Short-term risks continue to cast a shadow over emerging East Asia's local currency bond markets, says the latest edition of the Asian Development Bank's (ADB) Asia Bond Monitor released on Tuesday.
However, the report added that they should be able to weather the challenges so long as the region's policymakers remain vigilant.
Short-term risks include general risk aversion toward emerging markets, faster-than-expected hikes in U.S. interest rates, and escalating global trade tensions, the report says.
According to the report, tightening liquidity conditions exacerbate the risk from the region's rapid growth of private debt in recent years.
Depreciation of regional currencies and capital outflows pose further risks to the region's financial stability, the report said.
"Concerns about emerging markets are looming, but ultimately Asia's strong fundamentals should attract investors back to the region's local currency bond markets," said ADB Chief Economist Yasuyuki Sawada.
"That said, the region's policymakers must closely monitor developments and keep up their guard against potential shocks," he added.
The report showed emerging East Asia's bond market expanded 4.3 percent in the third quarter versus the second quarter to stand at 12.8 trillion U.S. dollars at the end of September.
The growth rate was faster than the 3.2 percent pace seen in the second quarter, the report said.
As of the end of September, the report said China had the largest bond market in emerging East Asia with 9.2 trillion U.S. dollars of bonds outstanding and 72 percent of the regional total, up 5.7 percent at the end of June.
Foreign holdings of local currency government bonds fell slightly across much of emerging East Asia in the third quarter of 2018, with the exception of the Philippines and China.
Latest comments