Financial conditions in the region remained largely stable, even amid lingering uncertainty about the US Federal Reserve’s monetary stance and looming risks in the banking sector of major advanced economies. Equity markets declined and local currencies weakened slightly against the US dollar between 1 March and 2 June, while risk premiums narrowed.
“Most of the region’s central banks have slowed their rate hikes, and the banking sector turmoil in the US and Europe has had limited impact on regional financial markets so far,” said ADB Chief Economist Albert Park. “However, in the US, concern over financial stability and inflation is causing uncertainty about the Federal Reserve’s monetary stance. Financial conditions in the region may continue to be affected by this uncertainty.”
Emerging East Asia comprises member economies of the Association of Southeast Asian Nations (ASEAN); the People’s Republic of China (PRC); Hong Kong, China; and the Republic of Korea.
The region’s local currency bond stock grew 9.1% from a year earlier to USD23.8 trillion at the end of March. The increase was largely driven by governments frontloading debt issuance to finance programs to support economic recovery.
Corporate bond issuance remained moderate, partly due to higher interest rates. Growth in the sustainable bond market in emerging East Asia plus Japan 1 moderated to 5.9% from the previous quarter, with total sustainable bond stock reaching USD633.9 billion at the end of March. The ASEAN+3 region remains the second-largest sustainable bond market in the world, even as it needs more local currency and long-term financing. Green bonds, local currency financing, and private sector issuance dominated sustainable bond issuance in the region.
Expansion in both the government and corporate segments increased Vietnam’s overall bond market by 5.1% from the previous quarter to USD111.9 billion. Corporate bond activity picked up after the government eased some bond regulations, leading to the resurgence of issuance during the quarter.
Government bond yields declined for all maturities between 1 March and 2 June as the State Bank of Vietnam (SBV) eased its monetary stance to support economic growth and foster financial stability especially in the real estate sector. Some defaults were observed amid stress in corporate bond markets in Vietnam, especially in the real estate sector. Real estate equity index declined by around 50% since January 2023.
