JP Morgan Chase and Morgan Stanley launch Trac-x Asia

The new index will track the 25 most liquid credit default swaps across seven Asian countries excluding Japan, and will provide investors with a simple means of managing their exposure to the Asian credit market, as well as a tool to take relative value opportunities between the cash and credit default swap market.

“Asia is different from other regions because of the [geographical] diversity within the region,” says Richard Cohen, vice-president at Morgan Stanley in Hong Kong. “So the Trac-x Asia index makes it easier for investors because it was always hard to talk about Asia in terms of how Asian spreads are performing.”

The index includes credits from China, Hong Kong, Korea, Malaysia, the Philippines, Singapore and Thailand, with Hong Kong and Korea accounting for 56% of the portfolio. The index has an average rating of BBB+, although it includes one non-investment grade credit – the Republic of Philippines.

The index, which will begin trading on October 22, will initially be offered in a US dollar-denominated unfunded format. However, the two firms will offer funded notes referenced to Trac-x Asia by the end of the year, a development that will likely appeal to investors in the region, says Amy Li, vice-president, Asia index and portfolio research at JP Morgan Chase in Hong Kong.

“We are seeing interest from clients that want to take Asian risk but find it difficult because the cash bond market in Asia is still fairly small and limited. So investors are looking around alternatives to invest their funds, and Trac-x Asia is another option for them,” she says.

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