This article first appeared in The Edge Financial Daily on July 27, 2018 - August 2, 2018

KUALA LUMPUR: Global investors are increasingly drawn to Asian bond markets given the lower investment risks, but cross-border connectivity remains a challenge, according to an industry expert.

“Global investors are increasingly getting more comfortable in Asia. Asian markets are becoming more attractive to global investors versus other key emerging markets where market-perceived risks are higher,” Rehan Ahmed (pic), head of fixed income trading at Singapore Exchange (SGX), told a press  conference yesterday during a discussion on Asia’s growing debt market.

The trend shift in the bond markets was particularly notable during the recent emerging market bond sell-offs, he said, which may have been exacerbated by headline risks in markets such as Brazil and Turkey.

In Brazil, upcoming election uncertainties, coupled with the central bank’s slashing of its economic growth projection to 1.6% but raising the inflation forecast to 4.2%, from 3.8% in March as the economy deteriorated in the second quarter, have put investors off.

Turkey, too, saw its consumer price inflation surge to 12.2%, its highest level in six months, ahead of a landmark presidential election in June, during which Recep Tayyip Erdogan was re-elected.

In the secondary market, which is a natural extension to bond listings, Rehan observed not just increased cross-border flow in recent years, but increased interests among Malaysian investors towards international sukuk listed on the Gulf Cooperation Council (GCC) markets, which are Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman.

“Connecting Malaysian banks and fund managers to the global investor base can be challenging for both sides, given geography and exposure to the local liquidity pool,” said Rehan.