Agricole Indosuez to launch new credit-tracking index in Asia

Credit Agricole Indosuez is launching a new tracking index in Asia aimed at better representing the performance of the underlying credit market than current bond indexes in the region.

The CAI Asian Credit Index is primarily designed to meet the needs of its structured products investors, said Medes Ma, the French bank’s credit trading manager in Hong Kong. Ma said many of these are active in credit baskets and collateralised debt obligations (CDOs), but presently must rely on limited traditional bond indexes for an overview of the market environment.

The new index will be based on 29 reference entities in seven countries, and includes the major Asian issuers of non-domestic currency fixed-coupon bonds, convertibles and exchangeable bonds. Critically, says Ma, a liquidity ratio will be used in compiling the index to ensure reference entities are liquid in the credit default swap market. This is aimed at overcoming another major limitation of the traditional bond indexes.

Ma said the CAI Asian Credit Index is expected to be running by the end of January, with statistics backdated to July 2002 to provide a seven month reference framework. The new index includes sub-indexes that will reflect credit performance by country. Index levels and statistics will be published daily on Bloomberg page CADP.

Demand for credit derivatives products in Asia has grown rapidly in terms of both turnover and product range, and Ma sees the new index as a further step in the market’s development.