20 January 2023
Thirty (30) leading bond houses across Southeast Asia were approached for this poll mid-January.
25 responded, some with divergent views while on a few select questions, a large number of DCM houses held largely the same view.
When asked which products are you most optimistic about:
86 percent of the poll participants chose Investment Grade (IG) Corporate Bonds. 74 percent also chose Green/ Sustainability-linked Bonds, followed by 44 percent who chose Sovereigns, Supranationals and Agencies, making these three products DCM houses across the region appear to be most optimistic about.
WHICH PRODUCTS ARE YOU MOST OPTIMISTIC ABOUT?
In Malaysia, 100 percent of the respondents are optimistic about prospects for Islamic finance & Sukuks in 2023 while 95 percent are also bullish about the prospects for Green/ Sustainability-linked Bonds. 80 percent within this group are just as excited about Investment Grade (IG) Corporate Bonds, providing a wholesome picture of three key products where DCM activity is likely to originate from in 2023.
In Vietnam, the product preference is evenly split between Investment Grade (IG) Corporate Bonds and Social bonds. Over in Thailand meanwhile, it is again evenly split between Investment Grade (IG) Corporate Bonds and Green/ Sustainability-linked Bonds, the two key products most DCM houses in Thailand are most optimistic about.
As for products that may not likely fare well in 2023, leveraged loans, IG corporate loans, restructured bonds and loans and FIG bonds are likely to see minimal activity across the region, as these four product areas were consistently ranked at the bottom. A deal (if any) emerging from these product areas therefore will likely have to be unique and innovative in structure and pricing.
As for the DCM sub-sector that is likely to see the most exciting technological developments:
45 percent of all respondents selected settlement and clearing. Origination was a close second while trading and sales ranked third across the region.
WHICH SUB-SECTOR WILL HAVE THE MOST EXCITING TECHNOLOGICAL DEVELOPMENTS?
In Thailand, 95 percent of the respondents chose settlement/clearing as well as origination while 50 percent expect some changes in buyside, with zero votes for trading/sales and legal/documentation.
In Vietnam, 100 percent of the respondents expect changes in origination while 50 percent each, chose legal/documentation and trading/sales, expecting some changes taking shape in these areas during 2023. Meanwhile, there were zero votes for settlement/clearing and syndicate, a likely sign of the nascent and developing nature of the local Dong bond market in Vietnam.
Over in Indonesia, 82 percent foresee changes happening in trading/sales while 42 percent within this group also expect changes in origination, with zero votes for the syndicate desk as well as legal/documentation.
In Malaysia too, 60 percent of the DCM houses expect some form of development within trading/sales, including 43 percent that foresee changes within settlement/clearing. Most notably, there were also varying albeit small number of votes across the syndicate desk, legal/documentation, origination and buyside.
In the Philippines, 68 percent of the respondents foresee changes within settlement/clearing while 32 percent foresee developments with the syndicate desk with zero votes for legal/documentation & the buyside.
As for top risk factors for that could weigh heavily on the local bond market in 2023:
76 percent of all respondents picked U.S Fed policy as a single largest risk factor.
Meanwhile, 70 percent of all DCM houses across the region unsurprisingly chose both, rising rates and inflationary pressure as the other top two risk factors for their respective local bond markets.
TOP RISK FACTORS THAT COULD WEIGH HEAVILY ON DCM IN 2023
In Vietnam however, the two top factors voted by 100 percent of the polling universe were U.S Fed policy and the weakening Vietnamese Dong. In October 2022, Vietnam’s central bank devalued its currency by widening the exchange rate trading band to 5.0% from 3.0%, following a sharp fall in the currency.
Meanwhile over in the Philippines, the top three factors included inflation, followed by U.S Fed policy, and interestingly, high commodity prices, with the last factor i.e., high commodity prices accounting for 70 percent of the total votes across the region, considered a key risk factor for the local peso bond market in the Philippines. Higher cost of commodity inputs mean higher food and fuel prices which in turn is a major driver of headline inflation, which usually leads to falling bond prices.
As for least impactful factors, local elections are cited as least relevant by 60 percent of the DCM houses across the region, followed by local economic growth worries (32 percent), high commodity prices (32 percent) and weakening local currency (32 percent).
ZERO RISK FACTORS THAT WILL HAVE MINIMAL IMPACT ON DCM IN 2023
On predictions for bond market volumes, fees and spreads in the primary market:
52 percent of all the DCM houses expect volumes to be mildly higher than 2022.
While 24 percent expect volumes to be flat in 2022, 12 percent expect volumes to be much higher than 2022, and another 12 percent expect volumes to be slightly lower than 2022, showing somewhat divergent views across the spectrum.
PREDICTIONS FOR VOLUMES IN THE PRIMARY (LOCAL) BOND MARKETS
In Thailand, 75 percent of the polling universe expect 2023 DCM volumes to be mildly higher than 2022 while in Indonesia 80 percent of the DCM houses expect volumes to be higher than 2022 during the same period. In Vietnam meanwhile, 100 percent of the participants expect bond market volumes to be higher, indicating a buoyant Dong bond market outlook for 2023.
Curiously, the bond market outlook over in the Philippines is evenly split, with 33 percent of the DCM houses expecting volumes to be much higher than 2022. Another 33 percent thinks it will be mildly higher than 2022, followed by the last remaining one-third grouping of leading bond houses that fears DCM volumes might just be slightly lower than 2022 therefore, an unclear and oddly even picture at best.
Over in Malaysia, 50 percent of the respondent expect DCM volumes to be flat with 2022. Only 25 percent of the polling universe expects it to be mildly higher than 2022, with one contrarian each at the opposite end, each expecting it to be much higher than 2022 and the other expecting it to be slightly lower than 2022.
Nevertheless, when strung together as a region, 52 percent of all the DCM houses expect overall volumes to be mildly higher than 2022.
On spreads, 48 percent of all respondents foresee spreads to be mildly higher than 2022 with 36 percent expecting it to be flat with 2022, and 12 percent of the polling universe across the region expecting spreads to be slightly lower than 2022.
PREDICTIONS FOR SPREADS IN THE PRIMARY (LOCAL) BOND MARKETS
Like DCM volumes in Thailand, 75 percent of the respondents in Thailand expect spreads to be mildly higher than 2022. In Vietnam, spreads are expected to be evenly split between being mildly higher to flat with 2022. In Indonesia, 60 percent thinks spreads will be mildly higher while 40 percent thinks it will be flat with 2022. In the Philippines, 48 percent thinks spreads will be mildly higher while 32 percent thinks it will be flat with only one contrarian that stood out saying spreads may be slightly lower than 2022.
Over in Malaysia, 63 percent of the respondents think spreads will be mildly higher while 25 percent thinks it will be flat with again, one contrarian bond house in Malaysia that reckons 2023 spreads will be slightly lower than 2022.
On fees, 72 percent of all respondents expect fees to be flat with 2022, across the region.
PREDICTIONS FOR FEES IN THE PRIMARY (LOCAL) BOND MARKETS
In both Indonesia and Thailand, 100 percent of the respondents singularly feel fees are likely to be flat with 2022. In Vietnam meanwhile, 50 percent of the respondents expect fees to be slightly higher than 2022 while the other 50 percent expects it to be flat with 2022.
Over in the Philippines, 50 percent expect fees to be lower than 2022 while 33 percent expect it to be flat and one bond market optimist expects fees to be mildly higher than 2022. Lastly in Malaysia, 75 percent of the polling universe expect fees to be flat while the remaining 25 percent expects it to be mildly higher than 2022, summing up the bond market poll for 2023.
We aim to check these forecasts for accuracy in late December 2023.