Opportunities exist for credit arbitrage in Asia, says Lehman

There are significant opportunities in the Asia-Pacific region for hedge funds employing credit and capital structure arbitrage, and a growing number of firms are starting to consider these strategies in the region, according to Dalip Awasthi, Tokyo-based head of Asian credit research at Lehman Brothers.

Speaking at a credit seminar for the bank’s clients in Hong Kong, Awasthi said strong demand for Asian dollar bonds from local investors – the so-called Asian bid - has meant that credit spreads have remained tight over the past year, despite volatility in the US and European credit markets.

At the same time, a difficult 12 months for many of the region’s equity markets means implied credit spreads modelled from equity volatility levels on a number of Asian companies is often significantly wider than the actual spread in the credit default swaps market, offering relative value trading opportunities. A small but growing number of Asian firms are now considering these strategies, said Awasthi.

“Traditional long/short equity funds are doing the same thing in credit,” added Tarun Jotwani, London-based head of international credit markets at Lehman Brothers. “This is now happening increasingly in Asia.”