A mixture of decrease rates of interest, decrease defaults and extra issuances bode nicely for corporates and governments trying to faucet Asia’s bond market in 2025.
There are hopes for Asia’s bond market subsequent yr to outperform 2024 which is anticipated to hit $160-165 billion in 2024 for Asia, ex-Japan. As issuers look to go to market, there’s additionally loads of willingness from banks to lend within the area, which helps to maintain spreads low.
Talking at an early December media briefing in Hong Kong, Jessica Chen, head of China DCM, origination Asia ex-Japan, JP Morgan: “General spreads are tight and look more and more enticing to issuers. In 2024, China is anticipated to overhaul Korea when it comes to issuance (from 2023) because the area’s largest market.”
Chen added: “We predict $170 billion of provide in 2025 in Asia, ex Japan with provide to choose up over 2024. We anticipate this pattern to proceed subsequent yr as some companies refinance.”
One more reason to be hopeful is that bond defaults are declining within the area and that the US Fed is about to chop rates of interest additional within the new yr.
Soo Chong Lim, managing director, head of Asia credit score analysis, JP Morgan, stated: “Bond default charges declined to round 4.4% in 2024 in contrast with 17% in 2023, and we anticipate them to say no additional to three% in 2025.”
Nonetheless, expectations are blended with regards to property bonds with many headwinds forward, regardless of falling rates of interest within the US.
Lim added: “We anticipate three [US Fed] fee cuts in 2025 and China’s GDP to develop 3.9% subsequent yr. There’ll nonetheless be market headwinds, particularly for the Chinese language property sector which is recovering slowly after a number of years of turbulence. In Hong Kong, for instance, the workplace occupancy fee will proceed to wrestle due to the provision coming onto the market.”
In 2024, India – arguably Asia’s finest performing economic system — had a really profitable yr for bond issuances, a pattern that’s set to proceed within the new yr.
Puja Shah, head of Southeast Asia (SEA), DCM and sustainable finance Asia ex-Japan, JP Morgan, stated: “The excessive yield bond market in India was a selected shiny spot in 2024 with some giant names coming onto the market. It’s at $4.7 billion YTD, and we anticipate that momentum to proceed into 2025 with round $5 billion in provide.”
The issuing of sustainable bonds within the area can be set to proceed to develop subsequent yr. Singapore-based Shah added: “We anticipate steady demand, at between 25-30% of issuances, for sustainable (inexperienced and social) bonds subsequent yr within the area, in contrast with 25% in 2024.”
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