REGIONAL financial markets fall into three broad groups, according to the World Bank, which says in an overview of the regional sector that Hong Kong and Singapore are East Asian leaders. After Hong Kong and Singapore came Malaysia, South Korea and Thailand with relatively well-developed financial markets, followed by the Philippines, Indonesia and China. South Korea's bond market was the largest in East Asia in absolute terms, the World Bank said. At the end of 1994, South Korea's outstanding bonds were US$161 billion, or 43 per cent of GDP. 'The basic infrastructure for a robust bond market is in place and the country is expected to complete all of its announced financial sector reforms by 1997,' the bank said in a report. But Singapore's market was largest relative to gross domestic product (GDP) - its bond market was $45 billion or 72 per cent of GDP. Hong Kong's bond market - $11.5 billion and nine per cent of GDP - had lagged the stock market, but action by the Hong Kong Monetary Authority had spurred growth. 'The market must be developed to facilitate the financing of China's infrastructure,' the bank said. 'As a regional financial centre, Hong Kong is well positioned to intermediate in bonds for the East Asian region.' Malaysia's bond market, relative to GDP, was the region's second largest - $40 billion, or 56 per cent. At $14 billion, or 10 per cent of GDP, Thailand's market was small but rapidly expanding, helped by the country's securities and exchange commission and market participants, the World Bank said. At the bottom of the ladder was Indonesia, which had a market of only $9 billion, or six per cent of GDP, and was at an early stage of development. Policy and institutional infrastructure changes were needed to develop the Indonesian market, it said. China's bond market - $33.3 billion and 6.5 per cent of GDP - was in transition from a centrally planned and administratively controlled credit allocation mechanism toward a competitive market-driven system. 'Despite serious constraints, the Chinese bond market will grow because of the need to finance government deficits and massive investments in infrastructure,' the bank said. The Philippines market - $25 billion and 39 per cent of GDP - was at a nascent stage with discriminatory tax and high documentary stamp duties posing obstacles to growth, the bank said. It predicted the government bond sector in East Asia would dip about 33 per cent by 1999, with corporate bond issuance growing from $77 billion in 1994 to more than $500 billion by 2004. The region needed market-based benchmarks, more secondary market liquidity - except for Hong Kong, the bank said.