Vontobel Financial Products' move to enter the structured products market in Hong Kong with a range of ten listed structured products, earlier this month was a natural expansion of the Swiss bank strategy in Asia-Pacific as the city-state market is the "most representative" in the region, according to Simon Yung (pictured far right), head of public distribution at Vontobel in Hong Kong.
"It has the highest turnover compared to other Asian markets and it maintains up to roughly 20% of the whole stock market," says Yung. However, the market has experienced a decline in recent months. "Last year, [Hong Kong] maintained up to 25% of the stock markets but at the end of this August this number fell to roughly 19%."
This decline is a "healthy sign" since the decrease in turnover was mainly due to the retreat of some high frequency traders, while the actual retail turnover increased, according to Yung. "We have seen a similar trend in the European market - the high turnover was slowly and gradually decreasing, while the outstanding quantity was increasing," says Yung. Looking at the mark-to-market value, the outstanding quantity increased three times year-on-year, which is "very encouraging", according to Yung.
"We can see that when investors make money, they are not rushing to take profit, which is a sign that they have confidence in the market," he says. "[Vontobel] is one of the leaders in the European market due to the advanced technology we use and we have experience in implementing those technology in other markets," Yung said.
Recently, Vontobel entered the market for structured products in the Netherlands and France and the bank is working on expanding in more European markets. "Hong Kong has a very different market structure," says Yung. "Therefore, integrating our technology into the Hong Kong local market is a challenge."
According to Yung, Vontobel's first products in Hong Kong have already achieved a high number of trades during the first few days of trading. "The market already has accepted our products," he says. "On the first two days after the listing of our first products, we became the top trader in terms of number of trades, meaning we have successfully integrated the technology."
Yung is seeking to leverage Vontobel's multi-issuer platform and take advantage of its capabilities to provide pricing on millions of products. "We don't do everything but we do what we are really good at and listing structured products is something we are really good at in Europe and we are looking forward to replicating this in Hong Kong," says Yung, adding that Vontobel expects to launch about 300-400 products in Hong Kong in the next twelve months.
"This is quite an aggressive target because in the past 17 years in the Hong Kong retail structured products market no new issuer has achieved such a number in 12 months," he says. "Also, with the help of automated backend processes, we would like to cover the major local underlying stocks and indices as well as some oversees stocks, commodities and also FX."
Although the structured products market in Hong Kong is dominated mostly by warrants and CBBCs there is "room for new products such as lower leverage products and different types of certificates, which are popular in Europe", according to Yung.
"As a new issuer of warrants in Hong Kong, we are eager to talk to the regulator and to assist them in understanding these new products. Since we are already doing it in Europe, we can easily implement that in Hong Kong," says Yung.
One of the main challenges Vontobel is facing in Hong Kong is the fact that the company is new to the local market, according to Yung. "We see the challenge of getting people to know our name but we have an experienced team and we believe that once we get to have 200-300 products on the market, people will start realizing that we can provide a very good quality products, pricing and liquidity," Yung says. "So once people see that, I don't think it would be so challenging to get people to know our products."
According to SRP data, year-to-date, Vontobel listed a total of 17 structured products in Hong Kong worth an estimated US$2m. Vontobel is among the leading distributors of structured products in Europe, where, year-to-date, the bank issued a total of 103,254 products worth more than US$7.7bn.
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