Asia Capital Markets Monitor.

8/2/2019 Asia Capital Markets Monitor.

1/138

AsiA CApitAl MArkets Monitor

April 2009


2/138


3/138

Emerging Asian Capital Markets

Highlights

Global and Regional Environment

Amid global recession, nancial markets are showing signs of

stabilizing as aggressive policy measures gain traction.

Equities worldwide have seen a bear market rallysince mid-March,

with volatility easing if still elevated.

Markets may have reached bottom, yet the road to recovery will

likely be long and hard.

Long-term government bond yields have started edging up, as

record bond issuance to fund nancial rescue and scal stimulus

packages test government creditworthiness.

Money market spreads have gradually narrowed with extensive

liquidity injections, though they remain high compared with pre-

September 2008 levels.

Emerging Asias Market Performance and Outlook

The nancial outlook for emerging Asia is less bleak than for other

regions, with net private capital inows to the regions capital

markets expected to remain positive this year, if down sharply from

their 2007 peak.

Equity markets across emerging Asia show signs of a tentative

recovery, as valuation indicators have begun to look attractive.

Any sustained recovery, however, could be delayed as uncertainty

over the severity and length of the global nancial crisis and

recession weighs down investor sentiment.

Local currency bond issuance should expand in 2009 as scal policy

moves center stage in the ght against recession and government

bond issuance rises to nance scal stimulus packages.

Rising bond yields associated with increased government bond

issuance may raise funding costs of scal stimulus packages.

Most emerging Asian currencies fell sharply against the US dollargiven massive deleveraging and heightened risk aversion.

Growing cross-border transactions, rising trend in investment ows,

and speculative positioning drive emerging Asias non-deliverable

forwards markets.

The Asia Capital Markets Monitor(ACMM)

reviews recent developments in emerging

Asias stock, bond, and currency markets

along with their outlook, risks, and policy

implications. This inaugural issue features a

special section Bringing Life to Asian Money

Markets. The ACMM covers the capital markets

of the Peoples Republic of China; Hong Kong,

China; India; Indonesia; Republic of Korea;

Malaysia; Philippines; Singapore; Taipei,China;

Thailand; and Viet Nam.

Download the ACMM at: asianbondsonline.

adb.org/features/

asian_capital_markets_monitor/

ACMM-complete.pdf

Asian Development BankOfce of Regional Economic Integration

6 ADB Avenue, Mandaluyong City1550 Metro Manila, Philippines

Telephone+63 2 632 6688

Facsimile+63 2 636 2183

[email protected]

How to reach us

Contents

Global and Regional Environment 7

Equity Markets 33

Bond Markets 57Currency Markets 79Non-deliverable Forwards Markets 95

Special Section: Bringing Life

to Asias Money Markets 109

Boxes

Reshaping the Global FinancialArchitecture 22

Funding Fiscal Stimulus Packages 62

Shaping Yield Curves 66

Learning from Earlier MistakesRepublic of Korea and Thailand 92

Inside Money Markets 110


4/138

ABCP asset-backed commercial paperABM Asia Bond Monitor

ABS asset-backed securitiesABMI Asian Bond Markets Initiative

ADB Asian Development Bank

ALBI Asian Local Bond Index (HSBC)

ASEAN Association of Southeast Asian Nations

ASEAN+3 ASEAN plus Peoples Republic of China,

Japan, and Republic of Korea

ATM at-the-money

BI Bank Indonesia

BIS Bank for International Settlements

bp basis points

BNM Bank Negara Malaysia

CDS credit default swap

CP commercial paper

CPI consumer price index

EMBI JP Morgan Emerging Market Bond Indices

EU European Union

FDI

foreign direct investmentFDIC Federal Deposit Insurance CorporationFX foreign exchange

G3 eurozone, Japan, and United States

G8 Group of 8

G20 Group of 20GARCH Generalized Autoregressive Conditional HeteroskedasticityGDP gross domestic product

HKMA Hong Kong Monetary Authority

IT information technologyIMF International Monetary Fund

IPO initial public offeringKorea Republic of Korea

LCY local currency

LIBOR London Interbank Offered Rate

MAS Monetary Authority of SingaporeMBS mortgage-backed securitiesMSCI Morgan Stanley Capital InternationalMDB multilateral development bankNIE newly industrialized economyNDF non-deliverable forwardOECD Organisation for Economic Co-operation

and Development

OIS Overnight Index SwapOREI Ofce of Regional Economic Integration

OTC overthe-counter

PBOC Peoples Bank of China

PRC Peoples Republic of China

q-o-q quarter-on-quarter

RBI Reserve Bank of India

repo repurchase agreement

saar seasonally-adjusted annualized rateSBV State Bank of Viet Nam

US United StatesUS Fed United States Federal Reserve

WTO World Trade Organization

y-o-y year-on-year

YTD year-to-date

Note: To conform with market practice, the Asia Capital

Markets Monitor uses two-letter ofcial ISO Country

Codes and three-letter currency codes rather than ADBs

standard symbols.

Acronyms, Abbreviations, and Notes Special Section: Bringing Life to Asian Money Markets

Money markets are central to capital allocation, the efcient

distribution of liquidity among nancial institutions, and the hedging

of short-term risks; they act as an aggregator and clearing house for

liquidity and are key to price discovery for nancial instruments.

Although the relative underdevelopment of money markets in

emerging Asia helped insulate the region from the worst effects of

the global nancial turmoil, all major money markets experienced

some degree of dislocation.

Building vibrant, resilient money markets in the region will require

authorities to ensure market condence, depth, and liquidity,

while consistently updating the supervisory and regulatory

environment.

Despite the diversity among emerging Asian markets, there is a

common architecture that can enhance the development of money

markets:

-A transparent and robust legal and regulatory framework;

-Prudent regulation and effective risk management practices;

and

-Continued liberalization of domestic nancial markets and better

cross-border collaboration.

TheAsia Capital Markets MonitorApril 2009 was prepared by ADBs Ofce ofRegional Economic Integration and does not necessarily reect the views ofADB's Board of Governors or the countries they represent.


5/138

The global banking system

remains the weakest link in the

chain of global nancial and

economic crises.

For emerging Asia, the nancial

outlook is less bleak than for other

regions, with net private capitalinows to the regions capital

markets expected to remain

positive this year.

Global economic activity slows at

an alarming speed, recession sets

in, and trade volumes plummet.

Emerging Asian Capital Markets at a Glance

6.2

-1.0

12.311.0

-3.5

4.0

1.5

5.2

-1.0

-6

-3

0

3

6

9

12

15

1981 1985 1989 1993 1997 2001 2005 2009f3

GDP Growth

Trade

Figure H1: World GDP1 and World TradeVolume2(y-o-y change, %)

1GDP = gross domestic product. 2Export Volume. 3f = forecast.

Sources: Asian Development Outlook 2009, Asian Development Bank; World

Economic Outlook Database (Oct 2008), Global Economic Policies and Prospects

for the G20 Meeting of the Ministersand Central Bank Governors, International

Monetary Fund.

869.8

390.1

35.5

1113.1

646.3

397.8

69.1

1295.4

0

200

400

600

800

1000

1200

1400

World Americas Europe Asia

Asset Writedowns

Capital Raised

Figure H2: Writedowns and Capital Raisedby Major Banks since July 2007(USD billion, as of 31 Mar 2009)

Source: Bloomberg.

112.9

85.7

201.9

-63.3

-20.8

179

315

-100

-50

0

50

100

150

200

250

300

350

1995 1997 1999 2001 2003 2005 2007 2009forecast

65

179

Equity Flows

Credit Flows

Private Flows

Figure H3: Net Private Capital FlowsEmerging Asia1(USD billion)

1Refers to Peoples Republic of China; India; Indonesia; Malaysia; Philippines;

Republic of Korea; and Thailand.

Source: Institute of International Finance.


6/138

A sharp rise in government bond

supply to nance nancial rescue

and scal stimulus packages is

starting to put upward pressureon long-term bond yields.

Money market spreads have

gradually narrowed with

extensive liquidity injections,

although they remain elevated

compared with pre-September

2008 levels.

Emerging Asias equity markets

show tentative signs of stabilizing

after being hit hard by the global

nancial crisis.

Source: Datastream.

83

362

98

122

9

110

254

-50

0

50

100

150

200

250

300

350

400

Jan-07

Apr-07

Jul-07

Nov-07

Feb-08

May-08

Sep-08

Dec-08

Mar-09

eurozone

UnitedStates

UnitedKingdom

Figure H5: 3-Month LIBOR minus OIS1Spreads (basis points)

1OIS=Overnight Index Swap.

Source: Staff calculations based on Bloomberg data.

-70

-60

-50

-40

-30

-20

-10

0

-55.8

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32

CurrentOct-2007-Present

Asian Financial CrisisJul-1997-Sep-1998

Month

IT CrashMar-2000Oct-2002

-65.3-66.4

Figure H6: Bear Markets in Asia1(% change)

1Based on Morgan Stanley Capital International (MSCI) Asia (excluding Japan)

index.

Source: Bloomberg.

Figure H4: 10-year and 2-yearGovernment Bond Yield Spreads(% per annum)

0.93

2.101.87

0.58

2.51

0.91

1.80

-0.22

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan-07

Mar-07

May-07

Jul-07

Sep-07

Dec-07

Feb-08

Apr-08

Jun-08

Sep-08

Nov-08

Jan-09

Mar-09

Japaneurozone

United States


7/138

Equity markets across emerging

Asia show signs of a tentative

recovery, as valuation indicators

have begun to look attractive; still,

the road to sustained recoverycould be long and hard.

63

55

5040

60

80

100

120

140

160

Jan-07 May-07 Sep-07 Feb-08 Jun-08 Nov-08 Mar-09

Lehman Brothers declaresbankruptcy; Bank of Americatakes over Merrill Lynch

US bails outFannie Mae andFreddie Mac

JPMorgan Chasebuys Bear StearnsThe US Federal Reserve

cuts the discount rateby 50 basis points

BNP Paribashedge fundscollapse

US housing activityslowed in the thirdquarter of 2007

PRC 3rd quarter GDP growthcontinued to slow registering a singledigit growth for the first time in 5 years

Figure H7: MSCI IndexesEmerging Asia1(2 Jan 2007 = 100)

1Refers to Peoples Republic of China; India; Indonesia; Republic of Korea; Malay-

sia; Philippines; Taipei,China; and Thailand. 2PRC=Peoples Republic of China.3GDP = Gross domestic product.

Source: Morgan Stanley Capital International (MSCI) Barra.

LCY bond issuance is expected to

increase in 2009 as scal stimulus

packages have become a primary

tool of governments across

the region in the ght against

recession.

-24.9

-20.2

-16.4

-15.4

-10.6

-10.5

-7.0

-6.1

0.6

9.0

-5.3

0.3

-30.0 -25.0 -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0

EU2 euro

Korean wonIndonesian rupiah

Indian rupeeMalaysian ringgit

Singaporean dollarPhilippine peso

Thai bahtVietnamese dong

PRC3 renminbiHong Kong dollar

Japanese yen

Figure H9: Regional Currencies1(1 July 2008 to 30 March 2009, % change)

1Latest closing as of 30 March 2009, based on the USD value of local currency.

Negative values indicate depreciation. 2EU = European Union.3PRC = Peoples Republic of China.

Source: OREI staff calculations based on Reuters data.

Most emerging Asian currencies

fell sharply against the US dollar

amid massive deleveraging and

heightened risk aversion; while

they have stabilized somewhatlately, volatility remains high.

0 0.5 1.0 1.5 2.0 2.5

Viet Nam

Philippines

Indonesia

Hong Kong, China

Singapore

Thailand

Malaysia

India

Korea, Rep. of

China, Peoples Rep. of

2008

2007

Figure H8: Total Bonds Outstanding

2007 and 2008 (USD trillion)

Source: AsiaBondsOnline and Reserve Bank of India.


8/138

Figure H10: Implied Volatility ofExchange RatesASEAN-4(3-month ATM1)

23.9

10.9

13.5

10.4

05

101520253035404550

Jan-05

Jun-05

Nov-05

Apr-06

Sep-06

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Indonesia

Thailand

Philippines

Malaysia

1At-the-money.

Source: Bloomberg.

Figure H11: Outstanding Short-Term DebtSecurities1(% of GDP)2

Private

Government

0

10

20

30

40

50

200

7

200

8

200

7

200

8

200

7

200

8

200

7

200

8

200

7

200

8

200

7

200

8

200

7

200

8

200

7

200

8

200

7

200

8

KR

SG

CH TH

HKPH

MY

INID

Note: KR=Republic of Korea; SG=Singapore; CH=People's Republic of China;

TH=Thailand; HK=Hong Kong, China; PH=Philippines; MY=Malaysia; IN=India;

ID=Indonesia.1Debt securities with remaining maturity up to 1 year, including those issued in domestic

and international markets. Private sector debt covers securities issued by nancial

institutions and the corporate sector. Domestic securities for 2008 are as of September

2008. 2Fiscal Year 2008 gross domestic product data for India is World Economic Outlook

estimate; for Rep of Korea estimate from published scal year budget ratios.

Sources: OREI Staff calculations based on data from Bank for International Settlements;

CEIC; World Economic Outlook Update Oct 08, International Monetary Fund.

Foreign exchange volatility is at its

highest level in a decade; although

the current global credit crisis

inuenced volatility less than pastnancial crises.

Growing cross-border transactions,

a rising trend in investment ows,

and speculative positioning drive

emerging Asias non-deliverable

forwards markets.

Money markets require further

development to effectively

allocate capital, efciently

distribute liquidity among nancial

institutions, and hedge short-term

risks.

Table H1: Average Daily NDF Turnover(USD million)

20082009 20032004

CNY 1,000 50

INR 800 20-50

KRW 3,000 700-1,000

IDR 400 50

PHP 500 20-30

MYR 500

Source: Deutsche Bank.


9/138

Emerging Asian Capital Markets

A Regional Update

Global Financial Market Developments

Amid global recession, nancial markets are showing

signs of stabilizing as aggressive policy measures

gain traction.

Having traversed rough waters in 2008 and early 2009, global

aca arkets are startg t shw sgs f stabzg,

wth stck prces aru the wr egg upwar a cret

cts prg, abet swy. Sce February, gba

ecc catrs hae bee seg se sgas that a

recery ght be uerway (Figures 1.1a, 1.1b, 1.1c, 1.1d).

Extese pcy acts t preet a ajr wtur a restre

arket cece are as gag tract, especay wth the

atest pa by the Ute States (US) Treasury t buy up txc

assets fr baks. The recet quattate easg by the US

Feera Resere (US Fe) s as prg se reef t cret

arkets, tetatey hatg the arkets wfa.

Equity markets worldwide have experienced a bear

market rally since mid-March after the major sell-

offs in mid-September.

A sychrze wtur ajr ustra cutres a

the grwg sper effects eergg arket eces

hae weghe heay gba equty arkets. The year-e

rebu was cut shrt whe st equty arkets aru the

gbe experece reewe weakess after wrse-tha-expecte

eargs reprts a fresh ecc ata pte t a eeper-

tha-expecte recess eary 2009. But attracte auats

are startg t raw estrs attet a ery w (a

se cases zer) terest rate eret. Prceeargs

rats hae rppe as we, ee as eargs expectats

ece further eary 2009. Equty auats eergg

arkets as fe t ery w ees, partcuary Cetra a

Ths sect was prepare by Cy-Yug Park. Fr ay qures, pease ctact

[email protected].

2 A bear arket ray refers t a crease equty prces urg a prary w-

war arket tre, r bear arket.

1. Gba a Rega Eret


10/138

G l o B A l A n d R E G i o n A l E n v i R o n m E n T

Easter Eurpe, where the gba cret cruch seerey ht the

bakg sectr a the rea ecy. Recet preets

estrs' rsk appettes, hweer, hae fte eergg arket

stcks. Whe the mrga Staey Capta iterata (mSCi)

Wr iex fe 4.6%, the mSCi Eergg markets iex rse

12.2% year-t-ate (Figure 1.2). Even as most markets

pugee by the ece the aca sectr Jauary a

Februaryse eergg arkets ae tceabe cebacks.

The tp year-t-ate perfrers cue the Pepes Repubc f

Cha (PRC) (33.9%), Peru (41.9%), a Russa (49.7%).

The ast ate use fr ay arket eets thrughut the pubcat s 10

Apr.

0

1

2

3

Starts (million units) Prices (mean, USD '000)

Jan-05

Jun-05

Nov-05

Apr-06

Sep-06

Feb-07

Jul-07

Dec-07

May-08

Oct-08

150

200

250

300

1.09

2.27

0.58

276

242

258

210

Prices

Starts

Feb-09

0

2000

4000

6000

8000

10000

12000

1646

11440

1.8

4.0

1.3

0

1

2

3

4

Jan-07

Apr-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jan-07

Apr-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

57.5

29.3

35.2

25

30

35

40

45

50

55

60

Jan-07

Apr-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

The ex cates the prce f g ajr raw ateras by sea. 2A cpet f the JPmrga Gba maufacturg Purchasg maagersiex (Pmi), whch seres as a catr f gba aufacturg busess cts, base ata cecte fr sureys aru the wr. Areag abe 50 cates a crease the arabe sce the preus th a bew 50, a ecrease. Seasay-ajuste ees.Surces: Bberg, datastrea, JPmrga, CEiC.

Figure 1.1a: Baltic Dry Index1 Figure 1.1b: Copper Future Prices (USD

per lb)

Figure 1.1c: JPMorgan Global Manufacturing

Output Index2

Figure 1.1d: Private Housing Starts

and Prices3US

Figure 1.2: MSCI Indexes (2 Ja 2007 = 100)

95

54

144

49

61

40

60

80

100

120

140

160

Emerging Markets

World

Jan-07

Apr-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Surce: mrga Staey Capta iterata (mSCi) Barra.


11/138


Volatility has come down from the highs of late 2008,

although it remains elevated as uncertainty over

the severity and duration of the economic downturn

continue to be a concern to global investors.

vatty equty arkets ht hstrc hghs octber 2008

the wake f the leha Brthers bakruptcy a subsequet

eterrat gba ecc cts (Figure 1.3).

As arkets grauay ajuste t the cycca wtur a

utg eece f a gba recess, atty fe fr ts

peak. iee, ee as ew staces f bakg weakesses

a a wae f ba ecc ews trggere ather se-ff

Jauary a February, atty equty arkets reae

wth a reatey est rage. netheess, t s st hgh by

hstrca staars, reectg arket axety er the ack fcear sgas f a r recery.

Credit risks have fallen from their record levels

yet remain high as the quality of corporate and

sovereign credit has taken a beating, and banks

continue to face stress.

despte se preet ue t extese pcy supprt,

cug the US Treasurys recet pa t cea up baace

sheets f trube baks, cret arkets geera rea uer

stress a ctue weakess bakg systes a estratcpat f ata efauts. iestet grae crprate

b cret spreas crease t ees t see sce the Great

depress (Figure 1.4). Athugh they hae arrwe sce,

crprate cret spreas rea wepyg hgher returs

bs, whch ay ae a appea t estrs a

eret f rapy fag terest rates eary 2009. Wth

extese geret supprt, estet grae crprats,

partcuary baks wth geret guaratee prgras, were

abe t ssue bs wrth USd824.4 b the rst quarter

f 2009. Seera eergg arket sereg a crprate

brrwers as saw ths tre, ssug se USd18 b

freg currecy bs urg the sae per. Hweer, the

stuat fr wer-rate brrwers reas extreey fcut

a ctug eterrat cret quaty (Figure 1.5).

Se eergg arket seregscug the Batc States

(Esta, lata, a lthuaa), Hugary, Russa, a Ukrae

hae experece ratg wgraes wrseg ecc

cts sce octber. Ag the, Hugary, lata, Bearus,

0

20

40

60

80

100

120

Jan-08

Feb-08

Apr-08

May-08

Jul-08

Sep-08

Oct-08

Dec-08

Feb-09

Mar-09

Nikkei

FTSE

S&P 500Dow Jones

Euro Stoxx

Figure 1.3: Implied Volatilities1

Cacuate fr a weghte aerage f the attes f the

tw pts csest t the at-the-ey strke.

Surce: Bberg.

0

100

200

300

400

500

600

700

800

900

762

Jan-07

Mar-07

May-07

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

681

Figure 1.4: Global Investment Grade

Spread1(bass pts)

JP mrga iestet Grae Sprea.

Surce: Bberg.

1253

1487

0

200

400

600

800

1000

1200

1400

1600

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Feb-09

Figure 1.5: Global Speculative Grade

Spread1(bass pts)

dfferece betwee yes gba crprate AAA bs

a gba specuate grae bs.

Surce: datastrea.


12/138

10


Ukrae, a Serba hae ture t the iterata metary

Fu (imF) fr rescue.

The perception of default risks has improved inrecent months yet remains elevated amid deepening

global recession, with credit default swap spreads

widening across the board.

Reectg rsg efaut rsks (Figure 1.6), bechark cret

efaut swap (CdS)4 exes hae crease arkey. Athugh

they are w fr ther ate 2008eary 2009 peaks, they

rea ery hgh by hstrca staars (Figure 1.). US

estet grae CdS spreas rse by 223 bass pts (bp)

betwee Jue 2007 a march 2009, a US hgh-ye spreas

were up 820 bp er the sae per. CdS spreas therajr arkets as e upwar tae wth the US arket.

CdS spreas are a key easure f rsk aers. Wth ctue

aca wes a rsg efaut rates hgh-ye brrwers,

CdS spreas fr acas, hgh-ye crprates, a eergg

arket seregs hae wee ee further. Cret efaut

swaps the bechark markt Traxx aca ex, whch

refereces the subrate ebt f 25 Eurpea baks a

surers, rse 266 bp t 406 betwee octber 2008 a march

2009, as arkets reae axus that Wester Eurpea

baks ay as face cret wgraes, ge ther hgh ees

f expsure t Cetra a Easter Eurpe. i at, the AsaTraxx estet grae ex (excug Japa) wee t 664

bp march 2009 fr 35.6 bp octber 2007.

In money markets, spreads remain elevated

compared with the pre-September period, although

they are gradually improving following extensive

policy measures.

iterbak fug pressure reas eeate, athugh l

iterbak offere Rate (liBoR)oerght iex Swap (oiS)

spreaswhch reect a cbat f cret a qutyrskshae ce w fr the hstrc hghs see -

Septeber whe the leha Brthers bakruptcy sparke a

crss f cece (Figure 1.). That capse cause catera

4 A cret efaut swap (CdS) s a cret erate ctract, whch the buyer

akes perc payets t the seer a, retur, recees a payff the eet

f spece cret cetstypcay a efaut. A CdS ctract s fte cpare

wth surace because the ctract pres prtect agast efauts r re-

structurg f the ueryg aca struet.

0

1

2

3

4

5

6

0.4

2.3

0.9

2.5

5.2

Jan-

05

May-

05

Sep-

05

Jan-

06

May-

06

Sep-

06

Jan-

07

May-

07

Sep-

07

Jan-

08

May-

08

Sep-

08

Speculative Grade

All Issues

Feb-09

Figure 1.6: Global Bond Default Rate (%)

Surce: datastrea.

0

100

200

300

400

500

600

700

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Jun-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

423

554

236

565

193

251

664

361

CMA ITRAXX

Japan

CMA ITRAXX European Union

CMA Dow JonesNorth America

CMA ITRAXXAsia (ex Japan)

Figure 1.: Credit Default Swap Indexes

(estet grae, ser 5-year)

Surce: datastrea.

83

362

98

122

9

110

254

-50

0

50

100

150

200

250

300

350

400

Jan-07

Apr-07

Jul-07

Nov-07

Feb-08

May-08

Sep-08

Dec-08

Mar-09

eurozone

UnitedStates

UnitedKingdom

Figure 1.: 3-Month Libor minus OIS1

Spreads (bass pts)

oiS=oerght iex Swap.

Surce: Staff cacuats base Bberg ata.


13/138

11


aage t ey arket fus, whch were heay expse

t leha Brthers ebt thrugh cerca papers a ther

shrt-ate ebt. A urry f quats a reepts f

pre ey arket fus cause quty t ra a keyshrt-ter ey arket rates t jup. A surge cuterparty

cret rsks asscate wth the leha Brthers bakruptcy

exacerbate quty cts. Heghtee ccers er

aca stress a the ctractary effect f ctue fug

pressures prpte ajr cetra baks t ject huge auts

f quty. may gerets as fuse capta t ata

bakg systes a pre guaratees fr bak ebt. The

3-th US ar liBoR-oiS sprea has bee arrwg

grauay sce ate ast year, party reectg the effects f such

upreceete pcy terets.

A sharp rise in supply of government bonds to fund

nancial rescue and scal stimulus packages is

starting to put upward pressure on bond yields.

Begg ate ast year, g-ter geret b yes

reversed their downward trend (Figure 1.). Ucertates

surrug the gba ecc utk a wrseg

aca tur ha bste geret bs gbay er

the past 2 years, as estrs sught safer assets a the

eepeg aca crss. Hweer, as gerets aru

the wr ctue t ue sca stuus packages, suppyccers hae starte t push yes up, especay at the g

e f the cure. Yes 10-year US Treasury tes rse by

68 bp betwee deceber 2008 a march 2009. durg the

sae per, 10-year geret b yes as cbe

fr 2.9% t 3.2% the eurze, a fr 1.2% t 1.3%

Japa. i a effrt t brg w g-ter brrwg csts a

shrt-crcut the pact f aca cstrats rea ecc

actty, 18 march the US Fe auce a USd300 b

Treasury purchase prgra er a 6-th per. After the

ta euphra, hweer, the ray US Treasures was stute

as estrs ue er the pas effecteess a g-tereffects at. meawhe, aggresse etary easg

the US, Eurpe, a Japa has set shrt-ter geret

b yes wer, wth ye cures steepeg sharpy recet

months (Figure 1.10).

5.3

2.8

2.1

4.1

4.7

3.0

1.96

1.27

0

1

2

3

4

5

6

Jan-07

Mar-07

May-07

Jul-07

Sep-07

Nov-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Mar-09

Japan

eurozone

United States

Figure 1.: 10-Year Government Bond

Yields (% per au)

Surce: datastrea.

0.93

2.101.87

0.58

2.51

0.91

1.80

-0.22

-1.0

-0.5

0.0

0.51.0

1.5

2.0

2.5

3.0

Jan-

07

Mar-

07

May-

07

Jul-

07

Sep-

07

Dec-

07

Feb-

08

Apr-

08

Jun-

08

Sep-

08

Nov-

08

Jan-

09

Mar-

09

Japaneurozone

United States

Figure 1.10: 10-year and 2-year

Government Bond Yield Spreads

(% per au)

Surce: datastrea.


14/138

12


The global banking system remains the weakest link

in the chain of global nancial and economic crises,

curtailing lending to consumers and businesses,

and thus aggravating real economic activity.

Wth extese hep fr cetra baks a gerets, bak

fug pressures hae ease sewhat, as reecte the

ece liBoR-oiS spreas a a crease b ssuace.

large capta jects hae as ctrbute t the reatey

hgh capta rats the bakg sectr. Fr exape, Ter 1 rsk-

base capta rats fr a Feera depst isurace Crprat

(FdiC)-sure cerca baks the US reache 9.8%

2008, we abe the 6% reguatry requreet. Hweer,

wrte-ws ctue t rse whe a sses are expecte t

crease further. Baks wrwe hae thus far reprte earyUSd1.3 tr wrte-ws (Figure 1.11). Reprte a

expecte a sses ctue t push baks t rase capta.

But the sharp ece ther share aues a the recet

eterrat gba cret cts hae ae t chaegg

fr baks t rase fresh prate capta. meawhe, strae

bakg systes ctue t curta eg t csuers a

busesses, aggraatg rea ecc cts.

Bank rescue efforts also face new challenges, as

investors increasingly scrutinize the nature of

capital injections and, in particular, their effect onshareholder rights.

i respse t persstet bak weakess, aca sectr shares

ctue t uerperfr bra arket exes (Figure 1.12).

icrease geret stakes the bakg sectr hae as

weghe w aca shares. The st c chce

f fca capta ject has bee preferre shares, thus

subjectg the c sharehers t greater pteta

sses. Exacerbatg the stuat are ccers that ata

capta fuss ay ute the rghts f exstg sharehers

(fr exape, thrugh restrcts e payets).

As t beces creasgy eet that further geret

teret w be ecessarya ata capta jects

r atazataca shares hae suffere ee re.

Fr exape, the US Geret certe a arge share f

ts Ctgrup hgs preferre shares, whch t recee

exchage fr a earer capta ject, t c shares

ate February t stabze the trube bak a arrest the

869.8

390.1

35.5

1113.1

646.3

397.8

69.1

1295.4

0

200

400

600

800

1000

1200

1400

World Americas Europe Asia

Asset Writedowns

Capital Raised

Figure 1.11: Writedowns and Capital

Raised by Major Banks Since 3Q0

(USd b, as f 31 mar 2009)

Surce: Bberg.

203040

5060708090

100110

Japan

UnitedStates

eurozone

44.4

33.1

49.3

79.0

75.6

60.8

Jan-07

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Figure 1.12: Ratio of Financial Stock

Price Index to Overall Stock Market

IndexG3

(2 Jauary 2007 = 100)

Surce: Bberg.


15/138

13


rap ece ts share prce. But ths eat a bw t aca

shares, as the cers pushe the US Geret's equty

Ctgrup t 36%, reucg exstg sharehers stake t

just 26%. iestrs, wh were wary f a sar patter at thertrube baks, e aca shares geera. As a resut,

pcyakers w face a ee greater ea as pteta

rescue easures cu scurage the w f prate capta

t ther respecte bakg systes uess the cts f

fca capta jects a the ates fr recaptazat

are carefuy fruate.

Building on policy measures initiated thus far, more

decisive and credible interventions are required

to restore nancial stability and revive economic

growth.

despte se ecuragg sgs f stabzg recet ths,

the stuat reas extreey teuus. Ucertaty abut the

epth a breath f the curret crss ctues t r aca

arkets, requrg further easures ae at stabzg

eces. The wrkut f ba as ag baks ctues

t be a ajr hure arrestg aca stabty. The US

Treasury, crat wth the US Fe a FdiC, auce

a pa ate marchthe rst f seera prgras expecte t

hep baks cea up ther baace sheets by xg a aue

aage rtgages a reate securtes. As recet experecesuggests, cpetg cserats ust be baace

chsg whether preferre r c shares are use the

eet f ata fca capta jects. These cue the

pact cetes fr rasg prate capta, the upse a

wse rsks t taxpayers, a the egree f effecte ctr

authrtes wsh t assert er bae-ut sttuts.

Global and Regional Economic Outlook

The world economy continues to slide, but the

slowing pace of decline offers hope that the economicnadir may be near.

i 2009, gba utput s expecte t rp fr the rst te

sce Wr War ii, wth the prge aca crss pushg

the gba ecy t recess. The imF prjects the wr

ecy w ctract betwee 0.5% a 1.0% 2009. Grss

estc pruct (GdP) aace cutres s expecte t


16/138

14


ece betwee 3.0% a 3.5% 2009, fwg ackuster

grwth f 0.8% 2008. Yet, the spee a agtue f

the ecc se appears t be easg, as aggresse pcy

easures grauay take effect. Recery s st expecte t

beg eary 2010.

A synchronized downturn continues worldwide,

with the G3 economies (eurozone, Japan, and US)

mired in recession.

The US ecy shrak 6.3% the furth quarter f 2008

(quarter--quarter [q--q], seasay-ajuste auaze

rate [SAAR]), the st rap ece sce 1982 (Figure 1.13).

it s ast certa that the rst quarter f 2009 w see ather

sharp ctract. US csuer speg retreche a the

eep husg sup a grwg jb sses (Figures 1.14a,

1.14b). i bth the eurze a Japa, the recess s

eepeg as exprts capse, ustra pruct puges,

a uepyet surges. The prcess f aca eeeragg

exacte a heay t asset prces a cret cts.

The crss ay hae wpe ut we er USd50 tr

iterata metary Fu. 2009. Global Economic Polices and Prospects. nte

prepare fr the Grup f Twety msters a Cetra Bak Gerrs. 13-14

march. Aaabe: http://www.f.rg/extera/p/g20/031909a.ht

4.8 4.8

-0.2

2.8

4.4

2.9 2.8

0.4

4.0

-1.4

-0.5

-6.3

-5.8

-1.0

1.71.8

2.4

3.5

2.23.4

-1.0

3.4

1.4

-4.5

1.4

-12.1

-1.1

4.3

2.1

3.0

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

3Q2008

4Q2008

United States

eurozone

Japan

Figure 1.13: GDP1 Growth (SAAR2, %)

GdP = grss estc pruct. 2SAAR = seasay-ajuste auaze rate.

Surces: Eurstat (eurze), Bureau f Ecc Aayss (US), a Ecc a Sca Research isttute(Japa).


17/138

15


aca weath wrwe.6 Wth the gba cret cruch st

broadening, banks are tightening lending to businesses and

husehs, further aggraatg ecc actty. The egate

feeback p betwee the rea a aca sectrs ctues,

apeg the utk ee further. Hweer, se US ecc

catrs pt t a bttg ut f the curret w cyce

(Figures 1.15a, 1.15b). Aggresse etary easg asca stuus appear t hae bre se frut, athugh a cear

turaru reas subject t the effects f recet tates

t cea up bak baace sheets a esure the resupt f

cret.

Emerging Asia has been hit hard by the global

nancial crisis and economic downturn, although it

probably remains the best performing region amid

a deepening global recession.

Aggregate GdP grwth the reg s set t eceerate furtherths year as the gba recess eepes (Table 1.1). The

regs ecy experece a sbe sww the a

quarter f 2008, as a sharp faff G3 prt ea ha a

6 lser, Cau m. 2009. Global nancial turmoil and Emerging Market Economies:

Major contagion and a shocking loss of wealth?Aaabe at: http://www.ab.rg/

mea/Artces/2009/12818-gba-aca-crss/majr-Ctag-a-a-shck-

g-ss-f-weath.pf. AdB. march 2009.

data surey fr the isttute fr Suppy maageet. The

ex s a suary easure shwg the preag rect

a scpe f chage. A ex abe 50% cates that the

aufacturg ecy s geeray expag; bew 50%

cates that t s geeray ecg.

Surces: US Cesus Bureau, isttute fr Suppy maage-

et.

Figure 1.15a: Growth in Retail Sales

United States (y--y,%)

-6.0

-8.0

8.1

-10-8-6-4-2

02468

10

Jan-07

Jun-07

Nov-07

Apr-08

Sep-08

Feb-09

Figure 1.15b: Index of Manufacturing

Activity1 United States

36.3

32.9

50.8

2530

35

40

45

50

55

Jan-

07

Jun-

07

Nov-

07

Apr-

08

Sep-

08

Feb-

09

Figure 1.14b: Change in Non-Farm Employment

and Accumulated Job Losses2

Base the The Consumer Condence Surveycucte by The Cferece Bar. 2Accuuate jb sses sce deceber 2007; 2009 gures are pre-

ary.

Surces: oREi staff cacuats base ata fr the US departet f labr, Bureau f labr Statstcs, a datastrea.

Figure 1.14a: United States Consumer Confdence

Index1 (1985 = 100)

-700

-500

-300

-100

100

300

500

Jan-05

Aug-05

Mar-06

Oct-06

May-07

Dec-07

Jul-08

Feb-09

0

1000

2000

3000

4000

Change in employment ('000) Accumulated job losses ('000)

4384

-321

156186

-651

-122-72

165

368

Accumulated joblosses

Change in non-farmemployment

26

61

112

0

20

40

60

80

100

120

Jan-07

Mar-07

May-07

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09


18/138

16


Table 1.1: Annual GDP Growth Rates (%)

ADB

Forecasts1

2003 2004 2005 2006 200 200 200 2010

Developing Asia .1 . .1 . .5 6.3 3.4 6.0

Emerging Asia 2,3 .2 .0 .0 . .6 6.3 3.1 5.6

ASEAN 52 5. 6.0 5.5 5. 6.3 4. 1.6 4.3

iesa4 4.8 5.0 5.7 5.5 6.3 6.1 3.6 5.0

Malaysia 5.8 6.8 5.3 5.8 6.3 4.6 (0.2) 4.4

Phppes6 4.9 6.4 5.0 5.4 7.2 4.6 2.5 3.5

Thaa 7.1 6.3 4.6 5.2 4.9 2.6 (2.0) 3.0

vet na 7.3 7.8 8.4 8.2 8.5 6.2 4.5 6.5

Newly Industrialized Economies 3.2 6.0 4. 5.6 5.6 1. (3.3) 3.4

Hong Kong, China 3.0 8.5 7.1 7.0 6.4 2.5 (2.0) 3.0

Krea, Rep. f 3.1 4.7 4.2 5.1 5.0 2.5 (3.0) 4.0

Sgapre 3.8 9.3 7.3 8.4 7.8 4.6 (5.0) 3.5

Tape,Cha 3.5 6.2 4.2 4.8 5.7 0.1 (4.0) 2.4

Cha, Pepes Rep. f 10.0 10.1 10.4 11.6 13.0 9.0 7.0 8.0

ia7 8.5 7.5 9.4 9.6 9.0 7.1e 5.0 6.5

Japan 1.4 2.7 1.9 2.0 2.4 (0.6) (3.5) 1.1

United States 2.5 3.6 2.9 2.8 2.0 1.1 (2.4) 1.6

eurozone 0.8 2.1 1.7 2.9 2.6 0.8 (2.6) 0.5

Frecasts are fr Asa deepet outk 2009. 2Aggregates are weghte accrg t grss ata ce

ees (atas eth, curret USd) fr Wr deepet icatrs (Wr Bak). icues ASEAn5, niEs, Pepes

Repubc f Cha, a ia. 4GdP grwth rates fr 19992000 are base 1993 prces, whe grwth rates fr

2001 war are base 2000 prces. Grwth rates fr 19992000 are base 1987 prces, whe grwth rates

fr 2001 war are base 2000 prces. 6Fgures fr 20042006 are t ke t the GdP gures prr t 2003

ue t nata Statstcs ofce ress f sectra estates. 7 Fr sca year Aprmarch. 8Refers t year--year

grwth, seasay ajuste ata. e = estate

Surces: AdB; Eurstat webste (eurze); Ecc a Sca Research isttute (Japa); Bureau f Ecc

Aayss (USA).

egate effect exprts a ustra actty eergg Asa

(Figures 1.16a, 1.16b). The pact f the gba wtur

has bee re eate a raatc fr the regs re

pe, ewy ustraze eces (niEs): Hg Kg,

Cha; Repubc f Krea (Krea); Sgapre; a Tape,Cha.

Aggregate GdP f the niEs s prjecte t ctract fr the

rst te sce the heght f the 1997/1998 Asa aca

crss. A sgcat sww s as key fr e Asscat


19/138

1


f Sutheast Asa nats (ASEAn) eces: iesa,maaysa, Phppes, Thaa, a vet na. Hweer, ther

w rect expsure t trube assets cupe wth reatey

reset estc ea hae cushe these eces

fr the wrst effects f the crss, espte ther heay reace

extera ea fr ecc grwth. i the PRC, the wrs

thr argest ecy, grwth s expecte t sw t 7.0% ths

year prary ue t the precptus rp exprt ea. The

gerets sca stuus package, hweer, has starte t

ga tract. Fr exape, xe-asset estet rse 26.5%

(y--y) the rst 2 ths f the year, just bew the 4-year

aerage f 27% (Figures 1.1a, 1.1b, 1.1c, 1.1d). GdP

grwth ia s as expecte t sw sgcaty as exprts

a prate estet weake, a pcy supprt s cstrae

by te sca hear.

The near-term outlook for the global economy

remains grim, despite some tenuous signs of

stabilization; signicant downside risks remain

given the uncertainty surrounding resolution of

problem assets and the effectiveness of stabilization

policies and economic stimulus.

Athugh ajr eces hae take extrarary pcy

easures t supprt grwth a ste the sper effects f

the aca crss, st puts w prect that a tagbe

ecc recery w t be fet ut eary 2010, rather tha

urg the sec haf f ths year, as earer expecte. dwse

rsks st abu. despte extese pcy acts take by

gerets wrwe, t reas ucear whether these

3-th g aerage (USd aue). 2Refers t Hg Kg, Cha; iesa; Krea, Rep. f; maaysa; Phppes; Sgapre; Tape,Cha; Thaa;

a vet na. 3-th g aerage.

Surce: oREi staff cacuats base CEiC ata.

Figure 1.16a: Export Growth1 (y--y, %) Figure 1.16b: Industrial Production Growth3 (y--y, %)

-25-20-15-10-505

1015202530

354045

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

35.0

21.326.6

-14.4

9.0

-22.5

22.1

-9.3

40.7

Emerging Asia2

People's Rep. of China India

-20

-15

-10

-5

0

5

1015

20

25

18.3

5.6

15.9

3.7

10.1

2.45.1

-17.7

13.5

0.1

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

People's Rep. of China (PRC)

Emerging Asia

India


20/138

1


easures are effectey wrkg ther way thrugh the gba

aca syste. Rsg efauts a ctue eterrat f

ecc cts cu prg a tesfy aca stress,partcuary wth gba bakg systes struggg t repar

baace sheets a recaptaze.

Trade remains a potent channel for the international

transmission of shocks, leading to a downward

spiral through declines in world demand, industrial

production, and trade activity.

Wth G3 ea w sharpy, wr trae a pruct hae

puete sce the ast few ths f 2008 (Figure 1.1).

Weakeg grwth perfrace by arge eergg arketeces, cug -exprtg eces, has as battere

wr trae. Reucts trae pee grwth eergg

Asa eces, where exprts rea a prtat ege

f grwth. i at, eergg Asas trarega trae

has pre ery uerabe t chagg ea cts

ajr ustra cutres. Eergg Asas pruct etwrks

hae bee serusy affecte, wth the PRCs re as a rega

20.5

14.814.6

24.2

Sep-08

Feb-09

101214161820222426

Jan-07

Jun-07

Nov-07

Apr-08

Money Supply

Bank Lending

26.5

18.7

30.7

22.3

10

15

20

25

30

35

Jan-07

Jun-07

Nov-07

Apr-08

Sep-08

Feb-09

38.6

44.3

57.9

30

35

40

45

50

55

60

Apr-07

Sep-07

Mar-08

Sep-08

Mar-09 Apr-

07Sep-07

Mar-08

Sep-08

Mar-09

24.7

-14.5

37.2

10.6

-20

-10

0

10

20

30

40

Refers t m2. 2PRC = Pepes Repubc f Cha. A cpet f the ClSA Purchasg maagers iex (Pmi), whch seres as a catr f au-

facturg busess cts. A reag abe 50 cates a crease the arabe sce the preus th a bew 50, a ecrease.

Surces: CEiC atabase, datastrea.

Figures 1.1a: Growth in Money Supply1 and

Bank LendingPRC2(y--y, %)Figures 1.1b: Growth in Urban Fixed Assets

InvestmentPRC (y--y,%)

Figures 1.1c: CLSA Manufacturing Output

Index3 PRCFigures 1.1d: Growth in Vehicle Sales

PRC (y--y,%)

6.2

-1.0

12.311.0

-3.5

4.0

1.5

5.2

-1.0

-6

-3

0

3

6

9

12

15

1981 1985 1989 1993 1997 2001 2005 2009f3

GDP Growth

Trade

Figure 1.1: World GDP1 Growth and

World Trade Volume2(y--y chage, %)

GdP = grss estc pruct. 2Wr Exprt vue. f =

frecast.

Surces: Asian Development Outlook 2009, Asa deep-

et Bak; World Economic Outlook Database (oct 2008) a

Global Economic Policies and Prospects for the G20 Meeting

of the Ministers a Cetra Bak Gerrs, iterata

metary Fu.


21/138

1


asseby hub fr a pructs este fr G3 arkets. A arge

prprt f the tereate gs use by the PRC the

asseby f these a pructs are suppe by ASEAn a the

niEs.7

it s ast certa that a r recery f the regsexprt-epeet eces w epe recery gba

ea, ge these tght trae kages.

The two main risks to the outlook are (i) that

the world economy stagnates once the recession

bottoms out, or (ii) stabilization and stimulus

measures fail to break the vicious feedback loop

between nancial crisis and economic recession.

Bey ra trasss chaes f trae a ace,

uexpecte ecc weakesses cu surface f the recesss uuy prge. Se f the re tceabe weak spts

cue () Cetra a Easter Eurpea aca systes, whch

cu wrse raatcay wth spers t Wester Eurpe,

further estabzg the gba bakg syste; () subpre

cret sectrs, whch are expecte t face creasg efauts

urg the recess; a () pes a ther sttuta

estrs, whse baace sheets hae bee sgcaty hurt

by the aca crss a fag share prces. Wth the gba

ecc wtur a creasg jb sses, ccers er

a re-eergece f prtects are as rsg. Whe st

gerets rea ctte t free trae, seera cutreshae sttute what aut t exprt subses, rase tarffs,

epye cpette exchage rate eprecats, r grate

prefereta treatet fr estc pructs.8

7 See Ucupg Asa: myth a Reaty Asa deepet outk 2007. Aa-

abe at: www.ab.rg/cuets/bks/Ado/2007/part01-ucupg.pf

8 See newfarer, Rchar a Esa Gaber. 2009. Trade Protection: Incipient

but Worrisome Trends. Wr Bak. 17 march. Aaabe: http://steresurces.

wrbak.rg/nEWS/Resurces/Trae_nte_37.pf.


22/138

20


Capital Flows and External Finance

External funding conditions for emerging Asia have

deteriorated sharply amid the intensifying globalcredit crunch and continued deleveraging, although

external positions remain relatively sound for most

economies in emerging Asia with total foreign

reserves reaching USD3.4 trillion in 2008.

Eergg Asas extera acg has bece re csty a

ess aaabe, as the gba cret cruch braes a rsk-

aerse estrs requre greater cpesat fr takg rsks.

Cret spreas eergg Asas sereg a crprate bs

have widened substantially (Figure 1.1). The eterrat

asset quaty a the ecc wtur hae as reuceextera fug pprtutes. oera, eergg Asa basts

geeray heathy extera psts the back f persstet

curret accut surpuses a hgh ees f terata

reserves (Figures 1.20a, 1.20b, 1.20c). netheess, se

f the regs eces face ctue fcutes tappg

terata fug arkets a/r rg er ther freg

ebts. Tugher extera acg cts pse chaeges

fr the cutres that rey heay extera fug surces,

partcuary a shrt-ter bass, a hae w terata

reseres. i cutres where strg capta ws past

years e t excesse cret grwth a hgh eerage,

estc bakg systes rea partcuary uerabe

t a sharp reersa capta ws. As part f easures t

Figure 1.1: Emerging Asia Bond

Spread1 (bass pts)

738

620

850

482

0

10 0

20 0

30 040 0

50 0

60 0

70 0

80 0

90 0

SovereignStripped

Corporate

Jan-

07

Apr-

07

Jun-

07

Sep-

07

Dec-

07

Mar-

08

Jun-

08

Sep-

08

Dec-

08

Mar-

09

Refers t JP mrga Eergg market B ices (EmBi)

Asa crprate a sereg-strppe spreas (er

crrespg US zer cup rate).

Surce: Bberg.

Eergg Asa Hg Kg, Cha; iesa; Krea, Rep. f; maaysa; Phppes; Sgapre; Tape,Cha; a Thaa. 2GdP = grss estc pruct.PRC = Pepes Repubc f Cha.

Surces: iterata Faca Statstcs, iterata metary Fu; a ata surces fr CEiC atabase.

Figure 1.20a: Net Financial

Flows, Current Account, and

Forex ReservesEmerging

Asia1

Figure 1.20b: Net Financial


Forex ReservesPRC3

Figure 1.20c: Net Financial


Forex ReservesIndia

-6.0-4.0-2.00.02.04.0

6.08.0

2000 2001 2002 2003 2004 2005 2006 2007 2008

0

200

400

600

800

1000

1200

% of GDP USD billion % of GDP USD billion

-6-4-202468

1012

2000 2001 2002 2003 2004 2005 2006 2007 2008 0

50

100

150

200

250

300

% of GDP USD billion

02468

1012141618

200020012002200320042005200620071H071H080

400

800

1200

1600

2000

Current Account to GDP Net Financial Flows to GDP2 Forex Reserves less gold


23/138

21


11.915.5

29.7

45.1

70.5

98.1

44.2 43.2

129.1

0

20

40

60

80

100

120

140

2000 2001 2002 2003 2004 2005 2006 2007 2008

Figure 1.21: International Equity

Issuance1Emerging Asia2(USd b)

Refers t auce ssues; ssues that e a cba-

t f estc a terata traches are csere

tta as terata ssues. 2icues Cha, Pepes Rep. f;

Hg Kg, Cha; ia; iesa; Krea, Rep. f; maaysa;

Phppes; Tape,Cha; a Thaa.

Surce: Bak fr iterata Setteets.

supprt uerabe cutres urg the crss, the imF recety

auce the creat f a ew exbe cret e fr cutres

wth ery strg fuaetas, pces, a track recrs f

pcy peetat. Ths s part f the ew gba acaarchtecture ese by gba eaers urg the recet

G20 sut l t bu a strger a re reset

gba aca syste bey the curret crss. Uer ths ew

syste, utatera aca sttuts such as the imF, Asa

deepet Bak (AdB), a Wr Bak are expecte t pay

greater roles (Box 1).

With difcult external nancing conditions,

international issuance by emerging Asia has dropped

sharply.

Tta terata equty ssuace by the eces f eergg

Asa 2008 aute t USd43.2 b, abut e thr f the

USd129.1 b ffere 2007 (Figure 1.21). B ssuace

was as weak, wth tta crprate a sereg eurb

ssuace fag t USd11.6 b 2008, w fr USd23.7

billion the previous year (Figure 1.22). durg the ast quarter

f 2008, the regs eurb ssuace rtuay cae t a hat.

As the ust grauay sette fr the aca pac asscate

wth the leha Brthers capse, the attracte prcg f

eergg Asa ssuers starte t catch estrs attet. A

urry f ew eas eergg Asa ebt a equty arketswere auce Jauary. o the equty se, the Bak f

Cha a Cha Cstruct Bak ae ta pubc ffergs

(iPos) at heay scuts cpare wth the st recet trag

prces. o the ebt se, the Exprtiprt Bak f Krea s

USd2 b wrth f bs a the Phppes ssue sereg

bs wrth USd1.5 b. Whe a extreey chaegg

eret s expecte t persst 2009, sar bursts f

actty ca be expecte thrughut the year as seers prce

ther ffergs aggressey t attract ea a ery w

terest rates.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Sovereign bonds

Corporate bonds

Figure 1.22: Corporate and Sovereign Eurobond

VolumeAsia1 (ex Japan) (USd )

Refers t Cha, Pepes Rep. f; Hg Kg, Cha; ie-

sa; Repubc f Krea; maca, Cha; maaysa; Phppes;

Sgapre; Tape,Cha; Thaa; a vet na.

Surce: deagc.


24/138

22


Box 1: Reshaping the Global Financial Architecture

The scae f the curret gba crss suggests that t s

ukey t be ctae wth ata brers. Wthcreasg gbazat, aca stabty has bece a

gba pubc g, as certa aspects f crss preet

a resut requre strger gba cperat a

supers; a cecte act at the gba, rega,

a ata ees.

Gba aca archtecture refers bray t the

sttuta, reguatry, a supersry fraewrk

gerg gba aca systes a arkets. i

the wake f frequet aca crses the 1990s, the

terata cuty cae tgether wth a esre t

build a system that would be more resilient to sudden

shcks a crses. Reectg the structura weakesses

f eergg arket eces, refrs fcuse

uwg extera baaces a prg exbty

ther freg exchage reges. A set f easureswas as prpse t hep preet crses a stregthe

reguatry a supersry fraewrks. Hweer, these

effrts reae argey ce t the ata ee.

Te years ater, the wr faces the wrst aca crss

sce the Great depress. Cfrte by the threat f

a aca etw a gba recess, the eaers f

the G20 ats et a agree t take acts t stp

the sprea f the crss effects a shre up the swg

gba ecy (Table B1). The G20 as recgze the

aequacy f the exstg sttuta set-up fr aca

rues a reguats, a prpse refrs f gba

aca archtecture that seek t reuce a ctr

threats f a systec aca etw the future.

Table B1: Group of 20 Leaders Agree on a USD1.1 Trillion Package

a ew erraft facty (r speca rawg rghts

acat) f USd250 b

supprt the wrs prest cutres by creas-

g eg capacty f mdBs, cug the Asa

deepet Bak (AdB), by up t USd100 b-

lion

4) Supprt gba trae by prg greater access t

trae ace

rase USd250 b t supprt trae ace er

the ext 2 years, whch w be ae aaabe

thrugh exprt cret a estet ageces,as we as thrugh mdBs

5) A prtectst pces

tfy the Wr Trae orgazat (WTo) f ay

easures that cstra wrwe capta ws

request the WTo t tr a reprt pubcy

such cstrats a quartery bass

Surces: varus reprts, ewspaper accuts.

The Grup f 20 (G20), whch has he aua eet-

gs sce ts cept 1999, has eerge as a hub

frgg a gba sut t a gba crss. At ts 2

Apr eetg l, G20 eaers auce a a-

rety f easures t tacke the gba ecc crss

a agree t eet aga new Yrk Septeber

t fw-up prgress ae. The act agea s

suarze bew:

1) ipeet tugher aca reguats

estabsh a ew Faca Stabty Bar t re-pace the Faca Stabty Fru

2) Cap w tax haes

peet sacts agast tax haes a

pubsh a st f cutres that t abe by

terata staars fr the exchage f tax

frat

3) icrease eg a mdBs t assst eepg

cutres

crease resurces aaabe t the iterata

metary Fu (imF) t USd750 b, cug


25/138

23


There are e bra prcpes that shu be csere

fr refrg the gba aca archtecture:

Frst, a ew gba aca archtecture shu

cue a gerace syste that s far a cuse.

deepg cutres, partcuar, shu hae greater

represetat the refr prcess a sttuta

esg t reect the grwg presece f ther

eces the wr ecy a aca arkets.

A gerace syste wth greater represetat

fr the eepg wr w as ffer egtacy

fr ay gba sttuta set-up a supprt ts

perats effectey. Wth the grwg presece f

eepg cutres the gba aca arkets, the

curret crss presets a pprtuty t craft a truy

terata fraewrk that w reect the eut f

the gba ecc a aca ascape.

Sec, the reguatry a supersry fraewrk ees

t be cpreheseeag phesa hae

aequate efrceet pwers. The gba reguatry

syste ust be base a tghty-weae etwrk f

national and regional authorities that are empowered

each respecte jursct t sact a peaze

atrs. The curret crss has ts rg excesse

rsk-takg by prate sectr sttuts asscate

wth reguatry ects ustra eces wth

re ature aca systes. The agtue f the

curret crss shws the graty f reguatry apses,

regaress f the types f aca pructs a aca

sttuts e, r the jursct where they tk

pace. A sttuta set-up fr aca reguat at

the gba, rega, a ata ee cu as becsere t hae truy cprehese cerage wth

respect t reguatry jursct.

Thr, a re systec acr-prueta apprach

ees t be truce t the aca reguatry a

supersry syste. macr-prueta sureace

fcuses rsks t the aca syste as a whe.

Such rsks ay be crss-cuttg, affectg a uber f

rs a arkets, athugh they ay be ccetrate

a few key areas at tes. Effecte acr-prueta

ersght at the gba ee wu requre crat

f gba acrecc pces thrugh the ups a

ws f ecc a aca cyces t a abu-up f aca excesses a t susta ecc

stabty. Stregtheg rega cperat thrugh

trg a sureace tates wth exstg

rega arrageets ca as pre ata

resece, ee agast arge extera shcks.

Furth, a ew gba aca archtecture ees t

aress the pr-cyccaty f aca systes wth the

eet f prueta reguatrs, acr-prueta

supersrs, a reate staar-setters. macr-

prueta easures, cug frwar-kg rsk

eauat a aequate quty prsg, ca hep

a pr-cycca effects such as arge aca swgs

that hae estabzg effects a ecy. Hweer,

reguatry a supersry pces, such as capta

staars, accutg rues, a ther reguatry

restrcts, shu t thesees put ujuste

pressure aca sttuts r apprpratey hbt

eg urg ecc wturs. Gug prcpes

effrts t reuce pr-cyccaty cue () tg the

csts f aca stress the ctract phase, a

() restrag the bu-up f rsk urg the expas

phase. it s prtat t estabsh buffers the syste

urg pers f expas a t pre fr ther

ctre ru-w whe stras ateraze.

Ffth, a ew gba aca archtecture shu cser

a eer-f-ast-resrt facty. Preus experece

shws that prate acg tes t ry up urg

tes f crss a utatera eepet baks

(mdBs) fte step t pre esseta quty. Aarea f partcuar ccer s trae ace, as a sue

reuct the cerca cret aaabe t exprters

fte trasts the effects f aca stress recty t

the rea ecy, whch eays the recery prcess

ay eepg cutres. icreasg the eg

capacty f mdBs t ea wth such stuats ca be

part f a effecte crss respse. Fr cash-strappe

busesses, the rues ctates ay as ee

t be reaxe t factate ther access t these cret

es.


26/138

24


The nancial outlook for emerging Asia is less bleak

than for other regions, with net private capital

inows to the regions capital markets expected to

remain positive this year, albeit down sharply fromtheir 2007 peak.

net prate capta ws t eergg Asa are expecte t reach

USd64.9 b 2009, w fr USd96.2 b 2008

a USd314.8 b 2007, accrg t the isttute f

iterata Face (Figure 1.23). The ece capta ws

ca be argey attrbute t a sharp rp freg cerca

bak eg the reg, whch ttae a et repayet f

USd25.3 b 2009 after a et w f USd29.8 b

2008. Chages et equty estets are expecte t be

ess raatc, athugh et prtf equty ws ture sharpyegate the sec haf f 2008 as gba estrs reeee

a repatrate fus qucky as a way f repstg ther

prtfs away fr rsky eergg arket assets r t use

resurces t ffset sses esewhere. Prtf ws are expecte

t recer ater ths year the back f re attracte prces

a a reatey pste grwth utk fr the reg, athugh

the rebu w be sw a ukey t happe ut the sec

haf f the year. Authrtes hae truce arus easures t

supprt ca stck a b arkets, whe geeray ctug

ther effrts t beraze a ereguate ther aca arkets

(Table 1.2). o the ther ha, freg rect estet (Fdi)ws are tratay re stabe tha ther cpets f

prate capta ws.

Monetary Policy and Exchange Rates

Global monetary policy has become expansionary

amid the deepening global recession and moderating

ination.

The US Fe has kept ts pcy rate wth a rage f 0% t 0.25%

sce deceber 2008 after hag ae 10 cuts ttag 500 bp

sce Septeber 2007. i at, t ae a rastc shft t

cret easg march by tatg a pa t buy up t USd300

b wrth f geret ebt a a ata USd750

b f rtgage-backe securtes, brgg tta purchases

t er USd1 tr t hep bst bak eg a prte

ecc recery. other ajr cetra baks aru the wr

hae as bee acte. The Eurpea Cetra Bak has cut ts

112.9

85.7

201.9

-63.3

-20.8

179

315

-100-50

0

50

100

150

200

250

300

350

1995 1997 1999 2001 2003 2005 2007 2009f

65

179

Equity Flows

Credit Flows

Private Capital Flows

Figure 1.23: Net Private Capital Flows

Emerging Asia1(USd b)

f = frecast.Refers t ia; iesa; maaysa; Pepes Repubc f

Cha (PRC); Phppes; Repubc f Krea; a Thaa.

Surce: isttute f iterata Face.


27/138

25


Economy Regulations

China, Peoples

Rep. of

Bond Market

Awe cay-ste baks t buy a se bs the stck exchages a pt bass [Ja09]

Reease fca rues t aw sharehers f ste cpaes t ssue exchageabe bs [oct

08]

Awe crprats (cug freg rs) t ssue securtes the terbak b arket [Apr

08]

Equity Market

Reuce the stap uty stck trag fr 0.3% t 0.1% t stabze the stck arket [Apr

08]

Reease Gug op the Trasfer f Stck Shares wth Terate Saes lts t reguate

the trasfer f shares that hae areay uerge equty s [Apr 08]

Reache a agreeet wth the Faca Serces Agecy f Japa the Quae destc

isttuta iestr syste [Feb 08]

Foreign Exchange Market

Starte usg the yua as the setteet currecy trag wth eghbrg terrtres [dec

08]

Tghtee restrcts the w f freg exchage a ts cers t yua, a ee

practce f kg the yua sey t the US ar [Aug 08]

Hong Kong, China Bond Market

Ehace arket quty/prce trasparecy by auchg eectrc trag patfr, E-Bond

[dec 08]

lauche a eectrc trag patfr fr geret bs [dec 07]

Equity Market

issue rese Aertsg Guees fr arketg ateras fr estet fus [Ja 09]

itruce e-gt stck ces t ffer re stck ce capacty t supprt future arket

grwth a pre exbty t staarze a rataze stck ce casscat [Apr 08]

Estabshe Hg Kg Shara Asry Cuc t et isac aca struets [n 07]


Appre Hg Kg Exchages a Cearg lte prpsa t aw exchage partcpats t

trasfer ther cearg a setteet bgats the Cetra Cearg a Setteet Syste t

ather (thr party) cearg partcpat [n 07]

India Bond Market

icrease freg sttuta estr (Fii) t rupee-eate crprate bs fr

USd6 b t USd15 b [Ja 09]

Aee Securtes Ctracts Reguat Act t cue securtze struets [may 07]

Aee the Resere Bak f ia Act t eep a reguate arket fr crprate bs [Ja

07]

Table 1.2: Emerging Asia Capital Market Regulatory and Policy Changes (2007preset)


28/138

26


Economy Regulations

Table 1.2 continued.

Equity Market

icrease the t fr erseas estets by utua fus fr USd5 b t USd7 b[Apr 08]

ipeete ew erates trag easures, cug: () starte US ar-eate

futures trag [Feb 08]; () awe trag f pts ctracts ces a stcks wth a

ger fe/teure (up t 5 years) [Ja 08]; a () auche exchage-trae currecy futures

[Aug 08]

lauche Securtes leg a Brrwg Schee t factate shrt seg f securtes [Apr

08]

ipse ta pubc fferg (iPo) grag as a cpusry requreet fr cpaes [may

07]


opee frex swap facty fr pubc/prate sectr baks wth freg braches r subsares

[n 08]

lberaze the Extera Cerca Brrwg Rues; a rase terest rate cegs f seecte

epsts [n 08]

Pege t ctue sae f USd thrugh aget baks t auget suppy the estc freg

exchage arket [Sep08]; a truce speca arket perats t eet frex requreets

f pubc sectr arketg cpaes [may 08]

Indonesia Bond Market

Fre a b prcg agecy t pre referece prces fr geret a crprate bs

[Ju 08]

Passe the isac Shara B t eabe the Geret t se isac bs [Apr 08]

Fraze the csat f the Jakarta Stck Exchage a Surabaya Stck Exchage [n

07] Reease ew ucpa b rues a staars; a egbty rues fr utua fus [1H 07]

Equity Market

Awe cpaes t buy back 20% f ther shares wthut the ee fr shareher appra

[oct 08]

issue guees gerg the fferg a aageet f Rea Estate iestet Trust (REiT)

r rea estate stcks t eep the structure ace arket [1H 2008]

Rese rues a prceures cesg prceures f securtes cpaes [Sep 07]

maate strct backgru checks cets wth hgh rsk f ey auerg [Aug 07]

Requre pubcy-ste cpaes t subt perc aca stateets a aua reprts [1H

2007]


Requre cty exprters t use etters f cret ssue by ca baks t keep the freg

currecy prcees wth a bak shre t reuce capta utws [Ja 09]

Bae baks fr seg erates a structure pructs reate t specuat eas [dec

08]

lte the purchase f freg exchage abe $100,000 t thse wh ca justfy trasacts

[n08]


29/138

2


Economy Regulations


icrease freg exchage swaps ter t a axu f 1 th [oct 08]

Ease the freg currecy resere requreet fr 3% t 1% [oct 08]

Starte t recyce freg exchage recepts fr [Septoct 08]

Korea, Rep. of Bond Market

Frat f a KRW10 tr b arket stabzat fu wth ca baks ctrbuts [dec

08]

Aee the Reguat Supers f Securtes Busess t factate exchage a ff-

exchage securtes trag a b estet by freg estrs [dec 07]

Requre securtes cpaes t reprt t the Krea Securtes deaers Asscat staarze

bs a ffers fr a ff-exchage trae bs rea-te [Ju 07]

Aee the tax aw hgh-ye fus pursuat t the reuct f tax rate fr fus that est

10% r re f assets specuate-grae crprate bs a cerca papers [mar 07]

Equity Market

Bae shrt seg f a ste stcks a awe ste cpaes t buy back 10 tes re

f ther w shares fr the arket [Sep 08]

Awe fe surers t be ste the stck arkets [Apr 07]


itruce a cpette auct swap facty [oct 08]

Malaysia Bond Market

Ree aatry cret ratg requreet fr certbe/exchageabe bs a sukuk [mar

09] Awe the stg f sukuk r ebt securtes eate rggt a freg curreces

Bursa maaysa, wth stg fees wae ut 2010 [dec 08]

Accre specc exbtes t expete the ssuace f freg currecy-eate bs a

sukuk, cug tax exept fr freg currecy-eate sukuk ssue cay [mar 07]

Equity Market

ipeete easures t reuce te-t-arket rasg fus, cug: exepte uste

pubc cpaes fr hag t bta prr appra fr ssuaces a ffergs f equty

securtes [mar 09]

Passe the Capta markets a Serces Act 2007, whch csate the Securtes iustry Act

1983, Futures iustry Act 1993, a a sect f the Securtes Css Act 1993 [Sep 07]

itruce a sge cesg rege a statutry prss t recgze isac pructs [Sep

07]

itruce trag hat t reuce suspes per a ehace arket efcecy [Aug 07]


lberaze the Freg Exchage Astrat rues wth regar t () ts freg currecy

a rggt-eate cret factes [Apr 07], () brrwgs freg currecy/rggt by

resets [may 08], 3) frex trasacts fr rea estate acg purpses [may 08], a 4) frex

trasacts f isac baks/takafu peratrs a aageet f isac fus shre [Sep

07]


30/138

2


Economy Regulations


Philippines Bond Market

ipeete reguats gerg er-the-cuter (oTC) trag t prhbt securtes eaersfr eag recty wth the pubc [dec 07]


Appre the 3r phase f refrs the frex reguatry fraewrk, cug () ftg Bagk

Setra g Ppas (BSP) appra requreet fr freg as wth aturtes ger tha e

year fr re-eg; a () prg trg f freg exchage ws [Ja 09]

ipeete the 2 phase f frex refrs, cug: () creasg the aut awe fr

freg exchage purchases fr baks by resets fr -trae curret accut trasacts

a utwar estets; a () expag the use f frex swaps g the pes [dec 07]

Equity Market

ipeete the rese Rues lstg By Way f itruct Apr 2009 [Apr 09] Requre ste cpaes t egage the serces f a uerwrter [mar 08]

Appre rese rues shrt seg [oct 07]

Singapore Bond Market

Auce the cpet f sereg-rate sukuk facty [Ja 09]

Atte baks as cearg ebers f ts securtes arket [Ju 08]

Auce that ce fr shara-cpat aca acttes w be ge a ccessary 5%

ce tax rate; ces fr quafyg sukuks are exept fr tax [Feb 08]

Aee the Prperty Fu Guees t cue: ehace scsure requreets the

use f shrt-ter, ye-ehacg arrageets; pre guace perssbe xe-ter

aageet ctracts; requre rea estate estet trusts t est at east 75% f assets

ce-prucg rea estate; a ree 5% sge party t fr estet-reate securtes[Sep 07]

Equity Market

Rese ta iPo strbut t requre () prary stg t hae at east 500 pubc sharehers,

a () secary stg t hae at east ether 500 ca r 1,000 wrwe sharehers [mar

09]

Ree t the uber f ew shares fr the cers f utstag certbes [mar

09]

itruce the fwg ew easures t factate fu rasg effrts: () awe ssue up

t 100% f share capta a a pr-rata reucabe rghts ssue; () awe ste ssuers t

uertake paceets f ew shares prce at scuts f up t 20%, subject t certa cts;

() awe paceets t certa sharehers wthut specc sharehers appra; ()

awe uerwrters t cue -ajr sharehers f the ssuer as sub-uerwrters; a ()

appre whe-ssue trag f rghts shares t cece the ext busess ay after the

cse f rghts ffer [Feb 09]


Extee ut oct 09 the teprary recprca currecy swap e wth the US Feera Resere

[Feb 09]


31/138

2


Economy Regulations


Taipei,China Bond Market

Awe surers t ake as t utse partes t ssue bs wth capta characterstcs [dec08]

lauche the Eectrc derate Trag Syste (EdTS) [mar 07]


Aee the Reguats Gerg Securtes iestet Trust Fus t pre estrs wth a

wer rage f aca struets [dec 08]

Prugate the Reguats Gerg Freg Exchage Busess f isurace Eterprses t

reguate freg exchage busess cucte by surace cpaes [Apr 07]

Awe authrze baks t k freg exchage erates t estc equtes [Apr 07]

Equity Market

Awe cpaes t set the ssue prce at a arger scut [1Q 09]

me the speccats a setteet prceures fr equty pt ctracts [Ja 09]

Aee the Reguats Gerg the offerg a issuace f Securtes by Freg Securtes

issuers t ecurage re freg rs t st Tape,Cha [Ja 09]

Aee reguats gerg pubshe frat aua reprts a prspectuses [Ja

09]

Awe estc securtes rs a baks t trae erates ke t estc equtes

wth ffshre erseas Chese a freg atas that hae t regstere Tape, Cha [n

08]

Aee seera reguats t ease trag wth maa Cha Area [Sep 08]

Ease restrcts securtes eaer stck brrwg a eg (SBl) trasacts [Sep 08]

Appre the fwg easures: () awe pratey-pace freg utua fus a ut trusts

t brrw securtes [mar 07]; a () awe freg estrs t egage trag f er-the-cuter (oTC) equty erates, a estc eterprses t ssue erseas arketabe securtes

[Apr 07]

Thailand Bond Market

Rese rues gerg the ssuace f shrt-ter ebt securtes t aw greater exbty

[2008]

Aee reguats securtes brrwg/eg/shrt seg t pre rsk aageet

[Apr 08]

Eacte the Trust fr Trasacts Capta market Act, whch eabes the estabshet f a trust

t reuce efaut rsks cases where securtes ssuers face aca harshp r bakruptcy [Ja

08]

Aee the Securtes law t ehace estr prtect as we as SECs epeece,

perata exbty a supersry effecteess [dec 07]

Equity Market

lauche ew pruct, sge stck futures, as a ata aterate estet [n 08]

Appre the crease the quta f freg securtes estets t USd30 b [mar 08]

Appre easures t curb shares apuat by requrg brkers t keep recrs f trasacts

fr 5 years a cucat recrs betwee brkers a estrs fr at east 1 th [Feb

08]


32/138

30


Economy Regulations


Appre the ut-cass estet f utua fus t crease aterates fr fu estabshet

a ffer ca estrs wer pts t ersfy beets [Ju 07]


lfte the 30% ureuerate resere requreet (URR) shrt-ter capta ws [Feb 08]

Ease easures t aage capta ws, cug () easg the URR easure Tha crprats

freg currecy brrwg a -resets estets prperty fus; () creasg the

t fr purchase f prpertes abra fr USd1 t USd5 ; a () rasg the t

a expag the scpe fr estet a eg abra fr Tha cpaes [dec 07]

icrease awabe utwar freg rect estet by ste cpaes t USd100 per

year a awabe rettaces by resets t USd1 per pers per year [Ju 07]

Reaxe exchage ctr reguats capta ws a hg f freg currecy such as

awg sttuta estrs t crease ffshre estets t USd50 [Ja 07]

Viet Nam Bond Market

issue reguat prg Ha Securtes Trag Ceter a ega fraewrk t uertake the

aageet f geret b trag [Ju 08]

Expae State Treasurys utstag bs by 16% a awe arket t etere rates [n

07]

Requre baks t specfy the use f fus fr capta expas; a authrze a e-year tra

wth cret efaut swaps [2007]

Equity Market

i respse t stck arket ece 2008, () ajuste ay trag ba fur tes, ()

stregthee prueta/scsure rs, () eaye iPos, () pstpe equtzat f state-

we eterprses, a () este the stck arket [2008]

ipse 3% ceg fr tta eg f stck cateraze as a truce capta gas tax[2007]


Wee the gs trag ba t 0.75% [dec 07] a t 1.0% [mar 08]; a awe the g

t uctuate by 2% [Ju 08], 3% [n 08], a 5% [mar 09]

reacg rate t 1.25% thrugh cuuate rate cuts ttag

300 bp sce octber 2008. The Bak f Japa as je the

gba etary easg cyce, by twce cuttg ts bechark

terest rate by 20 bp t reach 0.1%. These aggresse es

hae bee accpae by ther pcy easures t ufreeze

ey a cret arkets, cug asse quty supprt,

terbak eg guaratees, a recaptazat f stresse

baks. The target US feera fus rate s expecte t rea

ear zer ut deceber 2009, ge the feera fus futures

(Figure 1.24). Uerpg the wesprea expectat f

ctue w terest rates, at reas w.


33/138

31


Monetary authorities in the region have dramatically

shifted their stance from tightening to easing since

mid-September, as the spillover effects from the

global nancial crisis hit the real economy, withination easing across the region.

Pcy rates hae bee cut acrss the reg ght f the

eepeg gba recess a ts creasg sper effects

the regs eces. The Pepes Bak f Cha was rst t

wer terest rates. After 5 years f tghteg etary pcy

t ght at, the PRC abrupty reerse curse Septeber

2007; cuttg terest rates by 27 bp, werg resere

requreet rats, a ftg restrcts bak eg. Sce

the, the PRCs bechark terest rates hae bee cut e

tes by a tta f 216 bp (Figures 1.25a, 1.25b, 1.25c). iia, eratg at pre r fr the Resere Bak

f ia (RBi) t reerse ts earer tghteg stace a pursue

expasary cret pces begg octber 2008. The RBis

key pcy rates a resere requreets hae bee reuce

betwee octber 2008 a march 2009, wth the repurchase

a the reerse repurchase rates currety at 5.0% a 3.5%,

respectey. The etary authrtes the niEs hae as

see ther pcy staces a truce arus easures t

stabze aca arkets, cug epst guaratees, quty

jects, freg exchage arket terets, a aca

assstace packages. iterest rates hae bee cuuatey cut Krea a Tape,Cha, by 300 a 237.5 bp, respectey. i

octber 2008, the metary Authrty f Sgapre auce

a shft pcy t zer percet apprecat f the Sgapre

ar. may ASEAn eces as were terest rates

1.0

3.0

0.8

0.40

1

2

3

4

5

6

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

as of 15 Dec 2008

as of 15 Aug 2008

as of 31 Mar 2009

Dec-09

Figure 1.24: US1 Federal Funds Rate and

Futures Rates (%)

US = Ute States.

Surce: Bberg.

oe year eg rate (PRC) a repurchase rate (ia). 2Bi Rate (iesa); erght pcy rate (maaysa); reerse repurchase (rep) rate

(Phppes); 14-ay rep rate (befre 17 Ja 2007) a 1-ay rep rate fr 17 Ja 2007 wars (Thaa); pre rate (vet na). Hong Kong

base rate (Hg Kg, Cha); Krea base rate (Repubc f Krea); fca scut rate (Tape,Cha).

Surces: Bberg a datastrea.

7.47

5.31

5.00

9.00

0

2

4

6

8

10

Jan-05

Jun-05

Nov-05

Apr-06

Sep-06

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

People's Rep. of China (PRC)

India

2.003.5

4.75

7.50 6.007.75

8.00

12.75

1.50

3.755.00

7.00

8.25

14.00

02468

1012

14

Jan-05

Jun-05

Nov-05

Apr-06

Sep-06

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Indonesia

PhilippinesThailand

Malaysia

Viet Nam

2.00

5.00

1.25

2.50

3.50

0.500

2

4

6

8

Jan-05

Jun-05

Nov-05

Apr-06

Sep-06

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Korea, Rep. of

Taipei,China

Hong Kong, China

Figure 1.25c: Policy Rates3

NIEs (% per au)

Figure 1.25b: Policy Rates2

ASEAN-5 (% per au)

Figure 1.25a: Policy Rates1

India and Peoples Rep. of

China (PRC) (% per au)


34/138

32


agast the backrp f eratg at a swg grwth.

i neber, fr the rst te sce 2003, the maaysa cetra

bak, Bak negara maaysa, cut ts erght pcy rate by

0.25% t 3.25%. Sce the, iesa, Phppes, Thaa,a vet na hae a fwe sut.

The US dollar has renewed its safe-haven status amid

heightened uncertainty surrounding the severity of

the nancial crisis and global recession; regional

currencies weakened against the US dollar, while

volatility spiked in foreign exchange markets.

Sce the begg f 2009, espte the eterratg grwth

utk the US, the US ar has aace re tha 5%

agast the eur a 8% agast the ye. A sgcat eterrat gba aca cts a estrs percept that

pcy easures ay be aequate fr a eary resut

f the bakg sectrs trubes regte a ght-t-safety

the rst quarter f ths year. meawhe, further weakeg

the eurze ecy, a hece the prspect f arrwg

terest rate fferetas wth the US, has weghe w the

eur. The Japaese ye beete fr the uwg f carry

trae urg the eary stages f the aca crss 2008, but

suey chage curse as the prspect fr Japas ecy

eterrate sharpy, whch ute the yes status as a safe-

hae currecy. mst curreces the reg eprecate sharpyagast the US ar the atter haf f 2008 (Figure 1.26).

may authrtes attepte t cuter ths by tereg

freg exchage arkets r by arragg/exteg currecy

swap es. The reatey th currecy arkets the reg

were battere by eprecats a the ack f effecte hegg

echass. Freg exchage reseres hae bee epete

se cutres, whe csts fr busesses affecte by freg

exchage atty rse ay f the regs eces.

-24.9

-20.2

-16.4-15.4

-10.6

-10.5

-7.0

-6.1

0.6

9.0

-5.3

0.3

-30.0 -25.0 -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0

EU2 euro

Korean wonIndonesian rupiah

Indian rupeeMalaysian ringgit

Singaporean dollarPhilippine peso

Thai bahtVietnamese dong

PRC3 yuanHong Kong dollar

Japanese yen

Figure 1.26: Regional Currencies1

(1 Juy 2008 t 30 march 2009, % chage)

latest csg as f 30 march 2009, base the USd aue

f ca currecy. negate aues cate eprecat f -

ca currecy. 2EU = Eurpea U. PRC = Pepes Repubc

f Cha.

Surce: oREi staff cacuats base Reuters ata.


35/138

33

e q u i t y m a r k e t se q u i t y m a r k e t s

2. egng a e m9

Recent Performance and Outlook9

Emerging Asias equity markets are showing some

signs of stabilizing following a dismal year in which

they were hit hard as the global nancial crisis

intensied.

egng a plngd o h low lvl n

10 , long 66.4% n h us doll vl fo h Ocob

2007 p o ogh on l (Figure 2.1). th

global nancial crisis, which deepened drastically in September

followng h fl of Lhn Boh (nd oh non)

nd h gowng vdnc of conoc lowdown n ndl

con, xcd hv oll on gng an . th

cn c xcd wo pvo c n h gon n

of h pd nd gnd of pc dcln. m

hv bn ovng dw nc h Ocob 2008 ogh.

alhogh h h bn lgh pc p cnl, cl gn of

nond n lv.

Recent developments in emerging Asias equity

markets can be identied in three distinctive stages:

exuberance, fear, and skepticism.

an xndd pod of pc n-p n gng an

, whch bgn ond 2003 h globl cono

bondd fo h nfoon chnolog (it) lp n 2001

2002, ndd n dvng dcln d bodnng globl

nancial turmoil. Still, the region's boom and the corresponding

b pp od copd wh oh gng

(Figure 2.2). rcn nd n gng an

can be identied in three distinct phases (Figure 2.3). th

rst stage was exuberance. shng off h nl ll-off ld o h und s (us) bp ogg c

in August 2007, emerging Asia's equity markets continued to

dvnc hogh Ocob 2007 on lvl ond conoc

oloo fo h gon nd wf pon b h us Fdl

rv (us Fd) nd oh cnl bn, whch lld

9 th con w ppd b Cn-yong P. Fo n, pl conc

[email protected].

-70

-60

-50

-40

-30

-20

-10

0

-55.8

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32

CurrentOct 2007-Present

Asian Financial CrisisJul 1997-Sep 1998

Month

IT CrashMar 2000Oct 2002

-65.3-66.4

Figure 2.1: Bear Markets in Asia1

(% chng)

1Bd on mogn snl Cpl innonl (msCi) a

(xcldng Jpn) ndx.

soc: Bloobg.

93

219

455

175123

6861

92

330

40

100

160

220

280

340

400

460

Jan-00

Nov-00

Sep-01

Jul-02

May-03

Mar-04

Jan-05

Nov-05

Sep-06

Jul-07

May-08

Mar-09

Emerging Latin America1

Emerging Europe2

Emerging Asia3

US Dow Jones Industrial Average

Figure 2.2: MSCI Indexes

(2 Jn 2000 = 100)

1incld agnn, Bzl, Chl, Colob, mxco, nd P.2incld Czch rpblc, Hng, Polnd, r, nd t.3incld Chn, Popl rp. of; ind; indon; ko, rp.

of; ml; Phlppn; tp,Chn nd thlnd.

soc: mogn snl Cpl innonl (msCi) B

nd D.


36/138

34

e q u i t y m a r k e t se q u i t y m a r k e t s

40

60

80

100

120

140

160

Jan-07 May-07 Sep-07 Feb-08 Jun-08 Nov-08 Mar-09

63

55

50

Lehman Brothers declaresbankruptcy; Bank of Americatakes over Merrill Lynch

US b

Asia Capital Markets Monitor.

Documents

Transcript of Asia Capital Markets Monitor.