Bankers at credit derivative houses in Asia are abuzz with the prospects of a dramatic increase in business in collateralized debt obligations in Taiwan after a regulatory change that will permit insurers to buy synthetic CDOs. Taiwan's Department of Insurance recently announced it has given insurers the green light to invest up to 5% of their total portfolios in CDOs that are rated single A or above.
"This will take off in the next six months or so and from there bosses at some insurers will be asking 'how come we're not doing this'?," said C.G. Lai, head of fixed income at BNP Paribas in Taipei. "It's a great step forward to have this positive endorsement," he noted. "This market will be big," said a fixed income official at Morgan Stanley.
"I believe we will all be interested in investing in CDOs," said James Kao, manager in the international investment department at Shin Kong Life Insurance Co., one of Taiwan's largest insurers. Now that the door is open, the insurer plans to make its first foray into the CDO market in the next quarter. Gao has been speaking with several bankers about the products and noted that after further studies Shin Kong will likely look at investing in a rated tranche of a global portfolio.
