BBVA Bancomer, the largest structured product provider in Mexico, has issued a two-year structured bond linked to the first ever basket of indices in Mexico. SRP data also shows that this is also the first time that any bank in Mexico has used an exotic payoff for a structured note.
“We saw an opportunity and we took it, as we are always doing our best to bring out something new to the market,” Jose Antonio Bernal, director of structured products at BBVA Bancomer, told SRP. “Following a study on geographical areas, we noticed that Asia was behind compared with the US. Positive flows are now going to Asia and the US, with the Hang Seng China Index at 1,985 points and the S&P500 at 2,000 points, which are typical psychological barriers.”
The Outperform HSCEI and S&P500 - 17 July 2014, a partially capital-protected structure, introduced the Hang Seng China Index and the S&P500 as the underlying assets of the structure. This growth exotic structure offers a capital return of 100%, plus 100% of the rise in the underlying over the investment period only if the Hang Seng China Index level is above the S&P500 level subject to an overall cap of 145%. If the final Hang Seng China Index level is lower than the S&P500 level, the capital return is equal to 100% minus 1% for every 1% fall floored at 75%. The final level is calculated as the difference between the S&P500 and the Hang Seng China Index.
According to Bernal, a combination of factors explain the high popularity of this new structure including the market environment, portfolio diversification and favourable pricing.
“The option is an MXN quanto, so the pricing to pay for this option is not as high, so we took advantage of the volatility and we decided to come up with this idea in a two year term,” he said. “Additionally, the structure was inspired by clients that predict a bullish Asian market while compensating for any other long-term investments on the US.”
Bernal told SRP that BBVA Bancomer will continue to offer alternative structures in the near future with a similar approach as this one in order to strengthen its position in the market. “We could probably see more structures betting on a bullish Asian and Mexican market and bearish on Europe and US, but the terms depend on the underlying analysis,” he said.
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