Pump up the volume

Don't be fooled by the slack performance of the Hang Seng Index or its A-share counterpart; Hong Kong and mainland corporations raised a lot of money this year: US$541.8 billion in loan, bond and equity markets, according to Thomson Reuters.

Bonds and loans once again provided most of the volume - 85 per cent of Hong Kong/mainland corporate fundraising in the past year came via these instruments. (see graph).

China's property developers made full use of debt; they issued US$11.7 billion in offshore markets this year, double that of 2011, the previous record year.

However, bond markets are at the mercy of Federal Reserve shifts, and the decision to taper the United States central bank's bond-purchase programme, from next month, does not augur well for the asset. As treasury yields rise, more Asian issuers will use loans priced over the London interbank offered rate, which tends to trail moves in treasury yields.

A glimmer of that reality was seen in May when treasury yields spiked; bond volumes collapsed but loan markets kept generating deals.

"Tapering will be positive for loans … bond markets are far more sensitive to US treasury yields. The loan market will be less sensitive," said Atul Sodhi, chairman of the Asia Pacific Loan Market Association.

The year ahead may finally bring the long-discussed exodus of capital from bonds into equities, as interest rates and inflation start to rise. That possibility flickered into view in the fourth quarter with Hong Kong's end-of-year boom in initial public offerings, but the mass move into equities has been flagged for so long with so many false starts, people are sceptical.