Asia's convertible bond revival driven by China's hi-tech listings in US
After falling by more than half between 2010 and 2012, volumes jumped fivefold last year
China is leading an Asian revival in convertible bonds - a much beleaguered asset class.
Issuance volumes in Asia, excluding Japan, fell by more than half between 2010 and 2012 but the market rebounded late last year, largely driven by China, with volumes jumping fivefold.
China accounted for about 65 per cent of issuance for the Asia-Pacific region, excluding Japan, last year.
"This year, incredibly, the percentage is going up and, year to date, China is 75 per cent to 80 per cent of convertible volumes," said Aloke Gupte, JP Morgan's Asia-Pacific head of equity-linked origination.
To understand what is behind China's convertible bond explosion, one has to look at why the regional market went cold in 2011 and 2012.
The Asian convertible bond market collapsed alongside the implosion of hedge funds during the global financial crisis. Meanwhile, new American rules restricting investment banks' leverage meant they cut the capital they offered hedge funds through their prime brokerages.
The upshot, said Nathan McMurtray, the head of Asia equity-linked origination at Deutsche Bank, was that funds were less equipped to use dynamic strategies to hedge the credit and equity portions of convertible bonds. The market, he said, had largely gone to outright funds.