Equity-linked structured products are poised to increase their share of the portfolios of Singapore high-net-worth individuals (HNWIs) seeking yield enhancement products to counter the low interest rates environment, according to Rohit Jaisingh (pictured), who heads up the equity investment products team at DBS Private Bank. “With nominal Singapore dollar interest rates prevailing at ultra-low levels for an extended period of time, and real rates negative, clients have been seeking avenues of investment which offer enhanced yields while hopefully not substantially increasing the level of risk assumed,” said Jaisingh.
Strong equity markets have encouraged investors to write put options on indices and stocks they have a positive outlook on, using the premiums to enhance their returns, said Jaisingh. “Apart from Singapore, the other equity markets in which clients have been active are the US and Hong Kong and, to a lesser extent, Europe,” he said. “The structures are, most often, flow exotics – equity-linked notes, fixed coupon notes and accumulators. We have had some success with structures like bonus enhanced notes and step-down autocallable notes as well.”
An expected US interest rate hike should provide a good opportunity for rates-linked products, said Jaisingh. “Higher US and Singapore dollar interest rates could spur demand for rates-linked structured products if this is accompanied by a steepening in the yield curves and an increase in implied volatility levels,” he said. The prospects are good enough for DBS to continue to develop and invest in its structured products capabilities, he said.
According to a Knight Frank wealth report released early this year, Singapore ranked third globally on the number of ultra-high-net-worh individuals, which are defined as individuals with a net worth of over of over US$30m.
DBS distributed 201 products in 2014 and 58 products this year across Asia including Hong Kong, Taiwan, China and Singapore, according to SRP data.
DBS Bank and Manulife Financial Asia announced on April 8 a 15-year regional distribution agreement whereby Manulife will sell insurance plans through DBS’s branch network under a bancassurance model, which will be in effect on January 1, 2016.
It has also agreed to launch an integrated multi-issuer investment products distribution system Leonteq, Avaloq and Numerix with the Asia-Pacific region as its initial focus, and the rollout of the platform will be done in phases with a first release in the second half of 2015.
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