capricious. Regardless of how the Hong Kong dollar market fares, Hong Kong institutions should continue to contribute value added to the economy through the arrangement, distribution, etc of bond issues more generally, and should be well placed for involvement in renminbi bond business, once that is permitted to develop further.
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Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number
192008.
Length: 35 pages Date of creation: Oct 2008 Date of revision: Handle: RePEc:hkm:wpaper:192008
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Barry Eichengreen & Pipat Luengnaruemitchai, 2006.
"Why doesn’t Asia have bigger bond markets?,"
BIS Papers chapters,
in: Bank for International Settlements (ed.), Asian bond markets: issues and prospects, volume 30, pages 40-77
Bank for International Settlements.
[Downloadable!]
Barry Eichengreen, 2006.
"The development of Asian bond markets,"
BIS Papers chapters,
in: Bank for International Settlements (ed.), Asian bond markets: issues and prospects, volume 30, pages 1-12
Bank for International Settlements.
[Downloadable!]