The last 12 months have been good for the structured products as an asset class in South East Asia, according to Vivek Sharma (pictured), head of South East Asia and Middle East global asset management and former head of structured products and investment advisory at Edelweiss.
"Given the run up in all the major asset classes, investors have found structured product as a superior way to play the market view with capital protection," said Sharma. "Fund-linked notes have been another popular variant that has been used extensively in Asia by most structured product issuers. It has been a win-win for all the stakeholders: investors, asset managers and structured products issuers."
In India, there was an increased interest for structured products with stocks as underlying, according to Sharma. "Investors have used this medium to express specific views on stocks or baskets, again with principal protection generally," he said.
Regarding wealth management in Asia, the industry is going through a period of consolidation. "We have seen quite a few takeovers in the last couple of years in private banking, such as Bank of Singapore taking over the Barclays business in Singapore and Hong Kong, ANZ selling to DBS Bank, and ABN selling to LGT," he said.
Over the same period, private banking has been on the rise in Asia in line with the increase in the number of millionaires and billionaires. "As the wealth in the region continues to grow, there would be increase in the demand for wealth management services as well," said Sharma.
Investors in Asia typically favour shorter duration products when taking exposure through structured products. "Popular underlying are equity, currency and funds, lately," he said. "In India, the tenor of products is slightly longer with the average duration being in the range of two to three and most of the products are linked to indices." However, there has been an increase in demand for products linked to direct equities lately, given the surge in the equity markets, according to Sharma. He also noted that products linked to currency, commodities, which are very popular in more mature national markets are the missing category in India.
The popularity of leveraged products is also on the rise in India, with some private banking investors benefitting from DLCs to play a leveraged view on underlyings. "However, these are products meant for well-informed investors, given the implied leverage," said Sharma. With time, the underlyings that these products include is likely to increase, he said. "It is still early days for this asset class in Asia, but definitely it is something that adds to the product suite available to investors."
The best ideas are the ones that are simple for investors to comprehend and execute. "Sometimes, when one tends to achieve multiple objectives in the same product, it leads to creating complexity, which in turn impacts the investor appetite and acceptance," he said.
Different local regulations pertaining to structured products tend to make the scope of the offerings region specific, according to Sharma. "From an India point of view, what one, as an issuer, can offer is severely limited based on the regulations governing this asset class," he said. "There are limitations on tenors, choice of underlying, valuation, and more, and, hence, the final offering will always be bound by the overarching regulations governing structured products."
The market for structured products in Asia has been rising rapidly over recent months for four main reasons, according to Sharma: the ability to play market views, with principal protection, especially during times of such market buoyancy; the ability to package leverage inside a note tends to improve product returns for clients; the objective nature of the products finds favours with investors who do not want to be limited by fund manager performance; and the ability to customise specific views on asset classes.
Edelweiss has benefited from the political and economic stability that India has witnessed over the last few years, according to Sharma. "In wealth management, Edelweiss is ranked among the top two or three players and has witnessed rapid growth," said Sharma. "In structured products, Edelweiss continues to enjoy market leadership, with a more than 35% share of the market."
"We see tremendous scope for this asset class in India and we are probably still at a very nascent stage compared to the size of the industry in the more mature markets," he said. "We feel that well-defined regulations, investor awareness and investing experience, and opening up of asset classes would go a long way to deepening this market in India."
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