Moody's Investors Service is predicting another good year for the ex-Japan Asia market in 2005, with Korea, Singapore and Taiwan likely to generate most of the business. In its 2004 Review and 2005 Outlook, the agency also notes that China, with two pilot securitization schemes in the works, has the potential to be Asia's largest market.
Last year, Moody's rated 27 cross-border securitizations worth $5.2 billion. That bettered the previous record year total in 2002, but it is not just the total that encourages Moody's analysts.
"The market in 2004 differs from that of 2002, as it was more diverse and not reliant on one single asset class for most of its issuance," observed Min Ye, managing director of Moody's structured finance group in Hong Kong.
Korea's cross-border market re-emerged last year after 2003 issuance was effectively killed by a consumer credit crisis. In the last 12 months, MBS came to the fore, but Moody's believes the appetite for consumer assets such as auto loans and credit cards will return. Issuance may, however, be limited to some extent by weak consumer spending.
On the back of a year dominated by property related securitizations, Moody's expects more of the same for Taiwan in 2005, with the market enhanced by additional asset classes and increased deal sizes.
The REIT sector has contributed massively to Singapore's market, with numerous CMBS REIT-sponsored deals attracting interest last year. A favorable tax environment should encourage similar activity in 2005.
As for Hong Kong, despite the successes of government-linked transactions in 2004 - which accounted for 88% of all issuance - Moody's predicts limited and sporadic activity in 2005. With abundant liquidity in the banking system, private sector companies can source funds at a much lower cost than would be achievable through securitization.
Japan has traditionally been Asia's securitization powerhouse, as last year saw issuance reach 5 trillion ($48.8 billion), a 27% increase on the year before and bettering the previous record of 4.6 trillion in 2002. And 2005 could be even better, according to Merrill Lynch ABS researchers. The bank predicts 2005 supply of 5.8 trillion, a 15% year-over-year increase.
Merrill believes this year will be dominated by the MBS sector. That was also the case in 2004, with 1.9 trillion of activity largely driven by private sector banks. The Government Housing Loan Corp., the state-run entity accounting for 30% of all mortgage originations, will play more of a part this year, however. The entity plans to issue 2.76 trillion of MBS paper in fiscal 2005, a 600% increase.
The significant increase in supply could be expected to cause some spread widening, but this has not been the case in Japan. In 2004, spreads actually contracted to historical lows despite market growth, as investors demonstrated hunger for highly rated structured products. With Merrill predicting continued investor appetite, the spread trend is not likely to reverse in 2005.
Other asset classes touted for prominence are CMBS and lease receivables, although Merrill researchers see little room for growth in consumer credit ABS due to industry consolidation, availability of other funds and lack of suitable assets.
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