Today's Bloomberg story on US convertible bond sales being up the highest since 2008, has a clear link with Japan. Since May this year both sell-side clients and hedge fund clients are starting to ask about CB views for Japan. Straight corporate CBs and private CBs seem to be high on the list of new products to come. The recent Suntory IPO as well as others to follow with have a follow up wave of CBs. The question I am asked is, "Who knows the Japanese CB market well now?" There is no easy answer as the market is very cyclical. There has also been a lack of CB issuers to trade in recent years.
The Koizumi boom years of 2003-2006 had CB arbitrage hedge funds like Citadel and Highbridge doing well and dominating the market. Who will drive the next CB boom to come? It would make sense to see a Japanese CB boom 2014-2018. Why? this is mainly due to the new IPO pipelines in equities and a possible Olympic building boom expected after September 7, if Tokyo wins the 2020 bid. So if this CB boom does happen in the months to come who will dominate in the future? The players have changed and so has the market as well as regulations in Japan, but the volume will be big enough to justify the new revenue stream.
Unlike in the previous CB cycle 10 years ago I see more market share going to Japanese securities firms than before. The top 5 Japanese firms are going to expand both Japan & Asia trading at the same time. Equities, FX and perhaps CBs soon will be the troika of growth product P/L in 2014. All I can say is that forward thinking MDs who call me now are preparing for this already. Which firms will pull the trigger soon? and which firms will be left behind? At Experis Finance we certainly have clear insight.
Mark Pink Shinichi Nagasawa