Turnover in the Swiss market rose by 32%, to CHF92bn (US$91.6bn), in the first quarter of this year compared to the same quarter in 2017, helped by investor's desire to benefit from new market conditions, according to the Swiss structured products association (SSPA). "In general, investors tried to lock in lower index levels and equity share prices and furthermore profit from higher volatilities," said Thomas Schmidlin (pictured), vice president of the SSPA and a managing director at Credit Suisse.
Increased volatility had a big impact on issuance, with trades on the secondary market and sales volumes rising on the Six Swiss Exchange, even though volatility did not have the same effect on the primary market. Issuers were able to play with the product features and offered higher coupons. There was also a spike in demand for short-term products, according to the SSPA.
Equity-linked products accounted for the largest part of turnover in the first quarter of 2018, with a market share that increased from 52% in Q1 2017 to 55% in the same period this year, while foreign exchange-linked products fell from 34% to 27%. "We see more combinations of hybrid products, such as capital protection with bonds as collateral (mainly denominated in US dollars) combined with equity or fund exposure," said Schmidlin. Dollar-denominated products recorded a 44% market share, based on this desire to buy products considered more stable.
Non-listed products saw their share drop by 11% over the same period and now represent 60% of the market, attributed to the fact that "most of the leveraged products, such as warrants or mini futures, are listed and, hence, tended to see higher turnover during the bigger market moves and when volatility was increasing", according to Schmidlin.
Domestic and international investors are increasingly seeing structured products as attractive investment opportunities, according to Georg von Wattenwyl, chairman of the SSPA. "In particular, the opportunity to use innovative topic and strategy certificates to invest very quickly in megatrends is highly valued," said von Wattenwyl.
Innovation through technology continues, with multi-issuer platforms playing a fundamental role, according to Schmidlin. "These platforms will further open the market for structured products to retail investors, but will also improve transparency and speed to market for all participants," said Schmidlin. "Furthermore, it will make products cheaper and force banks to further automate product origination."
Yield enhancement products dominated, with a 47% market share, although from 58% in the first quarter of last year, according to the SSPA. Leveraged products rose from 15% to 22% over the same period, while capital products saw a 69% jump to a market share of 13%.
Related products:
Swissquote joins the green rush
UBS reports huge jump in derivatives revenues as volatile markets strengthen performance
UBS and Solactive kick-start sustainable partnership via high-grade development bank debt series