Bond Pricing Agency eyes Philippines entry

> Hopes to build more cross-border products with neighbours using new Asean index

KUALA LUMPUR: Bond Pricing Agency Malaysia (BPAM), which yesterday launched the new Asean3 Government Bond Indices (A3GBI) in partnership with Indonesia Bond Pricing Agency and the Thai Bond Market Association, hopes to include the Philippines in the Asean index this year and invite more member countries to participate.

The A3GBI is designed to track the performance of local currencydenominated government bonds in ringgit, rupiah and baht. Setting up an investable and replicable index, which consists of the largest market-makers and liquid bonds from the government segment, is expected to provide greater visibility of Asean market behaviour.

Local currency bond markets in Asean have grown significantly and as at the end of 2017, the combined market size in dollar terms reached US$1.23 trillion (RM4.8 trillion). With this, the need for reliable and sophisticated data sets to measure and track market performance is becoming important. This environment formed a perfect setting for cooperation between the bond pricing providers in Asean. The A3GBI marks the first of such collaboration in Asean.

BPAM CEO Meor Amri Meor Ayob said the experience of building the A3GBI was a valuable learning opportunity for all three countries to develop their bond data and analytical capabilities.

The A3GBI also marks the first step in its ambition to build more cross-border products with its Asean neighbours.

A3GBI tracks daily movement to observe the direction of the market. A3GBI and sub-indices serve as a benchmark to measure performance. Over time, A3GBI reveals peaks and troughs to illustrate significance of market events.

The data may be used as a comparison with other data sets, and is useful for formulating trading strategies. Its constituents may allow for portfolio emulation for index funds of exchange traded funds.

BPAM chief business officer Shah Zain said it also plans to have more joint product development later, such as an Asean Corporate Bond Index and Asean Sukuk Index. He said the bond market has always been strong and is much stronger than the stock market.

“The bond market is fundamental to any economy, simply because the government issues bonds. It doesn’t issue shares. We chose government bonds because it is the way countries raises money. The prospects in the future is always there,” Shah told reporters after the A3GBI launch.

He said the biggest bond market in Asia is China, followed by Japan and Korea. Malaysia is ranked fourth in terms of percentage of gross domestic product.

“Index is a powerful fundamental tool to investors. Indexation is still underdeveloped in the region but advanced in the rest of the world,” he added.