Telecom stocks and indices are in high demand in Germany because of their potential to deliver returns as suggested by the recent performance of the Stoxx Europe 600 Telecommunications index (SXKP) which was driven by sales growth in major regional players, including Deutsche Telekom, Telefonica, and Orange.
"At the moment, telecom equities trade at their 2014 levels, correcting around 30% from the highs in 2015," said Peter Boesenberg, director, head of cross asset distribution Germany & Austria, at Societe Generale, adding that telecommunication is among the most requested investment themes at the German structured products branch of the French bank.
Credit Suisse is also offering a certificate featuring this underlying as part of a basket, also in response to client interest, according to Bodo Gauer, director, head of structured retail products for Germany & Austria, at the Swiss bank.
The Stoxx Europe 600 Telecommunications index underlies both the Memory Stufenexpress-Zertifikat (DE000SGM98V9) from Societe Generale, and the Trio Memory Express Step Down (DE000CS8B0F2) certificate from Credit Suisse, which is also linked to the performance of the Stoxx Europe 600 Food and Beverage and Health Care indices. With terms of six and five years, respectively, both products pay a conditional annual coupon, provided that on the respective observation dates in the single underlying case the index performs at or above a predefined barrier of its initial level, and in the worst-of-option scenario - if all indices fulfill this condition.
The products also include a memory feature, through which any unpaid income is accumulated until the barrier has been reached or surpassed, and also share an early redemption trigger with descending knock-out thresholds, which - if telecom equities move sideways or slightly downwards - gives a better chance for capital pay out prior to maturity and re-investment opportunities for investors. The Credit Suisse certificate is based on a worst-off payoff profile.
The improvement in revenue figures as a result of investing in broadband speed and mobile connections has lifted part of the price pressure from providers. The French bank is offering the final payment through shares of the bank's Lyxor Ucits ETF Stoxx Europe 600 Telecommunications as opposed to the usual cash settlement if the product does not mature early or the index level has breached the downside protection barrier at maturity . "This payout scheme was again established as per client request and is a trend that we observe increasingly in the index domain," Boesenberg said.
Insurance is another topic on the agenda of the two banks' clients. According to Boesenberg, "there is particularly high demand for insurance stocks, with focus on Axa". Europe's second biggest insurer has always been a hit among Societe Generale investors, said Boesenberg, and now especially due to interesting product conditions and maturities, and good performance of matured products. AXA can be also found in this week's offers of Credit Suisse, under the CS Memory Express Step Down Airbag (DE000CS8BZ45).
In 2017, issuance of structured products based on the telecom index was at 72 products, up by over 50% since 2016, where there were 46 products.
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