Asian bond markets are growing healthily and Asian bonds are an essential component of any balanced and diversified portfolio. Over the last five years, Asian bond 4  issuances grew at a compound annual growth rate of more than 10%. Asian bonds now make up over 30% of the J.P. Morgan Emerging Markets Government Bond Index. Since last year, 2 Asian countries received rating upgrades, notably Indonesia to investment grade1. 5 . Asia is expected to remain the fastest-growing region in the world. The IMF places Emerging Asia at the top of the global growth league table, with average growth rates of 6.3% p.a. from now to 20222, outstripping expected outturns in the developed economies3 as well as all other developing regions. China and India, the two largest Asian markets, are expected to grow by 6% p.a. and 7–8% p.a. respectively, while activity in the ASEAN-5 economies is expected to expand at around 5% p.a.4. 6. The rosy outlook translates to two significant implications for capital markets:  a. On the demand side, relatively favourable demographics, the emergence of a rising middle class and rapid urbanisation will stimulate more savings and investments; b. On the supply side, there is much scope in Asia to improve infrastructure, technology and innovation, the success of which will go a long way toward raising productivity and incomes even further. To finance these important structural needs, Asia’s ability to raise long-term capital for sustainable growth would make cross-border capital market activities even more important.
Regulatory and supervisory authorities should strengthen prudential and other financial market regulations in order to deepen financial markets and improve investment climate, whereas central banks should focus more on greater currency flexibility and price stability. In conclusion, as a central banker, I would like to highlight three key messages from the thoughts I have shared with you. First, to achieve price stability, central banks need to ensure efficiency of financial infrastructure and maintain smooth operation of financial services. An efficient and effective payment and settlement system is at the core of financial infrastructure. Second, removing market imperfections is essential for the smooth operation of financial systems. Establishment of credit bureaus to improve exchange of information on credit history of economic agents and reducing fiscal dominance are important steps to ensure sound-lending activities. In this context, the role of micro finance in promoting the access of the low-income segment of the society to credit should be supported and encouraged. Third, the overall level of external financing and its composition is important for domestic access to finance. The benefits of capital inflows to economic growth would be higher with a developed financial sector. Central banks could best support this process through their contribution to macroeconomic stability. Thank you. 4  BIS Review 21/2008