"The fund carries an inherent catalytic function,'' Martin Hohensee, Deutsche Bank's Head of Fixed Income and Credit Research in Asia, said. "A market competitive index which will shed the cruel light of day on the impediments to investing and will add a great deal of needed transparency to the market.''

The Asian Bond Fund 2, which was unveiled last month by central bankers from eight Asian countries and territories, will feature both an overall fund that will invest in government bonds from all member economies as well as individual funds limited to just one nation's debt. The overall fund is expected to list on the Hong Kong stock exchange, while the individual funds will ultimately list in their respective home markets.

The central bankers, who are providing the initial US$2 billion (HK$15.6 billion) seed money, see the fund as a bulwark against rapid capital outflows, such as those triggered by the Asian financial crisis of 1997, that contribute to economically unhealthy volatility.

No one involved in Asia's bond markets expects China, or other countries with tightly controlled markets such as South Korea, to throw open their doors immediately. But the fact that the index that will be used to establish the fund's weighting among different government bonds will rank investibility as the single most important criterion will highlight which markets are relatively open and which ones are closed. ``It's good to have these investments available for reference so people can have a more objective, measurable tool to see how some of the markets are,'' Hong Kong Capital Markets Association chairman Brian Yiu said.

``These indexes are helpful in benchmarking and would give markets a bit more incentive if they also care about the development of their own capital markets.''

In addition to China, South Korea, and Hong Kong, the fund's backers include the Phillipines, Singapore, Thailand, Indonesia, and Malaysia. China, with one of the region's biggest domestic bond markets, also has one of its most restricted, at least to outside investors.

Beijing strictly controls capital market investment from overseas through the Qualified Foreign Institutional Investor (QFII) program, which sets investment quotas on an individual institutional investor basis. UBS, with a US$800 million quota, has the biggest of any foreign bank, followed by Credit Suisse First Boston with US$750 million.

Taiwan used a similar quota system when it first opened its bond market to outside investors, but ultimately abandoned it and now ranks just behind Hong Kong and Singapore in openness to foreign investment.

Last year China issued a nine-point plan for developing its capital markets, and has begun to reform its bond markets. Regulators have begun to unify the interbank bond market with the two exchange-traded markets and have given investors more investment tools to work with, such as the ability to short government bonds.