Capital markets in emerging Asia are stabilising as the global economic crisis eases and investor appetite returns, the Asian Development Bank said on Tuesday.
The relative resilience of the region's economies should help the recovery of its equity, bond and currency markets but the road to health will be long and hard given uncertainty about the global downturn, it said in a report.
Net equity outflows from the region slowed significantly in the three months to March after a sharp withdrawal of funds in the latter half of 2008, according to the Bank's annual Asia Capital Markets Monitor.
This suggests foreign investors are less pessimistic than they were about the region, while net private capital flows to the region for calendar year 2009 will likely remain positive, it added.
However, they will still be much lower than the record high seen in 2007, the Manila-based lender said.
"Emerging Asia's financial markets were hit harder than expected last year. But given that many emerging Asian economies will still grow this year while major global economies contract, Asia's financial markets should do better than most other regions," said ADB official Lee Jong-Wha.
Recent market turmoil reflects the "close interconnection between markets and economies around the world and underlines the need for governments and the financial sector globally to continuously improve regulation, oversight and risk management processes", said Lee.
Emerging Asia's equity prices were down nearly 42 per cent year on year to March 31, with India, Indonesia and Thailand faring worst.
Over the same period, the Dow Jones Industrial Average on Wall Street lost 16 per cent.
Meanwhile, most emerging Asian currencies fell sharply against the dollar due to heightened risk aversion and massive deleveraging.
Local currency bonds held up well but spreads over US Treasury bills of the region's dollar-denominated bonds soared, reflecting difficult external funding conditions, the report added.
In recent months though, emerging Asian equity markets have outperformed mature markets, with low valuations starting to attract buyers.
Local bond issues are set to expand as governments seek to fund fiscal stimulus packages, a prospect that will likely cap gains in local currency bonds, it added.
Although most Asian currencies are expected to recover somewhat over the course of the year, further depreciation is possible in the near term amid continued deleveraging and as weaker exports reduce dollar earnings.
The report covers the markets in China, Hong Kong, India, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand and Vietnam.
