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In the leafy lanes of surrey

There is nothing fake about synthetic collateralized debt obligations in Asia. The fact is they are on the fast track to poster-boy status, thanks to the region's developing credit derivatives market. Roy Chew reports.

After more than two decades of iron-fisted rule, Mahathir Mohamad has finally stepped down. Unsurprisingly, the unchallenged leader of Malaysia maintained his confrontational style right up to the final weeks of his premiership, continuing to irritate the United States, delight the hardliners, and grab front-page coverage. But love him or hate him, Mahathir was the devil the financial markets knew. He didn't like globalization and he didn't like hedge funds. And he let the world know it – just ask George Soros. But domestically, he was business-friendly – and the business world knew it.

Abdullah Badawi is known as the Mr Nice Guy of Malaysian politics. But he will need to add grit to his charm if he is to harness investor confidence by winning back the ground lost to the Islamic party, Pas, in 1999. Pauline Loong was in Kuala Lumpur taking the political pulse as well as assessing Malaysia's chances of becoming the global centre for Islamic finance and the opportunities for international players.

Return on equity and other traditional metrics can be misleading or distorted, says Bill Pieroni*.

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Seoul-based Korea First Bank, with KRW37.1 trillion (USD31.6 billion) in assets, is planning to invest in synthetic collateralized debt obligations for the first time. Y.H. Shin, assistant manager in the treasury department, said the firm has gathered information about the instruments and may invest next year.

New World Development Company, one of Hong Kong's largest conglomerates with over HKD130 billion (USD970 billion) in assets, is considering entering interest rate swaps next year to diversify its debt book. "We have too much in HIBOR, we should diversify our risk," said Alfred Lo, assistant treasurer.

The International Swaps and Derivatives Association is planning to write the first standard documents for inflation derivatives, according to Bob Pickel, ceo of ISDA in New York. The instruments have been on the association's radar screen since the 2002 annual general meeting. At that meeting Frederic Janbon, ISDA board member, said this was one of the hottest markets. That prediction has proved true, with outstanding inflation-linked debt standing at around USD70 billion.

"To me, 90% of the work of UCITS III is useless without a tax addendum."--Benedict Peeters, director in the global equity products group at Deutsche Bank in London, commenting on the European Union rule change that was first considered to be a boon for the fund derivatives market, for complete story, click here.

Korea and Taiwan were the hottest markets in Asia this year. "The main driver was market liberalization," said Chi-won Yoon, managing director in equity risk management at UBS in Hong Kong. "For instance, in Korea dealers issued onshore equity-linked deposits while in Taiwan insurance companies, which hold substantial assets, can now buy a much bigger chunk of foreign currency-denominated structured products," he explained.