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Financial Markets and Institutional Investors in Central Asia
The Sixth Conference on Financial Sector Development in the Central Asian countries,
Azerbaijan and MongoliaIstanbul (29-30 April 2004)
Toshiharu KitamuraWaseda University
0
200
400
600
800
1000
1200Interest Rate Spreads
High Yield Spread
EMBI+(ex.
Argentina)
BAA spread
(basis points)
Source: Bloomberg Financial Markets, LP.
2000 ‘01 ‘02 ‘03
AAA spread
Appendix 1-1
Daily data until 20 May 2003
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1100
1200
1300
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basi
s po
ints
Emerging markets (total) Americas Asia Middle East
Source: Thomson Financial Datastream (http://www.worldbank.org/wbi/banking/capmarkets/oecdwb5/). Note: Lehman indices, redemption yields minus 5-year US government bond index yield.
Emerging market spreadsAppendix 1-2
Euro (Europe)61.64%
Samurai(Tokyo)3.85%
Global34.47%
Yankee (NY)0.04%
East Asia45%
Latin America26%
Middle East8%
EasternEurope
14%
Former USSR7%
USD
81.8%
EUR12.0%
Others
0.6%
JPY5.2%
GBP
0.4%
Sovere ign45%
Corporate41%
Mun ic ipal2%
Financ ial12%
Source: Bloomberg, visited Oct. 20, 2003.
Issue Amount by Market
Issue Amount by Region
Issue Amount by Currency
Issue Amount by Sector
Emerging Economies in International Bond MarketsAppendix 2
in 2002
end-1997 end-2000 end-1997 end-2000 end-1997 end-2000
Thailand 121.1 85.9 4.0 10.2 15.3 24.1
Indonesia 60.8 20.9 2.5 1.7 13.5 17.5
Mlalaysia 102.8 94.6 16.5 41.1 95.1 130.4
Korea 64.8 87.6 19.9 25.6 15.7 32.5
Philippines 56.6 39.9 n.a. n.a. 38.2 69.0
Japan 110.9 109.3 10.5 12.9 52.9 65.2
United States 45.1 49.1 38.1 45.6 144.4 153.5
Outstanding ofBank Loans
Outstanding ofCorporate Bonds
Total Market Valueof Stocks
Sources: IMF International Financial Statistics, World Bank World Development Indicators and other national statistics.Note: In the Philippines, commercial papers are more common than corporate bonds, thus the amount of corporate bonds in the Philippines may be negligible.
Financial Channels of Banks and Bond & Stock Markets
( % share of GDP)
Appendix 3-1
Appendix 3-2
Financial Channels of Banks and Bond & Stock Markets
0
50
100
150
200
250
300
1997 2000 1997 2000 1997 2000 1997 2000 1997 2000 1997 2000 1997 2000
Thailand Indonesia Malaysia Korea Philippines Japan United States
countries
% s
hare
of
GD
PTotal Market Value of Stocks
Outstanding of Corporate Bonds
Outstanding of Bank Loans
Sources: IFS; individual countries’ data. (H. Yamagami, Tokyo Mitsubishi Bank, Oct. 2003)
Gross domestic savings and financial markets
Appendix 4
(A)+(B)
1995 2002 2002 2002 2002 2002 2002S. Korea 35.7 29.2 79 43 17 30 47Taiwan 27.0 25.4 119 93 23 14 37Hong Kong 30.5 33.9 144 284 9 33 42Singapore 50.2 44.2 103 185 37 57 94Indonesia 30.6 21.1 23 17 40 1 41Malaysia 39.2 41.8 94 133 30 29 59Philippines 14.6 17.3 37 52 79 n .a. ? 84Thailand 35.1 30.5 81 37 21 5 26China 43.1 38.7 169 37 19 1 20East Asia 32.7 31.0LDCs 26.9 26.6Japan (1996) 30 .9 (2000)27 .3 85 50 99 12 111USA 40 112 35 59 94
Out. bal. ofgovt. bonds (A)
Out. bal. ofcor. bonds (B)
Gross domesticsavings (% of GDP)
Out. bal. ofbank loans
Total markt.capitalization
Financial Intermediation
Direct Finance
Indirect Finance
Saver-Lenders①Households②Business firms③Public sector④Foreigners
Borrower-Spenders①Business firms②Public sector③Households④Foreigners
FinancialBrokerage
FundsFunds
Funds Funds
Based on F.S.Mishkin and S.G. Eakins, 2003, Financial Markets & Institutions
Funds
FinancialIntermediaries
MoneyMarket
Institutional investors:pension funds,
life insurance companies,collective investments, etc.
Appendix 5-1
Savings(hard currency)
Direct Finance
Indirect Finance
Saver-Lenders①Households②Business firms③Public sector④Foreigners
Borrower-Spenders①Business firms②Public sector③Agriculture sector
FinancialBrokerage
FinancialIntermediaries
(Inter-bankMoney Market) Loans
(directed?)Savings ?
?
?
Financial Intermediation
Government(short-term g. bonds)
Informal Economy
?
CentralBank
Appendix 5-2
Money supply ⇒ currency depreciation only?
Domestic Currency
HardCurrency
Means of exchange(payments)
Unit of account(calculations)
Wealth storage(savings)
Effectiveness of monetary policy ?
Corruption!
Policy formation ?Reduction in tax revenue ?Informal economy!
Devaluation ⇒ limited? (because of the informal market where the devaluation has been preemptied)
Interest rates ⇒ interbank transactions only?
Composite Currency PracticesAppendix 6
StructuredHybrid
SecuritiesMarket
MoneyMarket
StockMarket
BondMarket
Short-term 1 year
Derivatives
Medium-termLong-term Indefinite
Financial markets in transition economies
Financial markets in transition economiesAppendix 7
1992 and be fore 1993 1994 1995 1996 1997 1998 1999 2000 and later
Banking lawadopted
Massprivatizationbegins
Sovere igneuro bondrestarted
00:natio nalfund
“tenge ”introduce d
First treasurybills issued
First municipalbond issued
01:Capitalamnestydecreed
First domesticcorporate bondissued
“som”introduce dTreasury billsmarke t initiate d
91:Bank inglegistratio nadopted91:Small- scaleprivatizationbegins
Turkmen. Banking lawadopted
“manat”introduce d
Privatizationpro gramstarted
First treasury billsissued
“sum”introduce d
First treasury billsissued
Sto ckexchangeestablished
Banking lawadopted
Privatizationprogram adopted(Business Fund)
88:New two - tie rbank ing system
Treasury billsmarke t initiate d
92:Voucherprivatizationbegins
New “ruble ”introduce d (O ldruble zoneco llapsed)
Bank ing lawadoptedTreasury billsmarket initiated
Voucherprivatizationbegins
Azer. “manat”introduce d
(Privatizationstarted)
FirstcorporateEurobondissued
Financial cr isis Pro tection lawfor marketinvestorsadopted
Russia Securitie s lawadopted
First sovere igneurobond issued
“somni”intro duced
Uzbek. Securitie s lawadopted
Newprivatizationpro gram for 27large SOEs
Tajik. “Tajik ruble ”introduced
Large -scaleprivatizationlaunche d
Treasurysystemre forme d
New bank inglaw adopted
Kazakh.
Kyrgyz 91:Bank ing lawsadopted
Stockexchangebe ginstrading
First sovere igneurobond issued
Stockexchangebeginstrading
Financial Reforms in Central AsiaAppendix 8
DomesticPrivate Public
Foreign financialmarkets
(incl. dragon markets)
Euro market
International financial institutions (IFIs)(global bonds) (eurobonds)
Government bonds
Sovereign bonds(govt. affiliated or local governments)
Big corporationsFinancial institutions
SMEs(venture businesses)
Investors’ Scope of Interest and Borrowers’ Scope for Fund-Raising Targets
Appendix 9
country MOODY'S S&P FITCH R&I
USA Aaa AAA AAA AAAUK Aaa AAA AAA AAA
Germany Aaa AAA AAA AAAFrance Aaa AAA AAA AAA
Japan A2 AA- AA- AAAS. Korea A3 A+ AA- NRChina NR NR A NR
Indonesia B2 B+ B NRMalaysia A3 A+ A NR
Philippines Baa3 BBB BB+ NRSingapore Aaa AAA AAA AAAThailand Baa1 A A- NR
Argentine B3 SD C NR
Brazil B2 BB B NR
Poland A2 A A+ NRCzech A1 A+ A NR
Hungary A1 A A+ NR
Russia Baa3 BB+ BB+ NRUkraine B2 B B+ NR
Azerbaijan NR NR BB- NR
Kazakhstan Baa1 BBB- BBB- NRKyrgyz Rep. NR NR NR NRTajikistan NR NR NR NRTurkmenistan B2 NR NR NR
Uzbekistan NR NR NR NR
Source: Bloomberg's website, visited Oct. 15, 2003.
Sovereign Ratings of Local-Currency-Denominated Long-Term Debt
Appendix 10
International Commitments of Transition Economies
WTO membership IMFArticleVIII status
Armenia --- May 1997
Azerbaijan --- ---
Belarus --- ---
Georgia June 2000 December 1996
Kazakhstan --- July 1996
Kyrgyz Rep. December 1998 March 1995
Moldova July 2001 June 1995
Russia --- June 1996
Tajikistan (Observer status) ---
Turkmenistan --- ---
Ukraine --- September 1996
Uzbekistan --- November 2003
Appendix 11
Source: ECB bond markets and long-term interest rates in EU accession countries (October 2003).
12 EU Accession Countries (and 10 Acceding Countries)
Appendix 12
Structure of securities business: multi-layered--with underwriter, brokerage houses, banks, and custodians for depository services between the bond issuer and the investors, and rating institutions, fiscal agents, supervisory authorities, and others for the investors’ benefits.
Structure of Securities Business
Bond issuer Investors
The central securitiesdepository
Private custodians
Rating institutions
Analysts
Underwriters
Brokerage houses
Banks
Supervisory authorities
Fiscal agent
Secondarymarket
Needed to be smooth (STP)
Appendix 13-1
Money markets and other financial markets
Inter-dealer broker
Agency brokerRetail broker Supervisory
organization, Analysts,
EconomistsInvestor InvestorInvestor
Investor
Market maker
Dealer/Trader
Sales
or
Investment bankers (securities house)
Sales
Dealer/Trader
Securities houses
Structure of the Secondary MarketAppendix 13-2
Structure of Capital Markets in Central Asia
Russia
OECD countries
types of markets
EquityShort end
MediumLong Hybrid
Derivatives
Kazakh
Uzbek
KyrgyzTurkm.Tajik
issuers
Municipal
Privatecorporate
Sovereign
Centralgovt.
Securitized loansStructured bond