However, investor sentiment towards local currency bonds in the region has improved as the volatility that unsettled emerging markets last year subsides.
The Asian Development Bank’s latest Asia Bond Monitor noted that China, however, is bucking the trend.
The share of foreign holdings in the Chinese bond market fell to 5.0% at the end of December 2018 from 5.1% at the end of September – reversing rises seen since 2016.
China’s economy has slowed dramatically amid the continuing trade tensions with the US and in February exports plummeted 20%.
The ADB said that at the end of 2018, there were $13.1 trillion in local currency bonds outstanding in East Asia’s emerging economies – 2.4% more than at the end of September.
“Risks to financial stability in emerging East Asia have receded somewhat recently,” said ADB chief economist Yasuyuki Sawada.
“However, some uncertainties persist, notably from the unresolved trade conflict between China and the US, a potentially disorderly exit of the UK from the European Union, and slowdown of global growth momentum.
“The rapid buildup in private debt during the past decade could also damage economies and financial stability in the region.”
While a key factor behind the stabilisation of emerging markets in Asia is likely moderation in the rate of interest rate rises by the US Federal Reserve, global trade tensions continue to fuel uncertainty.