Following the launch of Exane's first ever public issue in Ireland (Gold Twin-Win 17) with domestic investment firm BlackBee, SRP spoke to the head of UK & Ireland cross-asset investment solutions distribution at the French brokerage firm, Jonathan Cohen (pictured), about Exane's plans to grow its structured products business and how structured products can help investors navigate current market challenges as well as provide new opportunities to extract value from difficult to access asset classes and strategies.

According to Cohen, the main challenge for Exane Derivatives and the industry remains regulation. "It remains to be seen how Mifid 2 is going to impact the structured products market, especially as the regulation remains unclear on several subjects," says Cohen. "So far the new rules have not had an impact on our business although we have started to have discussions with clients about whether or not they will be willing to pay for research etc."

Cohen believes the firm is well placed to grow its business in the UK & Irish markets as it capitalises on its cross-asset set up and its ability to design investment solutions across all asset classes that are backed by "both an award-winning research and a strong financial engineering expertise".

With over 140 financial analysts widely recognised in European business surveys, the Exane Group is well positioned to come up with investment themes and asset allocation recommendations across all asset classes, according to Cohen. "This research know-how is well appreciated by our clients who perceive us as a one -stop shop to get the latest investment opportunities, market colour and ways to implement investment convictions," says Cohen.

"While we are able to offer the usual range of structured products, such as autocalls and credit linked notes (CLNs), the Group's financial engineering expertise allows us to offer solutions that are presently not being offered by our competitors," says Cohen. "A good example of this is our ability to offer tailor-made bond basket tracker certificates that can incorporate many features such as leverage, coupon transformation, duration and FX hedges."

Combined with the Group's research DNA, this financial engineering expertise has also enabled Exane Derivatives to develop a comprehensive range of proprietary indices, according to Cohen. "While we are not the only ones to have a systematic offering, I do believe that we are one of the only ones to also offer a discretionary index range derived directly from the investment lists of our specific asset class specialists," says Cohen.

According to Cohen, Exane's head of asset allocation, Florian Roger, is of the view that the short term is likely to remain dominated by central bank action, US policy and, to a certain extent, tensions between the US and North Korea.

"On the central bank front, the ECB is likely to take action to counter the stratospheric rise of the EUR by extending the duration of its QE programme beyond what the consensus expects," says Cohen. "Combined with the possibility of tax cuts in the US towards the end of September, we target a EUR/USD at 1.13 for the end of the year. This should play in favour of the Federal Reserve as further USD weakness would indicate that the US economy is not as solid as everyone thinks which could lead to some carry trades being taken off while the Fed initiates its tapering; a dangerous combination for financial stability."

In this context, Exane's view is that there is little upside to be had on US equities as "they are stuck between a rock and hard place", according to Cohen.

"Further USD weakness would be badly perceived by investors while a strengthening USD would bring back the debate about equity valuations being too high," says Cohen. "A strengthening USD does not bode well for emerging equities also."

Exane remains positive on European and Japanese equities, with Cohen stressing that growth, confidence indicators and capital expenditures in Europe are pointing in the right direction while a strengthening USD would lead to a steepening yield curve which is positive for Japanese equities.

"On the credit front, we remain positive on European peripheral and emerging govies as well as European convertibles and specific segments of the financial credit market," says Cohen, adding that the current environment offers "plenty of challenges and opportunities that can be addressed using structured products".

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