Structured products continue to be a mainstay in Malaysia as they allow the expression of market views via customised payoff structures, according to Alice Tan (pictured), head, products and investment solutions at Maybank Singapore.
In 2017 and the first quarter of 2018, retail investors typically favoured structured deposits linked to interest rates with principal protection at maturity," said Tan. "Accredited investors tend to be more aggressive in their choice of payoff [profiles] and were willing to participate in shorter tenor non-principal products with equities or funds as underlying."
For non-flow products, the best-selling products over the period were fund-linked structured and bonus enhanced notes with or without floors, according to Tan. "In early 2017, clients benefitted strongly from the bullrun in financial markets," said Tan. "In the latter part of 2017 and this year, their preferences have shifted towards structured products with some or full principal protection at maturity in the face of market volatility and worries of trade wars and geo-political uncertainties."
For equity-linked structures, volatility remains muted, according to Tan. "Pricing such products tends to be challenging - [you] need to carefully select underlying with a meaningful payoff to clients," said Tan. "For interest rates-linked structures, the rise in long end treasury curve allowed us to price higher yield structures."
Maybank is also working with third party issuers to ensure that investors receive competitive and bespoke structured products payoffs that suit client portfolios, according to Tan. "However, structured products remain highly regulated following the post-Lehman Brothers crisis in 2008," said Tan, adding that the bank is keeping abreast of regulatory development, such as Mifid 2, and is "constantly assessing the impact to our clients".
This year, Maybank has issued a total of 37 structured products with a volume of US$179m in Asia-Pacific, four of which were available in Singapore, according to SRP data. About three-quarters of the products are linked to single equity stocks such as YTL Corp, UMW Oil and Gas, Muhibbah Engineering and Hibiscus Petroleum; five of the products were linked to foreign exchange rates and four to the Singapore swap offer rate. In terms of payoff types, most of the products are callable and uncapped calls; with some reverse convertibles and dual currency structures. Additionally, 23 of the banks products issued this year were wrapped as warrants. There are also five equity-linked investments and nine deposits.
Related stories:
Uncertainty is pushing investors away from equity in Apac, Deutsche
Products with minimum redemption gain traction in Apac, DBS Bank