Explosive Growth in Local-currency Bonds Shakes up Asian Fixed Income Markets

Local-currency fixed income markets experienced explosive growth last year in Asia as companies in countries such as China, India and South Korea sought funding amid relatively strong economic conditions and looked to avoid volatility associated with the dollar and euro.

The results of Greenwich Associates’ latest Asian Fixed Income Study reveal that the sudden expansion of local currency bonds, which now make up about half of all fixed income trading volume across Asia, is having a dramatic impact on franchises of the fixed income dealers competing for institutional business across the region.

In short, global banks without a significant presence in local currency markets have been placed on the defensive, while dealers that have developed footholds in domestic markets – most notably Standard Chartered – have gained a big advantage. Also benefiting from the surge in local currency markets have been domestic banks in India, China and other Asian countries.

Greenwich Leaders: Asian Fixed Income

Despite these substantial changes, the global banks that have long dominated the region remain Asia’s top dealers. The firms named as Greenwich Share Leaders in Asian Fixed Income this year are global firms that have broad coverage across all the major Asian countries and – for the most part – have at least some presence in fast-growing domestic currency bond markets.

At the top of the list of Share Leaders are HSBC and Deutsche Bank, with HSBC demonstrating the most strength in Asian cash bonds and Deutsche Bank showing strength in derivatives. Closely behind these two dealers is Standard Chartered, the global dealer that is benefiting the most from boom in domestic currency bonds and notched the biggest gains in market share from 2008 to 2009.

The Greenwich Associates study also identifies several banks that strengthened their relationships with Asian institutions by providing outstanding support to clients during the global credit crisis. Institutions cite HSBC, JPMorgan and Standard Chartered as dealers that improved their relationships and reputations by providing strong support. This performance had a direct impact on clients’ ratings of the overall quality of the dealers’ fixed income franchises, with HSBC, JPMorgan and Standard Chartered claiming the title of Greenwich Quality Leaders in Fixed Income Sales and Trading in 2009. The Greenwich Quality Leaders in Asian Fixed Income research are JPMorgan, HSBC, Deutsche Bank, Citigroup, and UBS.

Domestic Dealers Benefit from Local-currency Boom

Domestic banks’ extensive infrastructures and deep ties to local investors and companies give them a distinct advantage over most global banks in the competition for local-currency trading business. When several global dealers pulled back on lending and capital markets coverage in certain Asian countries as a result of their troubles during the crisis, many domestic banks were able to step up and capture newly freed-up business.

Among the domestic Asian banks that posted big pick-ups in market share from 2008 to 2009 are Bank of China, Agricultural Bank of China, and India’s ICICI and Derivium Capital. “Domestic banks are posting big gains in market share on the strength of competitive trading and high quality local research, but there is still room for ample improvement in terms of local banks’ sales capabilities and relationship management relative to global competitors,” said Greenwich Associates consultant Abhi Shroff.


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