The market in Asia has seen a rising interest in structured product solutions in 2017 with significant increase in activity across both the private and retail banking segments, according to Sumeet Bhambri (pictured), regional head, wealth management for the Association of Southeast Asian Nations (Asean) region at Standard Chartered Bank.

"Equities remain by far the main asset class with the most interest, whilst fixed income and commodity opportunities are often accessed through equity proxies," said Bhambri. "We have also seen more interest in ETFs where they are increasingly being used to express geographic, sector or theme based views. 2017 also saw the return of fund linked derivative products, mostly in the fixed income fund space."

The market also saw a change in client risk appetite and increasing demand for a "broader range of payoffs options, as well as underlying instruments" which has resulted in the standard suite of equity linked yield enhancement structures being supplemented with "growing client interest in structures offering capital preservation on the downside and/or potential leverage upside linked to the performance of various mutual funds", according to Bhambri.

"Clients with higher risk appetite were seeking leverage upside participation on equities with one-to-one negative returns exposure on the downside," said Bhambri. "Tenors for equity structures usually vary from three months to one year, whilst for fixed income structures it typically ranges between two to three years."

With fixed income spreads at historically tight levels across the credit spectrum as well as across geographies, clients are looking at different asset classes to meet their investment needs, said Bhambri. "We have seen our clients express a rising interest in capital preservation solutions in 2017, with the elevation in asset prices around the world," he said. "Overall, the hunt for yield was still the main driver of business in 2017."

The main challenge faced by investors wasn't so much the low interest rates, but the low volatility environment "where investors get rewarded less per unit of risk", according to Bhambri. "We see it as key to follow our investment philosophy and stick to quality underlyings," said Bhambri. "The increase in the two to five-year interest rate space has in fact allowed us to offer structures with capital preservation, something we were not able to do in 2016."

Bhambri also noted that the market has seen a sporadic demand in the leveraged and inverse products segment although the bank has "a positive view on the equity market" and as such, they do not support a strong flow into inverse products. "Products with two leverage upside participation and limited downside are in demand and we believe it adds value to our clients," said Bhambri, adding that the bank expects the main trends of 2017 to continue including the demand for yield enhancement products and sustained interest in a mix of capital preservation and leverage upside.

"In a late economic cycle, underlying selection will become even more important and we believe that there will be an increased demand for diversified underlying securities like sector or index ETFs," said Bhambri, pointing that fully and partially protected structures to be in higher demand as increasing market levels "are making some investors nervous and these structures are enabling them to stay invested and participate in the market performance, whilst enjoying peace of mind".

"As global interest rates go up, we also expect to see a resurgence of longer dated interest rate-linked and hybrid products," said Bhambri.

According to SRP data, year-to-date, Standard Chartered Bank issued a total of 15 structured products worth US$95m as compared to three structured products worth US$76m for the same period last year. As for 2017, in Asia the bank issued 101 structured products worth US$639m.

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