by Tan Shih Ming
SINGAPORE, Sept. 12 (Xinhua) -- The latest bond-buying scheme outlined by the European Central Bank last week to contain the eurozone's debt crisis would not diminish the vitality of the emerging Asian markets, according to some analysts here.
The European Central Bank agreed on Sept. 6 to launch a new and potentially unlimited bond-buying program focused on bonds maturing within three years in countries implementing approved fiscal austerity measures.
Credit Suisse Research believed that the European Central Bank' s latest approach is "a game-changer" since it is expected to lower the "probability of a complete euro area break-up to 5 percent from 10 percent over the next 12 months."
CIMB Research said while the bond-buying scheme is not a panacea for the deep structural faults within the eurozone, the plan will offer some breathing space for peripheral economies in the currency union to undertake austerity drives and economic reform.
Analysts said that with both the positive and negative events that have unfolded in the eurozone recently, the Asian financial markets liked equity, bond and foreign exchange markets, continued to show signs of resilience.
Backed by strong domestic demand in the forms of consumer spending and business investment, Asia's growth continued to outperform that of advanced economies in the second quarter of this year, with spill-over effect upon the financial markets in the region.
Many market watchers believe the Asian market can withstand the current headwinds from the eurozone, with the risk of a blow up as a result of a significant escalation in eurozone tensions which have been significantly lowered by now.
Aside from the bond-buying program, there are a number of events this month in the eurozone that would affect the zone's economic performance such as the Dutch election and German Constitutional Court decision on the legality of the European Stability Mechanism that is scheduled to take effect on Sept. 12.
Both the European Stability Mechanism and European Financial Stability Facility are designed to provide financial assistance to bigger members of the eurozone with financial difficulties such as Italy and Spain.
To some analysts, these other events in the month are manageable compared to the bond-buying program. The cross-border capital flow in the Asian region, which is essential to the performance of the markets, is in fact stabilizing in the recent quarter despite the ongoing eurozone event risk.
While outstanding eurozone bank loans to Asia fell 16 percent to 346 billion U.S. dollars in the first quarter compared to the same period a year ago, Credit Suisse Research said the prospect of the European Central Bank support which contributed to improvement in credit conditions has led to stabilization in eurozone bank lending to Asia in recent months.
Another factor that reduces the sensitivity of Asian markets to European financial pressures is that there has been a structural change in some of the capital inflows into Asia.
The global central banks and sovereign wealth funds have increased their allocations into Asian financial markets, in particular after the U.S. financial crisis and the emergence of the eurozone debt crisis. Their presence is increasingly felt in the region.
While statistical data are not readily available in the region except South Korea, Credit Suisse's latest study concludes that in Asia, Singapore and Malaysia are the two main recipients of these inflows.
In South Korea, data showed central banks and sovereign wealth funds accounted for 30.1 percent of the total foreign ownership by end of last year, up sharply from merely around 6.4 percent in 2009.