Introduction

While the reverberations from the sharp rise in US subprime mortgage loan delinquencies continue to be felt in the US and across Europe, the emerging markets - long the focal point for any financial market crisis - have so far weathered the storm pretty well.

There's been the odd judder in stock prices and the occasional revelation of losses due to subprime exposures - most notably Bank of China, which announced in August that it held a whopping $8.97 billion in asset-backed securities (ABSs) backed by US subprime mortgages and $682 million in collateralised debt obligations (CDOs), also backed by subprime loans. Nonetheless, it is widely thought that the Bank of China can easily shrug off any losses realised from these exposures - particularly given the fact that 75.38% of the ABS exposures and 81.8% of the CDO tranches are rated AAA.

There is still plenty of liquidity sloshing around emerging markets, in Asia in particular. Unless the problems experienced in the subprime market start to have a serious knock-on effect on the broader US economy, snuffing out consumer confidence and extinguishing demand for imports, analysts expect the effect of the current market turmoil to be relatively muted.

One area that could be hit, however, is the burgeoning micro-finance sector. Micro-finance - the provision of financial services to the poor and disadvantaged - has grown at a tremendous rate, and several collateralised loan obligations (CLOs) referenced to micro-credit portfolios have been launched over the past year, providing the funding for further growth. Could the pull-back of investors from the securitisation market stymie the growth of this sector?

Certainly, dealers say it's difficult to get a micro-finance CLO out of the door in the current environment. But with defaults on micro-finance loans at extremely low levels, some suggest these transactions could become even more, rather than less, popular with institutional investors.

Nick Sawyer, Editor.