Hong Kong may be the major hub for structured investments in Asia excluding Japan, but HSBC has been distributing innovative offerings in the other key markets in the region. According to Bruno Lee, HSBC's Hong Kong-based head of wealth management for the Asia-Pacific region, the bank has seen sales increase by 17% in Hong Kong, and by 28% outside of Hong Kong in Asia.
"In 2005, HSBC launched 11,900 different tranches of structured products in Hong Kong," Lee says. "But the Asia-Pacific market is growing extremely fast." Already boasting a presence in 18 Asia-Pacific countries, HSBC is now targeting the mass retail markets in Singapore, Taiwan, Korea, Malaysia and Indonesia.
In addition to its own in-house structuring team, HSBC works with issuers such as UBS, Macquarie, SG CIB, Merrill Lynch, JP Morgan, KBC and Calyon.
In June this year, for example, HSBC launched a CPPI-based structured note in Taiwan that was linked to the performance of the Merrill Lynch Natural Resources index. The index replicates a dynamic investment strategy that allocates a notional investment between market asset units, reserve asset units and leverage units. The market asset unit's underlyings are four funds managed by Merrill Lynch: the World Gold Fund, the World Mining Fund, the World Energy Fund and the New Energy Fund.
The five-year 100% principal-protected notes offer a quarterly coupon representing any quarterly growth in the index that exceeds a predetermined level. Merrill Lynch also maintains a secondary market, which means that investors can sell investments prior to maturity.
The retail market in Singapore is opening up as a result of changes in regulations introduced last year by the Monetary Authority of Singapore (MAS), and in August HSBC became the first bank to issue a principal-protected note targeting retail investors. The return on the three-year 100% principal-protected note is linked to the performance of a basket of four Singapore blue-chip stocks: Singapore Telecommunications, Singapore Airlines, Singapore Press and DBS Group.
In Malaysia, meanwhile, HSBC in May launched a two-year investment linked to the Hang Seng index, and the Hang Seng China Enterprises index, which covers all the H-shares in the Hang Seng Mainland Composite Index and the USD/MYR conversion rate. The product pays a final interest payment and is also 100% principal protected. "Retail investors in Malaysia have been particularly interested in gaining exposure to the recent growth in China. This product was very well received," Lee says.
HSBC has also invested heavily in technology in order to keep pace with the demand for regular offerings and to support frontline staff. The bank has set up what it calls a 'retail workstation' in Hong Kong this year to provide its frontline staff with access to daily information on all its offerings. Lee says the bank plans to roll out the same workstations to the rest of Asia next year.
Even though the structured products market in Hong Kong is reaching saturation point, structured investments remain profitable for the bank.
"In 2005, 68% of HSBC's structured products were distributed in Hong Kong," Lee says. "Overall, we have seen a 21% increase in turnover in the first half of this year compared to the second half of last year."
Importantly for a distributor, Lee believes structured products always have a place in investors' portfolios in all market conditions.
"We have an open architecture appeal," Lee says. "At any given time, we provide a wide range of products that can capture changes in the market."
Why HSBC won
HSBC continues to expand its distribution of structured products outside Hong Kong and has made these offerings more accessible to retail investors in the rest of the region. The bank is a key distributor when it comes to introducing innovative structured investments.
The week on Risk.net, December 2–8, 2017Receive this by email