An increase in the volume of plain-vanilla and structured credit products in 2001 has moved the Asian credit derivatives market another step closer to the depth and sophistication of the European and U.S. markets. One major innovation last year was the structuring of the first synthetic CDOs referenced solely to Japanese names, by firms such as BNP Paribas, J.P. Morgan and Deutsche Bank (DW, 11/19).
Mahesh Bulchandani, v.p. and regional head of structured finance origination at J.P. Morgan in Tokyo, said demand for CDOs in Asia increased and he expects it to rocket next year. "Using Europe as an indicator, there will be two more years of fast growth," said Bulchandani. Loh Boon Chye, managing director for Asian emerging markets credit derivatives at Deutsche Bank in Singapore, agrees, noting that demand for balance sheet CDOs will grow. "Banking consolidation in Hong Kong, Singapore and Taiwan will result in the CDO market picking up steam." Loh continued, "volume will increase substantially--probably double or triple from the limited number done this year."
A series of interest-rate cuts, prompted by the Federal Reserve, pushed investors into the corporate credit and synthetic credit markets in search of yield pick up, according to Adam Sticpewich, managing director of the emerging markets group at Credit Suisse First Boston in Hong Kong. In addition, Sept. 11 impacted the Asian market as it forced issuers in Asia to put their plans on hold. However, "they're now getting back into the market," said CSFB's Sticpewich, adding that a recent issuance by Singtel has been well received. He continued that Singtel is the first name in Singapore to be heavily traded as a default swap. Hutchison Whampoa and PCCW-HKT also had notable bond issuances, which have driven demand in credit-default swaps.
Another major theme of 2001 was a surge in corporate defaults resulting from the cooling economic climate. "This was the year of defaults," said Jim Fingleton, associate director of fixed income atSG Australia in Sydney, referring to the large number of household names that defaulted, such as Ansett Australia and HIH Insurance. However he added that the one positive result is, "it focused people's attention on credit risk." This caused growth in the depth of the market as more end-users started purchasing protection, these included, Macquarie Investment Management (DW, 7/2) and BT Funds Management (DW, 11/12).
As far as innovation is concerned, "no one invented the television or radio [last year] but there were new variations to existing products," noted Fingleton, referring to the development of the Australasian market. However there were several Australian dollar denominated transactions as well as plans to structure the first Kiwi CDO (DW, 12/3).
On the plain-vanilla side Salomon Smith Barney Australia established a presence under Glenn Hodgeman from ANZ (DW, 11/19). Other firms also entered the Asian market last year, including HSBC (DW, 4/30), Standard Chartered (DW, 6/4), First Chicago Tokio Marine Financial Products Co. (DW, 7/9) and Crédit Agricole Indosuez (DW, 9/24). Some looked to offer synthetic CDOs for the first time, including ING Barings, Gen Re Securities (9/24) and DBS Bank (DW, 9/24). Firms with established operations also looked to build up their credit desks in Asia, including ABN AMRO (DW 10/17), Bank of America (DW, 10/22), Goldman Sachs (DW, 6/18) and J.P. Morgan (4/8).