Uncertainty is pushing investors away from equity in Apac, Deutsche

Deutsche Bank recently reported a decrease of 79% in net income year-on-year, from US$705m in the first quarter of 2017 to US$141m in the first quarter of 2018 as well as a slight decrease of 5% in net revenue, from US$8.6bn to US$8.2bn due exchange rate movements, notably the appreciation of the euro against the US dollar, and lower revenues in corporate and investment banking.

Additionally, trade revenues went slightly down, in particular in structured products, according to the bank. Asia Pacific FX and rates revenues were lower due to margin pressure in Asia and lower volumes in Japan. However, revenues were 'essentially flat' and the overall revenue growth in Asia was offset by lower revenues in Emea and Germany which was in part impacted by the implementation of Mifid 2.

"Most of the MIfid 2 work is now done, but there are other regulatory changes ahead of us, for example related to Brexit, the Fundamental Review of the Trading Book (FRTB), 871(m) and others," said Claire Arnaudo (pictured), head of third party distribution at Deutsche Bank in Asia Pacific. "There is a lot of work involved on the back of these changes. That being said, we don't expect a significant impact on the flow of structured products globally and in Asia."

In Asia, the structured products market has been very active in the first quarter of 2018, with January being the busiest month ever for a lot of the bank's clients, according to Arnaudo. "However, market activity slowed down towards the end of the quarter," said Arnaudo, noting that there has been some continuity in terms of products and payoffs in the market in Asia. "The big part, however, still goes to equity flow and FX flow, with tenor below one year. We have seen a pick-up in rates linked payoffs and hybrids payoffs."

Also, as the equity market has become more volatile in the first three months of the year, more defensive payoffs with lock-in features and partial principal protection have been traded, especially in the last month of the quarter, according to Arnaudo.

Because of current rates environment, investors are looking for alternative sources of yield and trade more structured products, according to Arnaudo. "That being said, Hong Kong investors are probably investing equally between yield and growth products, which is not the case for other Asian markets such as Singapore or South Korea where market participants are more focused on returns," she said.

However, uncertainty in the structured products market in Asia is growing and investors are willing to "explore new ideas and new payoff types", according to Arnaudo. "We, at Deutsche Bank, expect investors to trade less equity and to shift more towards rates and credit ideas in the next months to come," she said.

Currently, Deutsche Bank in Asia is pursuing its automation and workflow connectivity projects that were initiated two years ago. "In the equity space, we are focused on the post trade including booking, TS generation and lifecycle," Arnaudo said. "In other asset classes, we are exploring how to evolve from a single dealer platform to a multi-dealer platform."

Year-to-date, Deutsche Bank served as a bond provider to 23 structured products worth US$268m, according to SRP data. More than half of them (12 products) have been distributed by SBI Securities in Japan. Other major distributers include IwaiCosmo Holdings (3 products) and Kagawa Securieties (also 3 products) also in Japan. All of the products were wrapped as short- or medium-term registered notes. In terms of payoff type, preferred remain knock out (23 products), reverse convertible (23 products), protected tracker (22 products) and digital (17 products) products.

Deutsche targets structured products and thematic indices with new Alpha-dig

Strong outlook for Apac structured products in 2018, Deutsche