Financial conditions in Emerging East Asia weakened slightly between September and October this year, reflecting a shift in sentiment as global uncertainties mounted, according to the Asian Development Bank. Despite initial improvements in September driven by monetary easing in both advanced economies and regional markets, October saw a reversal. Uncertainty surrounding the US Federal Reserve’s future monetary policy, particularly after strong labor market data in the US, and the looming US presidential elections dampened investor confidence.
During this period, short-term sovereign bond yields in regional markets across the ASEAN countries, Hong Kong, China and Korea, declined following rate cuts in several of the countries, but 10-year sovereign bond yields rose across much of the region, the ADB said. Currencies depreciated on average by 0.7 percent, and risk premiums, measured by credit default swap spreads, increased. Regional equity markets, however, fared better, with notable gains in China and Hong Kong due to stimulus measures, while net portfolio outflows were observed in both equity and bond markets.
Looking ahead, financial risks are balanced. On the positive side, moderating inflation and ongoing monetary easing support financial stability, but downside risks remain, particularly uncertainties about US monetary policy and geopolitical tensions. China’s economic performance, trade relations, and potential climate-related disruptions also pose threats to the region’s financial outlook.
In local currency bond markets, total outstanding bonds in Emerging East Asia reached USD26.8 trillion at the end of September, growing 2.7 percent quarter-on-quarter, with government bond issuance driven by China’s stimulus efforts. ASEAN markets accounted for nearly 10 percent of this total. Corporate bond issuance also rose as financial conditions improved.
The region’s sustainable bond market posted strong growth in Q3 2024, with issuance hitting a record USD73.7 billion, a 42 percent quarterly increase. However, sustainable bonds still represent a smaller portion of the overall bond market compared to the EU, although the ASEAN+3 region continues to hold the second-largest sustainable bond market globally, the ADB said.
