The Asian structured credit derivatives market is expected to break more of its ties with its European and U.S. equivalents, a trend which, although started last year, has a long way to go. The first synthetic collateralized debt obligations referenced entirely to Asian credits was launched by Société Générale Asia last year and totaled USD100 million. BNP Paribas was hot on its French rivals heels and started working on its first Asian dominated CDO in February (DW, 2/25). Gilbert Tse, managing director and head of structured credit derivatives at SG in Hong Kong, said, "I think we'll see a lot more CDOs with some or more Asian contents this year." Guillaume Dieu, director and head of Asia Pacific synthetic securitization at BNP in Hong Kong, said the products are popular because of the diversification they offer CDO investors who already have CDOs referenced to European or U.S. credits.
In addition, as demand for Asian referenced CDOs grew, several other houses established structuring operations in Hong Kong, including BNP Paribas (DW, 2/24), Credit Lyonnais (DW, 1/27), and Royal Bank of Scotland Financial Markets (DW, 8/18) while Barclays Capital Asia (DW, 7/21) and UBS Warburg (DW, 9/29) both looked to set up operations in Singapore. This can only mean that next year will see even more Asian deals.
"It really has become a bespoke market," said Chris Nicholas, managing director and head of Asian credit markets at JPMorgan in Hong Kong, noting the growing depth of customized transactions. Throughout the year a plethora of CDOs hit the market, including the first managed transactions. "Local managers are now handling the asset management for CDOs," said Jawahar Chirimar, senior v.p. and head of credit trading at Lehman Brothers in Tokyo. ING Financial Markets (DW, 1/6) Lehman, JPMorgan and Deutsche Bank (DW, 9/15) all structured managed portfolios in Asia last year.
However, not every Asia-Pacific market was growing. "This year was disappointing," said Pierre Katerdjian, global credit swap trader at Deutsche Bank in Sydney, referring to a credit derivatives market contraction in Australia of around 20% due to a lack of end user interest caused by low credit quality volatility (DW, 10/27). But, Katerdjian thinks the reduction in volume will turn around this year as more funds will likely have mandates approved to enter default-swaps as well as invest in structured credit instruments. Several prominent funds, such as AMP Henderson Global Investors (DW, 3/24), Colonial First State Investments (DW, 6/9) and INVESCO Australia (DW, 10/6), have already started examining credit derivatives.
