Unstructured Reflections: Insights and Projections for Canada's Structured Products

As we reflect on the structured products market in Canada, the year 2022 stands out as a milestone with record-breaking sales reaching CA$52 billion. However, 2023 painted a different picture, with sales hovering around the same impressive level, but the euphoric growth witnessed in the previous year remained elusive. The industry is now at a crossroads, facing a challenging environment that demands a nuanced outlook for 2024.

The structured products market in Canada is no stranger to volatility, and 2023 has been a testament to the industry's resilience amid economic uncertainties. Although sales have managed to maintain the high watermark set in 2022, the growth momentum has stalled. Factors such as a weak performance of equity markets, particularly affecting Canadian banks, have contributed to a decrease in the monthly roll-over speed from above 1% to less than 0.6% in November. On the positive side the average annualized return of all market was 9.34% for Principal at risk notes, and 4.02% to GICs and Principal Protected Notes.

Looking ahead to 2024, the structured products market in Canada finds itself at a crucial juncture, navigating through headwinds that require a delicate balance of caution and optimism. The dependency on a market improvement cannot be overstated, especially given the evident impact of the weakened equity markets on the monthly roll-over speed.

Despite the challenges that loom on the horizon, there is room for optimism. The potential for sales growth hinges on a crucial variable: a 10% increase in the underlying assets. If the market experiences this boost, structured product sales are expected to regain momentum. This projection is rooted in the historical resilience of the industry and its ability to adapt to changing market dynamics.

Predicting the future of any financial market involves a degree of uncertainty, and the 2024 Canadian structured products market is no exception. The estimated range for total sales in 2024 falls between $43 billion or a considerable growth to $60 billion. This wide range reflects the sensitivity of the market to external factors and the success of autocallables expiring in Q1.

In conclusion, the 2023 Canadian structured products market has weathered challenges, but the outlook for 2024 remains uncertain. A lot rests on the potential for a market improvement, and the industry's ability to adapt to changing dynamics will be key to sustaining growth. Keeping a close eye on equity market performance and underlying assets, as these factors will play a pivotal role in shaping the trajectory of structured product sales in the coming year.

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