Securitised debt has, at best, played a supporting role in Asia over the past decade or so. No sooner did issuers and investors begin to embrace the product than it met an unexpected hurdle that took the wind out of its sails
Asian securitised debt experienced a steep reduction in the issuance volumes during and immediately after the financial crisis, with a large number of active investors withdrawing from or reducing their appetite for such investments. But we are now seeing the appetite for securitised debt return in the fast-growing Asian economies – a trend also seen in the global securitised debt markets. The growth in Asia, however, is perhaps currently limited by the number of active investors. In Asia (ex-Japan), a significant majority of both cross-border securitised debt and local currency securitised debt issuances continue to be placed with banks or bank-sponsored vehicles, funds and insurance companies. The emergence of investors, both Asian and global, may be a reflection of the state of global liquidity. The lack of highly rated, quality assets will only encourage investors to consider the merits of Asian securitised debt, especially from a relative value return perspective.
The major securitised debt markets in Asia-Pacific comprise Australia, Japan, South Korea, India, Singapore, Taiwan and Thailand, and includes both offshore and onshore local currency domestic markets. Markets in Indonesia and the Philippines have been stirring as well, with domestic transactions being worked on or recently closed. With Asia’s growing economies and increased requirements for new growth capital, these trends are likely to continue in the medium term despite headwinds from the debt crisis in Europe, political uncertainties in the Middle East and natural disasters across the globe.
Given the nature of the global financial markets, Asia is no different from the European and US markets in terms of having to cope with ongoing changes in the regulatory landscape. Many Asian countries continue to be in different phases of regulatory development and implementation, with each of them dealing with country-specific concerns of inflation, asset bubbles and interest rates, as well as being in the process of aligning themselves with global regulatory initiatives and reform.
Notwithstanding the regulatory landscape, central banks around the world continue to recognise the importance of a robust securitised debt market with adequate transparency and disclosure measures in place. Securitisation therefore continues to receive the support of regulators under the new Basel framework.
While the regulatory risks and measures continue to evolve, none of these measures will likely impact the quality of the underlying collateral pool. Contrary to popular perception, during the course of the financial crisis and the period immediately after, there was in fact very little deterioration in the quality of the supporting collateral for Asian securitised debt.
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