EMEAP Press Statement The Asian Bond Fund 2 has moved into Implementation Phase

12 May 2005

The EMEAP (Executives' Meeting of East Asia and Pacific Central Banks) Group, comprising 11 central banks and monetary authorities in the East Asia and Pacific region, is pleased to announce the appointment of the fund managers, master custodian and index provider and the completion of the funding of US$2 billion for the Asian Bond Fund 2 (ABF2).

As announced in December 2004, the ABF2 comprises a Pan-Asian Bond Index Fund (which is now named as ABF Pan-Asia Bond Index Fund (PAIF)) and eight Single-market Funds. The PAIF is a single bond fund investing in sovereign and quasi-sovereign local currency-denominated bonds issued in the eight EMEAP markets. The eight Single-market Funds will each invest in sovereign and quasi-sovereign local currency-denominated bonds issued in the respective EMEAP markets.

The PAIF is funded with the EMEAP Group's initial investment of US$1 billion, and State Street Global Advisors Singapore Limited (SSgA) has been appointed as the manager of the PAIF. It is intended that the PAIF will be domiciled in Singapore and initially listed on the Hong Kong Stock Exchange, subject to approval by the relevant authorities. Additional listings on other EMEAP stock exchanges will be considered at a later stage. The EMEAP Group has allocated another US$1 billion among the eight Single-market Funds and appointed the following fund managers to manage the respective Funds:

Single-market Fund Manager
ABF China Bond Index Fund China Asset Management Corporation Limited
ABF Hong Kong Bond Index Fund HSBC Investments (Hong Kong) Limited
ABF Indonesia Bond Index Fund PT Bahana TCW Investment Management
ABF Korea Bond Index Fund Samsung Investment Trust Management Company Limited
ABF Malaysia Bond Index Fund AmInvestment Management Sdn. Bhd.
ABF Philippines Bond Index Fund Bank of the Philippine Islands
ABF Singapore Bond Index Fund DBS Asset Management Limited
ABF Thailand Bond Index Fund Kasikorn Asset Management Company Limited

The Hongkong and Shanghai Banking Corporation Limited has been selected as the master custodian for the PAIF and the eight Single-market Funds.

The iBoxx ABF family of indices, the benchmark indices which the nine ABF2 Funds will be closely tracking, is also launched today by the International Index Company (IIC). In constructing the iBoxx ABF Indices, IIC has been in consultation with a number of international and domestic market participants, through its Asian Index Committee and Asian Oversight Committee, as a means to help ensure credibility and market acceptance of the indices. Details of the specifications of the iBoxx ABF Indices are now publicly available (www.indexco.com).

From an investor's perspective, the passively managed ABF2 Funds represent low-cost and efficient vehicles for investing in local currency-denominated bonds in Asia. In the context of bond market development, the introduction of ABF2 Funds as a new asset class in Asia, together with infrastructural improvements and tax and regulatory reforms brought about by the ABF2 Initiative, will help contribute to the broadening and deepening of bond markets in the region over time.

Respective fund managers of the ABF2 Funds will be working closely with the relevant authorities to seek authorisation to offer the Funds to other public and private investors, where appropriate through listing, in the next few months. The EMEAP Group will keep the public informed of the implementation progress of the ABF2.

Note: See also Annex (below) for background information.

Reserve Bank of Australia Guy Debelle 61 2 9551 8400
People's Bank of China Li Wenlong 86 10 6619 4054
Hong Kong Monetary Authority Thomas Chan 852 2878 1480
Bank Indonesia Rasmo Samiun 62 21 381 8100
Bank of Japan Atsushi Takeuchi 81 3 3277 2915
Bank of Korea Heung-Sik Choo 82 2 759 5202
Bank Negara Malaysia Abu Hassan Alshari Yahaya 60 3 2691 9335
Reserve Bank of New Zealand Simon Tyler 64 4 471 3874
Bangko Sentral ng Pilipinas Ma. Ramona G D T Santiago 63 2 526 0620
Monetary Authority of Singapore Dennis Low 65 6229 9006
Bank of Thailand Nopawan Mahamusik 66 2 283 5402


Background Information on ABF2

What is ABF2?

The Asian Bond Fund (ABF) is an initiative developed by the EMEAP Group that aims at broadening and deepening the domestic and regional bond markets in Asia. In June 2003, EMEAP launched the first stage of ABF (ABF1), which invests in a basket of US dollar denominated bonds issued by Asian sovereign and quasi-sovereign issuers in EMEAP economies (excluding Australia, Japan and New Zealand ). Building on the success of ABF1, the Group has worked to extend the ABF concept to bonds denominated in local currencies and has announced the launch of the second stage of ABF (ABF2) in December 2004.

ABF2 comprises a Pan-Asian Bond Index Fund (PAIF) and eight Single-market Funds. The PAIF is a single bond fund investing in sovereign and quasi-sovereign local currency-denominated bonds issued in the eight EMEAP markets. The eight Single-market Funds will each invest in sovereign and quasi-sovereign local currency-denominated bonds issued in the respective EMEAP markets.

The launch of ABF2 represents a historic milestone in central banking cooperation in the region.

What are the benefits of ABF2?

In the near term, the ABF2 Initiative is expected to help raise investor awareness and interest in Asian bonds by providing innovative, low-cost and efficient products in the form of passively managed bond funds. Further ahead, it is believed that it serves to further broaden and deepen the domestic and regional bond markets and hence contribute to more efficient financial intermediation in Asia, specifically through the following means:

  • Promoting new products: In many ways, the PAIF and the eight Single-market Funds represent a new asset class in Asia. For instance, as a listed passive bond fund, the PAIF will act as a convenient and cost-effective investment fund for regional and international investors who wish to have a well-diversified exposure to bond markets in the eight EMEAP markets.
  • Improving market infrastructure: In setting up the ABF2 Funds, EMEAP has sought to improve market infrastructure in several aspects. For instance, the introduction of the iBoxx ABF indices, which are by design transparent, replicable and credible, is an important piece of market infrastructure for Asia. The indices are compiled based on prices provided by a number of active market makers, and accordingly can better reflect the prevailing market conditions for the underlying bonds.
  • Accelerating developments in relevant EMEAP markets: The ABF2 Initiative has helped accelerate tax and regulatory reform at both regional and domestic levels to facilitate cross-border investments. For instance, the PAIF is the first foreign institutional investor that has been granted access to China's interbank bond market. Malaysia has, with effect from 1 April 2005, liberalised its foreign exchange administration rules. Earlier on, it has opened up its domestic market to issuances by multilateral development banks and multilateral financial institutions, and non-resident investors are now exempted from withholding tax on the interest income received from investment in Ringgit-denominated debt securities. Effective from 7 January 2005, Thailand has also granted non-resident investors withholding tax exemption for all income from investing in Thai government bonds and government agency bonds. Where applicable, EMEAP economies are actively developing the relevant regulations to facilitate listing of bond funds or fixed income Exchange-Traded Fund in their respective markets. Further measures are anticipated as the ABF2 Initiative is being implemented.