Press Release

CREDIT BOND MARKET IN ASIA GROWS AMID UNCERTAINTY

GREENWICH, CONNECTICUT, WEDNESDAY, DECEMBER 19, 2001 - INVESTMENT-GRADE CREDIT BONDS (IGCBs) BECAME DRAMATICALLY MORE POPULAR IN 2001 among Asian fixed-income investors, both in terms of trading volumes and portfolio holdings. This is a key finding from a third-quarter 2001 study conducted by Greenwich Associates.

TOTAL HOLDINGS OF IGCBs WENT UP 57% IN THE LAST YEAR among Asian institutions, from $88 billion in 2000 to $139 billion in 2001. Portfolios over $1 billion in size are leading the charge, with their holdings of credit bonds having risen nearly 60%.

TOTAL IGCB TRADING VOLUME ROSE EVEN MORE STEEPLY IN 2001, from $62 billion to $100 billion, not counting the transactions of central banks. "A significant number of portfolio managers are saying that if the economy of the world and of their country holds up, they will continue to invest more in slightly riskier but higher-yielding instruments," Greenwich consultant Tim Sangston says.

THAT IS A BIG "IF," OF COURSE, one tested by events which took place after Greenwich's interviews were conducted, such as the terrorist attacks of September 11, the escalation of conflict in Afghanistan, and the apparent default of Argentina. Yet evidence of a resurgent bond market in Asia was much in evidence in the late summer of 2001.

APPETITE STRONG FOR BELOW-INVESTMENT-GRADE BONDS, TOO

INVESTOR HOLDINGS OF BELOW-INVESTMENT-GRADE BONDS ALSO INCREASED SUBSTANTIALLY IN 2001, though from a far lower base. Total portfolio holdings in this category added up to $39 billion, a 30% increase from $30 billion in 2000. In terms of trading volume, the year-over-year increase was a less robust but still substantial 21%, from $26 billion to $31 billion.

"WE ARE EXPECTING THE ECONOMY TO IMPROVE NEXT YEAR, [AND] WE WILL THEN EXPAND INTO BELOW-INVESTMENT-GRADE BONDS and emerging market bonds," one investor told Greenwich in a typical comment reflecting the popularity of potentially-high-yielding credit-linked instruments.

"ASIA'S BOND BUYERS HAVE SAID FOR YEARS interest rates are so low they'll switch to yield-enhancing products like credit bonds," Greenwich consultant Jack Mahoney notes. "Now our data indicates they are at last following this up with action."

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FOUR COUNTRIES LEAD CREDIT BONDS BOOM

INSTITUTIONS IN TAIWAN, SOUTH KOREA, AND SINGAPORE INCREASED THEIR IGCB HOLDINGS THREEFOLD OR MORE, while trading volume in this asset class tripled in Singapore and South Korea. The most spectacular increase seen was in IGCB trading in Taiwan, where volume rose 500%, though from a small base.

ALSO IMPRESSIVE WAS THE GROWTH REPORTED BY CHINESE INVESTORS. In the China/Hong Kong/Macau market, IGCB holdings grew by 20%, and trading nearly doubled.

ACTIVITY WAS ALSO IMPRESSIVE IN THESE COUNTRIES FOR BELOW-INVESTMENT-GRADE credit bonds, with trading and holding volumes doubling in Singapore and growing by a quarter in China/Hong Kong/Macau.

COMPENSATION: MODEST RISES

AVERAGE COMPENSATION FOR ASIAN BONDS INVESTORS ROSE 5% in 2001, with salary increases significantly outpacing those of bonuses. Portfolio managers averaged $80,000 in salary and $29,000 in bonuses.

"IT IS QUESTIONABLE WHETHER THESE COMPENSATION LEVELS reflect the growing importance and complexity of portfolio manager jobs today," Jack Mahoney says.

INVESTORS IN SINGAPORE AND CHINA ENJOYED THE BEST OVERALL COMPENSATION IN 2001, double the packages earned by investors in Taiwan, South Korea, and the Philippines.

E-TRADING STILL NOT REALITY FOR MOST

ONLY 6% OF ASIAN FIXED-INCOME INVESTORS REPORTED ONLINE TRADING ACTIVITY IN 2001, virtually the same level of activity reported in 2000. 34% of investors say they are considering electronic-based trading for the coming year. This contrasts sharply with the United States, where 40% of bond investors are trading online now.

"IT'S CLEAR PROMISE IS NOT YET TRANSLATING INTO PROGRESS," Tim Sangston notes. Security concerns, technical difficulties, legal issues, and unfamiliarity with systems are among the key concerns cited by those not considering online trading.

Greenwich Associates conducted interviews with 361 institutional fixed-income investors in Australia; China, Hong Kong, and Macau; India; Indonesia; Malaysia; New Zealand; the Philippines; Singapore; South Korea; Sri Lanka; Taiwan; and Thailand. Interviews were conducted in August and September, 2001. Topics discussed included portfolio holdings, trading volumes, market trends, compensation, and evaluations of dealers.

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Greenwich Associates is the leading international research and consulting firm in institutional financial services worldwide. Greenwich's studies provide benefits to the buyers and sellers of financial services in the form of benchmark information on best practices and market intelligence on overall trends. Based in Greenwich, Connecticut, with additional offices in London, Sydney, and Toronto, the firm offers over 100 research-based consulting programs to more than 250 global financial-services companies. Please contact us for further information or to arrange an interview with one of our consultants. You can also visit our website, www.greenwich.com.