Singapore’s DBS dominates the market in Taiwan

Taiwan's structured products market has been among the best performers in Asia-Pacific so far in 2018, with issuance and sales up 176% and 155%, respectively, in the year-to-date to June 20, according to the SRP data. Issuance increased from 1,000 to 2,767 products year-on-year, while sales rose from TW$120.4 billion (US$4.0 billion) to TW$307.3 billion.

January saw record volumes as markets in the region traded up, whereas, in February and March, "markets became more volatile and there were some swift and sizeable retracements", according to Rohit Jaisingh (pictured), head of equity products advisory at DBS in Asia. "Investors have generally held back as price action became choppier," said Jaisingh. "Also, the velocity of structured products declined as fewer trades got knocked-out or autocalled, and overall volumes reduced in commensurate fashion."

In Taiwan, the product mix this year has shifted away from those linked to hybrids, foreign exchange rates and single indices to baskets of indices and single shares, with share basket underlyings accounting for 62.5% of sales this year.

In terms of preferred shares, mining stocks from Freeport McMoran and Barrick Gold lost momentum to technology stocks, such as Micron Technology and NVIDIA (TW$3.4 billion), as well as to exchange-traded funds, such as the SPDR S&P Oil and Gas Exploration and Production ETF and the Vaneck Vectors Gold Miners ETF (TW$5.6 billion), according to SRP estimates. Similar to the same period last year, Facebook remains a popular underlying, with sales volume of TW$453m year-to-date.

Contrary to 2017, FX products have been less attractive in the first six months of this year, with the EUR/USD and USD/ZAR rates the most popular, although on volumes that are 64% and 13% lower, respectively.

Sales of products linked to local favourite, the S&P 500 have fallen by 80% on the year, according to SRP data.

Sales have also shifted away from pure reverse convertible, knockout and callable structures to knockout plus snowball, accrual plus callable structures plus range plus snowball and accrual plus knockout structures plus range plus snowball structures, which drove overall sales up in the first six months of 2018, despite the 97% fall in sales of reverse convertibles.

In contrast to 2017, when longer-term products were rising dramatically in popularity, this year medium-term products have increased by 257%, from TW$2.7 billion to TW$9.7 billion year-on-year. However, short-term products remain preferred by investors in Taiwan, with sales volume of TW$286 billion, up 158% from the TW$110.6 billion in the same period last year.

As a result of the interest in short-term structures, about 99% of the market's sales volume is derived from products with no capital protection (TW$306.1 billion). In the same period last year, non-capital protected products represented 91% of total sales (TW$110.2 billion).

DBS remains the top distributor of structured products in Taiwan, with a total of 958 products worth TW$106.3 billion issued between January 1 and June 20, 2018. Compared to the same period last year, the Singaporean bank's issuance in the country increased by 195%, from 325 products, while sales volume went up by 176%, from TW$38.5bn.

BNP Paribas, with 406 products worth TW$45 billion, up from 206 products worth TW$24.6 billion in the same period last year, ranks second among the 23 active distributor groups in Taiwan. This is a noticeable change compared to the same period last year, with UBS moving up from fifth last year to third, on the back of 213 products worth TW$23.6 billion; the Swiss bank is followed by its major competitor in Taiwan, the Hong Kong-headquartered Fubon Bank.

Investors are sitting on healthy investment product profits from the last few years as well as economic growth in Asia, according to Emmanuel Triomphe, head of investment platforms and solutions capital markets distribution at UBS Wealth Management. "Moreover, they are aware of where we are in the cycle and, hence, request even more tailored solutions to complete their existing long exposure."

Range bound markets with higher volatility are generally good for structured products and "I would expect volumes to remain solid in 2018," said Triomphe.

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