Updated at 6.34pm: Financial Secretary Henry Tang Ying-yen on Wednesday emphasised the advantages to Asian countries of further developing their bond markets. He told the Second Citigroup Asia Pacific Fixed Income Conference that a larger Asian bond market would promote greater financial stability and efficiency in the region. ?The Asian financial crisis [of 1997-1998] highlighted the importance of establishing a deep, liquid and mature bond market to avoid over-reliance on bank and equity financing,? he said. Historically, Asian entrepreneurs had financed their business activities through bank loans. ?Funding of long-term investments such as infrastructure projects by bank loans made many corporations and regional economies vulnerable to economic swings,? the Financial Secretary explained. ?In 1997, the chickens came home to roost,? Mr Tang said, referring to the Asian financial crisis. Mr Tang said that in the past decade equity markets had also become another ley source of financing. ?If you look at the financing structure of the Hong Kong economy, bank loans dropped from nearly 40 per cent of total financing in 1995 to just over 23 per cent in 2003. But the stock market picked up most of the slack, accounting for nearly 70 per cent of total financing in 2003. The bond market?s share rose marginally to just 7 per cent.? This was compared with over 47 per cent for the bond market in the United States. ?So you can see the huge potential we have yet to realise,? Mr Tang said. ?While Asian economies collectively hold more than US$2.3 trillion [HK$17.8 trillion] in official reserves, the lion?s share of these reserves is held in [Group of Seven Leading Industrialised Nations?] currencies. The bulk of Asia?s savings are channelled first to the [Organisation of Economic Co-operation and Development] markets before a small portion is channelled back to Asia in bank loans and other forms of capital flows. ?The capital that comes in is mostly short-term, and in foreign currencies, leaving the region exposed to massive capital outflow at a slightest change of market sentiment,? Mr Tang added. A set of strong bond markets in Asia would provide long-term funding sources to match investment needs. It would help keep Asian savings within the region. ?It would also significantly reduce the likelihood of financial instability arising from volatile capital flows seeking better opportunities in times of crisis,? he added. The financial secretary said that by issuing bonds in local currencies, borrowers could secure long-term funding sources without exchange-rate risks and lower the cost of capital. He stressed that investors would have more alternative investment opportunities in bond markets. ?Bonds, traditionally the fare of institutional investors, are gaining huge popularity among retail investors,? he said. Bonds are investment vehicles offered by governments and corporations which allow investors to lend a sum of money to the issuer for a set amount of time at a fixed rate of interest. People investing in bonds receive a certificate from the issuer.