Seiichiro Uchi, Asia Pacific head of S&P index market development, discusses the outlook for the credit rating industry, and what effect the downturn is having on its product offering with Innovative Investor.

How is the market downturn affecting your index strategies and outlook in the Asia Pacific region?

Our business is not immune to the current financial market turmoil. However, the outlook is not bleak in that we see continued growth in the Asia Pacific region. In recent years, Standard & Poor's (S&P) Index Services has focused its product innovation on unique investment solutions that provide investors opportunity throughout various market cycles. Today, when markets are challenging, our customers are benefiting from index-based solutions like S&P Risk Controlled, S&P Volatility or S&P Dynamic Multi-asset class indices which can provide better risk-adjusted returns in the current climate.

Some categories of our client base, particularly ETF sponsors, are becoming very active in the region. Not only are global ETF sponsors coming to the region on a broader scale through cross-listing of their exchange traded funds to local markets like Japan, Australia, Hong Kong and Singapore, but regional ETF sponsors are also stepping up their activities more than ever before. A number of ETF markets are benefiting from government initiatives in de-regulation, and we are watching these developments very closely. Generally, saving rates in Asia Pacific are high and as investor education develops, so does their appetite for risk management tools and index-based products. This means our efforts in the region are actually accelerating because we are confident and optimistic about the regional business opportunities this year and in the future.

What index products are investors in the region currently interested in?

We maintain a broad range of indices from equity and fixed income to commodities, and we are actually receiving a consistent level of demand for all these asset class indices across the region. There is obviously a larger appetite for fixed income products at this time, and this is an asset class in which S&P has strong expertise and product offerings. Client demand has also increased for our risk control index series, which relies on a transparent methodology to adjust index volatility as a down-side protection mechanism, as well as for S&P Dividend Opportunity Indices which rely on a strategy that provides higher dividend income returns.

We apply these index strategies and mechanisms to all kinds of underlying indices, and we are actively pursuing opportunities in the region. More risk tolerant investors also taking advantage of trading opportunities in the current environment. For example, Deutsche Bank recently listed an ETF based on the S&P 500 Inverse Index, which performs in the opposite way to the standard S&P 500.

Are you seeing any changes in the demand for the different asset and sector classes underlying customised indexes?

There is solid demand for custom index calculations covering multiple asset classes, and this is a trend on which we plan to capitalise this year. Financial institutions are increasingly in need of ideas to competitively differentiate their product line-ups and to provide innovative solutions to their investors. At S&P Index Services, we have well established databases in equity, fixed income and commodities. This makes us best positioned to provide high level custom services because we span full asset class capabilities that enable outsourcing of custom index needs across the board.

Which of your current initiatives for 2009 are your most significant?

All of our regional initiatives are very important to us. We recognise Asia Pacific as a group of many distinct sub-regions, each of which has its own investor profiles and trends. Currently, we see opportunities with QDII in Mainland China and for Islamic investing in Southeast Asia among others. The key for S&P Index Services is a focus on index innovation that helps customers retain their competitive advantage and that assists investors to transparently manage their risk profile in increasingly complex markets.

Another area of attention is our exchange partnerships in the Asia Pacific region. Our oldest and most recognised partnership is with the Australian Securities Exchange for the joint management of the S&P/ASX Index suite. Since then, we have expanded the exchange partnership program to include the Tokyo Stock Exchange and the Hong Kong Exchanges and Clearing (HKEx).

We are also announcing the first index launches under our new partnership with the Korean Stock Exchange (KSE), another milestone for our exchange partnership program in the region.

A key aspect of all of our initiatives is customer focus. We are making a conscious effort to develop understanding of our clients' business opportunities, product planning, and distribution channels in the region and are committed to providing them with value-added services. We are committed to the growth of our clients and have a business strategy to support this.