East Asia should strengthen economies, financial systems before US tightening: ADB

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The Asian Development Bank Monday urged emerging East Asian countries to take advantage of the US's delay in calling halt to its bond-buying program to strengthen their economies and financial systems.

"A delay in US bond tapering gives the region a bit of extra time to make sure its economy and financial systems are resilient enough to face the likely market volatility ahead," Iwan J. Azis, head of the ADB's Office of Regional Economic Integration, said.

In its latest quarterly Asia Bond Monitor report, the bank warned that emerging East Asia remains vulnerable to a shift in investor sentiment when the US eventually scales back its asset-purchase program and as it tackles still-unresolved questions over its government debt ceiling.

Volatile capital flows make it tougher for policymakers to manage the economy while looming tighter liquidity could push down asset prices, particularly in the property sector, undermining the health of financial firms with large holdings, the report said.

Despite the market uncertainty, emerging East Asia's local currency bond markets expanded 2.4 percent quarter-on-quarter with US$7.1 trillion in bonds outstanding at the end of September.

The growth was led by Indonesia, up 3.9 percent, the Philippines (3.6 percent), and China (3 percent.) The emerging East Asian bond market was 12.5 percent larger than a year earlier.

The region's government bond markets grew 2.1 percent quarter-on-quarter to $4.4 trillion, up from the 1.1 percent growth in the April-June quarter.

The corporate market increased 2.9 percent to $2.7 trillion, down from the 8 percent expansion in the previous three months.

In Vietnam, the government bond market contracted 8.7 percent in July-September mainly due to a decline in demand for treasury bonds.

The corporate bond market saw zero issuance for the third consecutive quarter.

Even then Vietnam remained a fast growing bond market, expanding 18.8 percent on year at $25 billion, as the government bond market grew 24.8 percent to $24 billion for the period. The corporate bond market stood at $700 million as of the third quarter.

Emerging East Asia comprises China, Hong Kong (China), Indonesia, the Republic of Korea, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.

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