A Chinese regulator is expected to give insurance companies the go ahead to invest in collateralized debt obligations. "The regulators have been looking at it and hopefully we'll get a green light. Once this happens there will be a mad rush," said a credit head at a bulge bracket house.
Market participants have been in direct discussions with the China Insurance Regulatory Commission in regards to CDO investments and expect the regulator to give the go-ahead in the coming months. Officials in the fund management requirement department in Beijing, which is overlooking the measures, declined comment.
"Simply stated, this will be a big market," said David Crammond, Asia-Pacific head of structured credit sales at ABN AMRO in Singapore. Insurance companies have so far invested in overseas bonds and structured interest rate notes to boost yield and are likely to see credit products as a logical step. "Even with spreads tight, a single A tranche offers significant yield pickup over a similarly rated bond," he noted.
"The leading insurers are definitely ready to enter [CDOs]," added Crammond. Credit officials said two or three companies could enter the market straight off the bat.
The move follows greater liberalization this year for CDO products in Asia. In the summer, Taiwan opened the door for insurance companies (DW, 6/13), which was recently followed by regulatory changes in Thailand that allow banks to invest in the asset class (DW, 10/29).
