Gresik is a small industrial town of fewer than 100,000 people, just to the north of Indonesia's second-largest city, Surabaya in East Java. But its position is critical. It sits near the Lombok Strait, the second most important shipping gateway between the Indian Ocean and the South China Sea and the vital trade route for fuel and resources between China and Australia.
That is why AKR Corporindo has picked Gresik for what it hopes will become one of East Java's biggest seaports and the only one tied directly to an industrial estate. The Indonesian logistics group has a 2,500-hectare site and has invested Rp675 billion ($70 million) of a projected Rp7 trillion to Rp8 trillion in the first phase of the development of both facilities.
One of the most notable things about this investment is where AKR got the money: Asia's local currency bond markets. These markets have their roots in the Asian financial crisis of 1997-98 but they have bloomed since the global financial collapse of 2008 unleashed easy money.
However, the hot money flooding out of the west in search of higher returns in growing markets has stoked fears about the biggest credit boom in Asia since the spectacular implosion of the late 1990s.
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AKR is just one of hundreds of Asian companies that have never borrowed money from public bond markets before. Bond markets typically give companies longer-term funding than banks and there is no need to put up assets as security. But until just a couple of years ago, many companies such as AKR would have had little or no chance of raising money in this way.
Since the start of 2012, a fifth of Asian local currency bonds have been issued in debut deals, according to Dealogic. In the U.S. and Europe, this proportion is typically less than 3 per cent.
Some debut borrowers have been able to raise large amounts of money. For example, Maxis, a Malaysian telecoms company, raised Ringgit2.45 billion ($810 million) in its first outing. Deals such as this have seen Asian markets almost double in size since the end of 2008 to $6.5 trillion worth of bonds outstanding. Companies now make up more than a third of that much bigger market compared with about a quarter at the end of 2008.
So many new – and often higher- risk – companies are borrowing funds at increasingly low rates that there are growing fears about a bubble in Asia and the role of foreign money spilling out of the U.S. and Europe. What happens when interest rates eventually start to rise, particularly in the U.S.? How much of that money will turn around and flee?
Thiam Hee Ng, a senior economist at the Asian Development Bank, says governments need to be wary of the recent surge in foreign capital inflows. They need to be "prepared for a possible reversal when the economies of the U.S. and Europe pick up again".
Each new round of ultra-loose monetary policy from western central banks, known as quantitative easing, has prompted growing flows of money into bond funds that invest in Asia but not Japan. More than $5.6 billion in retail money alone has flooded into such funds since February 2012, according to Citigroup estimates.
The money is coming for obvious reasons. The low interest rates and poor growth levels in the west make Asia a much more attractive place to invest. Consequently, foreigners own much more of Asia's debt. A third of Indonesian rupiah government bonds, for example, are owned by foreigners, up from less than a sixth at the end of 2008, the ADB estimates. Others reckon that share is as high as 50 per cent for Indonesia and about 40 per cent for Malaysia and the Philippines.
But if interest rates in the west do begin to rise again, how much of a risk will that pose to the stability of Asian economies?
One big fear is that while the money flowing in is significant for Asian markets, it is much less significant for the investors that have sent it here. In other words, a small decision on moving money back to the west could have a very big impact in Asia.
However, large investors in the region reckon that the money coming to Asia is part of a longer-term strategic allocation. Asset managers such as Pimco and BlackRock, which run hundreds of billions of dollars invested in debt around the world, have been increasing staff numbers and capabilities in centres such as Singapore.
Ramin Toloui, global co-head of emerging markets at Pimco, who moved to Singapore to build a deeper Asian business in 2011, says emerging markets have been transformed from the financial basket cases they were a decade ago. "They have gone from being the world's debtors to the world's creditors," he says.
Because of this shift, some of the world's biggest bond investors have begun looking at markets differently. Norway's sovereign wealth fund said last year that it would stop making global investment decisions using bond market indices that are based on how much debt exists in each country and start looking instead at each country's contribution to global gross domestic product. This means that instead of investing in bonds from the most indebted developed countries, it will invest in those from faster-growing emerging markets. Other large sovereign wealth and pension funds are expected to follow this move.
"There is a big strategic dimension to the money that is coming to Asia. It is not just a short-term reach for yield driven by central bank action in developed markets," Mr. Toloui says. "Global investors are still so under-allocated to emerging markets bonds that any small extra allocation across the industry means massive new inflows."
Low Guan Yi, who runs bond funds for Eastspring, the Asian asset management arm of the UK's Prudential, an insurer, says that QE has simply forced western institutions to act more quickly. However, she adds that local money is becoming more important in bond markets as societies become both older and the middle classes grow.
"People's ideas are changing because of the demographic changes," Ms. Low says. "Previously it was all equity but now people are much more interested in income products."
Other traders and investors are less sanguine. They estimate that half of the money coming from abroad could prove flighty when the west begins to recover. But they still point to the growth in pension funds, life insurers and bond-focused mutual funds locally in Asia as an important backstop.