We start the year with a brief look at the headlines that dominated the end of 2023.
Structured product issuers in Japan may see a shift in investors’ appetite as the country’s central bank hints at stepping away from its ultra-loose monetary policy in the coming year.
The Bank of Japan has adopted a negative interest rate policy since early 2016 (currently at -0.1%) to address deflation that has plagued the economy for decades. The rate remains unchanged in contrast to most global central banks which started a series of rate hikes from early 2022 to keep inflation down.
Yet with rising inflation and weakening currency, discussion on the need for tighter monetary conditions has heated up in the country, prompting issuers to mull over the potential impact on their structured product business.
A poll conducted by Reuters last week shows that six of 28 economists predicted that the Bank of Japan would phase out the loose monetary policy in January. The central bank is holding a two-day meeting ending today (19 December) that could be crucial in determining the timing.
Isao Ogawa, head of structured products for Japan at Crédit Agricole CIB (CACIB), said there are two ways to look at the potential impact of a rate increase.
“The positive effect would be enhancing the yield [and] variations of payoffs we can structure,” Ogawa told SRP. “The negative effect would be a shift of investor’s appetite from structured products to vanilla products.”
November saw financial markets picking up again, and investors were adding their favourites to their portfolios - André Buck, SIX Swiss Exchange
Over in Switzerland, the number of structured products tradeable on the Swiss exchange surpassed the 60,000 threshold for the first time late in 2023. Turnover for structured products traded on the SIX Swiss Exchange reached CHF689m (US$797m) in November – up 20% month-on-month (MoM).
The increase was driven by a 59.8% rise in over-the-counter (OTC) transactions while on-exchange transactions were up 13.1% compared to October. Year-on-year (YoY), turnover was down 16% (Nov 2022: CHF819m).
“November saw financial markets picking up again, and investors were adding their favourites to their portfolios, so the broad choice of investment opportunities available on our market, for example via tracker certificates, contributed to higher interest in structured products on SIX Swiss Exchange, boosting trading volumes, which were the highest since May this year,” said André Buck, global head sales & relationship management at SIX Swiss Exchange.
In Belgium, Crelan has collected €47.5m (US$52m) with Global Select Coupon Plus 2029 in Belgium. The six-year, capital protected certificate pays a fixed coupon of 2.75% per annum, totalling 16.50%. Its return at maturity is linked to the performance of the Stoxx Global Select Dividend 100, which is subject to 25 months backend averaging.
The certificate, which was also available via the distribution network of AXA Bank Belgium (part of Crelan group since 31 December 2021), is issued via BNP Paribas. It is Crelan’s first equity-index linked structure since October 2021, when it launched Callable Global AI Minimum Redemption USD 2029.
CrossBorder Capital has revived the Kintore XAU/FX strategy which was developed in 2015 via a new actively managed certificate (AMC), issued by UniCredit Bank.
The CrossBorder Kintore strategy is a systematic, bidirectional trading system that trades gold as a currency versus seven of the largest and most liquid currencies in the world.
The strategy is "trend following" in nature and fully automated in terms of trade implementation and execution - buy and sell signals are generated from price breakouts, volatility and other proprietary signals. The strategy is agnostic regarding position side and leverage is limited to a maximum of 2:1.
When the two firms started discussing their options to collaborate, they looked at the AMC and found that there were some substantial benefits for both companies.
“First of all, AMCs are easier to do, and they’re quicker to do. From the investor's point of view, this has several very substantial benefits,” said Christopher Cruden, managing director at Kintore Limited.
“The first is that there are no extraneous add on fees in an AMC, because all of the other fees are, in effect, met by the participants - UniCredit, Crossborder and Kintore Limited - there are no formation costs to be reclaimed, there is no administration or audit or anything like that, because the bank does it all and they are taken from the known fees.”
Image: Vecteezy