The iBoxx Asian Bond Fund (ABF) indices are designed to reflect the performance of local currency denominated sovereign and sub-sovereign debt from eight Asian territories, including Mainland China, Hong Kong SAR, Indonesia, Korea, Malaysia, Philippines, Singapore, and Thailand, while upholding minimum standards of investability and liquidity. The indices are an integral part of the global iBoxx index offerings, which provide the market with accurate and objective benchmarks by which to assess the performance of bond markets and investments.
1. The iBoxx ABF Pan-Asia index was launched 20 years ago. How has the index adapted over the years in the changing market environment? (S&P DJI)
Established in 2005, the iBoxx ABF Pan-Asia index serves as the official benchmark for the Asian Bond Fund 2 (ABF2) initiative led by the member central banks of the Executives’ Meeting of East Asia-Pacific (EMEAP). This initiative was created to enhance and expand the development of Asian bond markets. As part of this effort, a portion of their foreign reserves was designated for collective investments in local currency bonds through nine passive local currency bond funds. The index covers eight markets (Mainland China, Hong Kong SAR, Indonesia, Malaysia, Singapore, South Korea, Thailand, and the Philippines.
In 2005, the Asian domestic bond market was quite different from what it is today. On Dec. 31, 2005, the total market size for government and central bank issuances across the iBoxx ABF underlying markets stood at USD 1,565 billion. Over the years spanning a period that includes significant global events, such as the Global Financial Crisis in 2008 and the COVID-19 pandemic, the data reflects a consistent upward trend in the total market size year-over-year, with only minor fluctuations. This suggests a stable growth trajectory for the bond markets in the region. By Sept. 30, 2024, this figure had surged to USD 17,457 billion, reflecting a compound annual growth rate (CAGR) of 13.47% and an elevenfold increase in approximately 20 years.
The speed of development of the underlying market varied, with some experiencing more rapid growth than others in both total market size as well as underlying liquidity. As illustrated in Exhibit 2, the weights of the underlying market have changed significantly over the past 20 years. For instance, the allocation for Mainland China has increased from 11.24% to 25.00% (capped at 25% as per the index methodology), while Indonesia’s weight has risen from 5.99% to 8.39%. In contrast, Hong Kong SAR’s allocation has declined from 18.30% to 8.19%, and South Korea has seen a reduction in its weight from 20.67% to 15.42%. The changes are all in relative terms, compared with the other eligible markets in the iBoxx ABF Pan-Asia index.
