Conclusion

This review has contrasted the East Asian integration in the international bond and syndicated loan markets with the generally closed local currency bond markets. The risk is that the US dollar capital markets for East Asia build on their early lead and end up serving as the predominant node for intraregional flows, despite evolving exchange rate policies pointing toward a smaller role for the US dollar as anchor currency (Ho et al., 2005).

Fortunately, Asian issuers have tended to favor domestic currency bond issuance in recent years. Still, the eclipse of the Samurai market as a source of funding for a broad range of Asian credits serves as a warning. At the same time, the willingness of Japanese investors to take on the currency risk of the Australian and New Zealand dollars offers hope that capital can flow within the region without the conduit of an extra-regional currency.

The largely global integration of regional equity markets highlights the risk of opening bond markets to global investors if regional investors remain sidelined in domestic assets. Without a substantial regional bid for equities, investors in individual economies can end up bearing the brunt alone of selling by global investors, whether resulting from a sell-off in the local or global equity markets or a change in the risk environment.

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