SRP Digest: Back on the scene

Good times for structured products in Europe while the performance of HSCEI continues to be a cause for concern in South Korea.

In Europe, turnover in investment and leverage products on reporting European financial markets increased by 11% quarter-on-quarter in the third quarter of 2023, bringing the total to €28 billion, according to data sourced by the European Structured Investment Products Association (Eusipa) from its members.

In particular, yield enhancement products can deliver huge added value to portfolios in the current equity markets - Thomas Wulf, Eusipa

“The activity we recorded this year across European trading venues suggests that structured products are back on the scene, responding to investor needs,” said Thomas Wulf, secretary general, Eusipa.

“In particular, yield enhancement products can deliver huge added value to portfolios in the current equity markets,” Wulf added.

SRP’s own data suggests that J.P. Morgan was the number one provider by issuance in Europe in 2023 to date – replacing BNP Paribas. The US bank issued 202,699 structured products between 1 January and 10 December 2023, the vast majority of which are warrants and certificates targeted at investors in Germany (196,811).

Leonteq Group, a major provider of structured products,?issued a profit warning revising its outlook for the full year of 2023 pointing at above average investments in key strategic initiatives impacting cost base which will bring down group net profit in the range of CHF10-20 million (US$11.4 – US$22.8m) compared to previous guidance which expected profit before taxes to be CHF40-70 million.

The revised profit target suggests the firm is making provisions despite reporting a solid performance of its client franchise with growth in issued products (+34%) and client transactions.

A number of major banks in South Korea halted the sale of equity linked securities (ELS) linked to the Hang Seng China Enterprises Index (HSCEI).

KB Kookmin Bank, Hana Bank, NH Nonghyup Bank and Shinhan Woori all temporary suspended sales of HSCEI-linked ELS products to contain the potential for investor losses as the index continues to decline.

The HSCEI has been in negative territory throughout 2023 putting hundreds of products linked to the index at risk of potential principal losses as a further sharp decline in the index will trigger breaches on downside protection barriers on autocallable products.

However, despite the risk of potential investor losses, the issuers of the products have not seen a significant impact on their trading books because most autocalls expiring are relatively short dated and are not exposed to implied volatility (Vega).

Another Korean company, Korea Investment & Securities Asia (KISA) listed its first batch of derivative warrants (DWs) on the Stock Exchange of Hong Kong (HKEX). The two call DWs are linked to the shares of HKEX and China Mobile, respectively.

The offshore arm of the largest Korean securities house by net income based on third quarter earnings, which is fully owned by parent company Korea Investment Holdings, is the first Korean player to break into the listed structured product market in Hong Kong SAR.

“Our issuer ticker will be displayed as ‘KS’, which we hope will represent ‘Korea's Standard’,” Jangwon Seo, head of global derivatives at KISA, told SRP.

Citi licensed the new Morningstar Transatlantic Sustainable Development Goals Select 40 Index to be used as the underlying of structured products. The new index has been developed using ESG data and risk ratings of Morningstar Sustainalytics and is one of the first impact-oriented indexes designed for the structured products market, according to Morningstar.

In the US, smart beta and asset allocation company Research Affiliates is targeting the indexed annuity space with its first multi-asset strategy.

The Research Affiliates Global Multi-Asset Index (RAGMAE) has been designed to provide diversified exposure to global equities, bonds and commodities through futures contracts while utilizing a proprietary risk management process to manage volatility.

“The strategic underlying allocation utilises our forward-looking expectations for asset class returns, which is the underpinning of the index,” Jim Masturzo, partner, chief investment officer, multi-asset strategies at Research Affiliates, told SRP.

Australian structured product fintech firm Stropro is finishing 2023 on a high, with total inflows reaching over AU$300m (US$196.6m), up 294% YoY. In October and November alone, the firm posted AU$80m inflow, with 70% of these transactions completed via private wealth advisers and brokers.

Australia, which?has a large number of high-net-worth investors, has seen a growing interest in fixed-coupon notes (FCN) with a reduced strike level/price – meaning investors can effectively buy underlying stocks at a discount.

“[Investors] might have their top 20 names of stock list that they think it's quite overvalued […] now they can just do an FCN over the top. It's an income stream for being patient, and if markets do fall but below those [strike] levels, they get to buy the stock at a discount,” said Ben Streater, chief investment officer at Stropro.

Rickie Chan has been appointed head of private banking, Greater China, Hong Kong branch at Bank of Singapore. Chan, who starts his new role on 15 February 2024, joins Bank of Singapore from Credit Suisse where he was head of global wealth management for Greater China.

Chan takes over from?Teresa Lee, who will become the vice-chair of Greater China, Hong Kong branch with a mandate of serving this region’s ultra-high net worth individuals and families. Chan will join the bank’s management committee and report to Bank of Singapore CEO Jason Moo, while Lee reports to Moo on a functional basis.

Meanwhile, SIX appointed Bj?rn Sibbern as global head exchanges and member of the executive board of SIX, due to take up the position on 1 January 2024, while Jana Haines?re-joined MSCI as head of index and a member of the index provider’s executive committee, based in New York.