Structured products investors in Asia, where many assets seem to be fully valued, are looking for reasonable risks to produce sensible yields, and are moving around asset classes trying to ensure they find the best risk return opportunities, according to David Hansson (pictured), managing director and head of third party distribution for Asia and Emea at JP Morgan in Hong Kong.

"In general, we have seen yields going down in credit,"  said Hansson. "Investors are looking for the best risk return opportunities,". "On the equity side, this means selling volatility."

According to SRP data, the most popular asset classes in the first quarter of 2018 in the Asia Pacific region were equity (single share - 7,618 products, single index - 4,197 products, index basket - 2,716 products, share basket - 880 products, totally worth US$25bn), interest rate (695 products worth US$13.8bn) and FX rate (347 products worth US$3.5bn). Compared to the same period in 2017, commodities were losing momentum in 1Q18 with a total of 129 products worth US$1bn, down 63% from 347 products worth US$2.7bn in 1Q17.

"When it comes to volatility, investors look at what coupons they can get in a certain name at a certain level of the market and if the coupon available makes up for the risk they take," said Hansson. "Lately, the implied volatility has gone up which is making such investments more attractive."

The volumes in the structured products markets in Hong Kong and Singapore have gone up considerably in the past year, according to Hansson. "We have seen a very strong development of volumes in 2017, which has continued in the first few months of 2018," said Hansson. "In some other markets, such as Japan, we have seen more subdued interest, partially due to regulation."

Hong Kong and Singapore are major private banking centers in Asia, alongside Switzerland in Europe, Hansson noted. "The sentiment among private banking clients in Hong Kong and Singapore is bullish overall," he said. "They have seen strong returns and reinvest when products redeem or autocall, and have overall had a good experience with the product set."

According to Hansson, 10 years ago, prior to the global financial crisis, a large portion of structured products were capital protected, which was possible with the higher interest rates available. "Nowadays, with rates being lower compared to pre-crisis levels, it is economically very hard to come up with capital protected structures that deliver any sensible yield or return," said Hansson.

However, Hansson believes that the real challenge for JP Morgan in Asia "is to make the right investments in the right type of platforms" to be able to service its clients in the best possible way - "quickly, flawless, and making it seem seamless and easy for them to deal with us and buy our products". In 2018, the company will focus on enabling investments through improving its platform and offerings. "Our biggest goal will be to continue to upgrade our clients servicing and to offer attractive products that suit the target market and the end investors here," Hansson said.

The market for structured products in Asia is highly competitive but it is "competition [that] drives people to think about efficiency", according to Hansson. The growth of the structured products market, however, is "not a temporary phenomenon". "The volumes we are seeing now are likely going to be the new normal," said Hansson.

According to SRP data, in 2017 JP Morgan had a total of 116 structured products worth HK$845m in Hong Kong, up 38% from 84 products worth HK$703m in 2016. Year-to-date, the company issued 1,329 structured products worth HK$2.96bn.

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