Download Structured Products to Gain Interest in Korea

Structured Products to Gain Interest in Korea
Korea Times
By Cho Hyung Kwon
October 19, 2004
The low interest environment is expected to trigger more interest in structured finance
products such as synthetic collateralized debt obligations in Korea, an international financial
service company said Tuesday.
During the Korea Finance and Capital Markets Conference organized by Euro Events and
sponsored by The Korea Times, Sam Pang, vice president at Fortis Bank, said that there will
be more opportunities in Korea for new investment products to gain the interest of
institutional and retail investors.
``CDOs were exotic products in other Asian countries just a few years ago. But now they are
no longer exotic and are regular investment vehicles,” he said in an interview with The Korea
Times.
Collateralized debt obligations (CDOs) are structured fixed income securities with cash flows
linked to the performance of debt instruments and are usually securitized in pools of
generally non-mortgage assets.
``The impression of Korean clients is that they are pretty sophisticated and they have seen
these kinds of products before, so CDOs will not be something new,” he said.
``But how the regulatory authorities view the market and continuous education of clients are
important. Also the investment culture has to change so investors are not only looking for
equity and bonds. There are other ways to make money,” Pang added.
``Currently Korea is not a big market, but in about three years, we can expand and there
and will be good opportunities in Korea,” he said.
In Korea, the main clients of Fortis Bank’s products are insurance companies and a few
banks.
Richard Brauge, director at the bank said that the development of the synthetic CDO market
will bring additional liquidity and believed that the Asian market including Korea was
promising on increasing demand.
``A low interest rate will enable local investors to take large interest. Structured products
are the answer to many institutional investors and will help them overcome the constraints
of the global economic environment,” he said.
Pang also believed that the large participation of retail investors in the local derivatives
market was a good sign and structure products could prompt them to become involved in
other risk participation opportunities.
Other participants of the conference included Choi Joong-kyung, director general at the
Ministry of Finance and Economy, Min Kyung-dong, executive director at Korea Asset
Management Corporation and Huh Chan-guk, director at Korea Economic Research Institute.
Choi said that he expected the Korean economy to improve despite the weak domestic
demand as investment was improving, while the continuing strong external sector has been
the key to Korea’s solid economic performance.
``As part of measures to help the Korean economy and financial markets to leap forward,
we plan to deepen and widen the scope of capital markets, strengthen the role of public
funds and pension funds, provide longer-term fixed income instruments and introduce a
corporate pension system in 2006,” he said at the conference.
``The government will also focus on privatization and help the financial sector become more
vigorous. We plan to introduce a new regulatory environment and ease regulation on asset
management and help bring the domestic asset management industry to the globally
competitive level,” Choi added.