Still looking for yield
Comment
The verdict is unanimous. The themes of last year will continue into 2003, meaning that yield enhancement is once again going to be key for investors in the region. With interest rates at record lows, and few strategists seriously expecting a rise in rates in the near term, investors are expected to continue buying range accruals, credit-linked notes and structured credit products over the coming months.
The only difference this year is likely to be a greater number of structured products denominated in local currencies, rather than US dollars. Others suggest that this year could see the beginnings of local currency credit derivatives markets in one or two countries, with South Korea and Taiwan the favourites to emerge first, regulations permitting (see page 10 or Open to innovation.
In fact, the regulatory environment in South Korea is going to be eyed closely by a number of participants over the next few months, perhaps most avidly by the country’s securities houses. Having been allowed to apply for over-the-counter derivatives licences since last July, South Korea’s securities firms anticipate an explosive market for retail investment products such as warrants, equity-linked notes (ELNs) and capital guaranteed funds. And indeed, their optimism seems well founded – the exchange-traded Kospi options contracts, for instance, are the most actively traded in the world.
But while three securities firms had received derivatives licences by the time Asia Risk went to press, they are currently prohibited from accessing the country’s retail investors. Dealers expect regulations to change as early as next month, starting with approval to offer ELNs – at least they hope so, given the investment they have made in derivatives systems and personnel. In our cover story (see pages 8–9 or Breaking down barriers) Asia Risk looks at the current regulations and the hoped-for changes.
Elsewhere in South Korea, the country’s banks are stepping up their risk management systems to more adequately cover their consumer loan portfolios. A surge in consumer debt over the past year has led to a steady rise in defaults, particularly among credit card holders, prompting the country’s regulator to impose a series of new measures to cut back on delinquencies, including the adoption of individual credit review systems. Bank risk managers have been focusing on these requirements, along with the ongoing integration and improvement of current risk systems. Preparation for the Basel Accord, meanwhile, has fallen slightly by the wayside, as banks prefer instead to wait for the final Basel documentation due at the end of the year (see pages 28–29 or Waiting for guidance).
And they’re not the only ones. A recent survey by consultants KPMG shows that Hong Kong banks, generally acknowledged to be at the vanguard of risk management in Asia, are lagging behind European institutions in preparing for Basel II (see page 6 or HK banks lag in Basel II preparations). With three years to go until the scheduled implementation of the Basel Committee’s recommendations, consultants warn that banks need to begin their preparations in earnest over the coming year if they are to comply.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Banks will not be frowned upon for discount window borrowing – Fed official
Risk Live: more banks have completed paperwork to access Fed lending facility than a year ago
Capital One puts OCC’s tough stance on mergers to the test
Proposed Discover deal should be approved but will go under the microscope, ex-regulators say
As FCMs dwindle, regulators fear systemic risk
Panellists highlight dangers of clearing membership becoming more concentrated
EU banks fear green asset ratios paint an unfair picture
Industry lobbyist clashes with lawmaker over usefulness of new sustainability disclosure
EU watchdogs to launch prop trader capital review in April
Prop traders say bank-style IFR rules are driving them out, but doubt EBA will suggest changes
Investors say new SEC disclosures may sit on shelf
Advisory committee questions value of rule 605 changes, even for retail investors
CFTC hears ‘call to action’ from swaps end-users on Basel III
Commissioner Pham mulls engaging with prudential regulators over capital hit on clearing
Iosco gears up for ‘intensive work’ on AI regulation
Watchdogs risk ‘falling behind the curve’, secretary-general warns; FSB also working on guidance
Most read
- As FCMs dwindle, regulators fear systemic risk
- Top 10 operational risks for 2024
- Top 10 op risks: AI fears drive cyber risk to record high