LAS VEGAS - Attendees at the opening session of the American Securitization Forum's conference last week were given the chance to express views on several industry topics by using handheld voting devices. In game show style, panel members at ASF 2006 asked various questions of audience members and displayed the results.
While most of the results were somewhat predictable, others were surprising. When asked if domestic or international ABS issuance had grown at a faster rate from 1995 to 2005, only 61% of audience members chose international issuance. Issuance from outside the U.S. had grown over the decade at a rate of 5,421% compared with 646% growth in domestic issuance - a figure that seemed to surprise many.
Inside the U.S., 33% of attendees favored traditional ABS investments such as autos, credit cards and student loans. Not surprisingly, 50% of those traditional ABS investors were planning to invest in home equity securities this year. The asset class was clearly the fastest growing in the ABS market from 2000 through 2005 when the housing market was characterized by historically low interest rates, accelerated home price appreciation and all kinds of new mortgage originators and products that cropped up. The second-fastest growing U.S. ABS sector from 2000 through 2005 was floor plan ABS, which experienced 945% growth during the period.
Emerging markets offering significant opportunity
Emerging markets, representing a major element of international issuance growth, present the best non-U.S. investment opportunity this year, according to audience members. The opinion, according to panelists, represents the increasingly global characteristics of the asset-backed securities market. While almost 50% chose emerging markets as a key investment opportunity, 38% chose European ABS.
Michael Rieger, managing director at AIG Global Investment Group, said deals have originated in the United Arab Emirates, Latvia and Russia, among other emerging markets.
"We definitely agree with the majority here that emerging markets present the best opportunity outside of the U.S.," he said.
ASF Chairman Greg Medcraft announced before the session that nearly 4,000 people had registered for the three-day conference. One-third of audience members from outside the U.S. were from continental Europe and 27% were from Latin America while the U.K. and Australia each accounted for 20%, according to a poll of the audience.
"We've definitely seen a big risk transference offshore, and a big appetite for that," Rieger said.
Demand from overseas has not only helped to prop up the U.S. housing market, but also continues to influence the direction of spreads.
One issue that seemed to carry a divergence of opinion, depending on which side of the pond one hailed from, was the implications, or at least the degree of focus on, Basel II.
"It's kind of very weird to come over the Atlantic and find that you do talk about securitization, but you don't talk about Basel II," said Chris Fielding, head of the securitization group at Abbey National Treasury Services.
Be aware of Basel II, Reg AB
Rieger said investors should be aware of Basel II's implications for the ABS market. Some later deals have call features tied to Basel II, and covered bond and ABS spread relationships are bound to change.
"Investors just need to be aware so they're not caught by surprise by the things taking place," he said.
One regulatory item that has caught the attention of U.S. investors is Regulation AB, which has kept a number of potential issuers in the first quarter away from the markets.
"It's more of a speed bump than a road block in the market," said Pat Beranek, principal at Bank of America Securities.
He added that a lack of consistency among legal counsels' interpretation of the regulations has caused confusion.
"I think we'll get over the hill in the first quarter," Fielding said.
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