We observe a strong trend in our business in Asia, as local investors increasingly select structured products. In fact, during the last 18 months their liking for structured products over equities has become even more pronounced.
Why? Chinese equities fell by almost a quarter in 2018 (the Shanghai composite index fell 24.6%), in a turbulent time as the US/China trade dispute escalated and China’s rapid economic growth moderated. Given that the year was highly challenging for equities it seems no coincidence that structured products have become more popular, as their versatility helps to mitigate market uncertainty by providing conditional downside protection.
But the popularity of structured products transcends a single year. As investors across Asia have rapidly created their wealth, and while they continue to do so, they have not yet developed a historical preference for particular asset classes. That said, investors are primarily focused on opportunities to achieve their investment goals while they remain rather agnostic and unbiased with regards to the vehicles used.
Versatility and efficiency
In parallel with surge in Asian wealth over the past 10 years, so too structured products have come of age. Compared with 10 years ago, these financial instruments are far more flexible today. They can be tailored to express the most nuanced investment view. And minimum investments have become much lower, making these solutions accessible to a wider audience.
How do intermediaries in Asia deploy them as an integral or tactical element of their investment strategies? Apart from providing individual best-in-class structured product solutions to their clients, “Actively Managed Certificates” (AMC) are increasingly becoming a vehicle of choice. AMCs are an efficient and scalable way to run a single investment strategy or theme, allowing multiple investors to participate and adding new ones at minimal extra cost. Moreover, AMCs allow intermediaries to establish an investment track record which can help to further sharpen their value proposition and corporate profile.
At Julius Baer, we have allocated considerable resources to establish a unique array of structured products engineering capabilities. Today we are one of the leading issuers of structured products in Switzerland, itself one of the largest markets worldwide. With decades of expertise in engineering suitable products we aim to assist sophisticated investors in implementing their investment views across asset classes, geographies and market conditions.
With counterparty quality being one of the most important elements to consider, we offer the reassurance of an issuer with a highly robust balance sheet. Moody’s has assigned Bank Julius Baer & Co. Ltd. a Long-Term Deposit Rating of Aa2, plus a Long-Term Senior Unsecured and Issuer Rating of A2, which ranks the bank highly among issuers of structured products.
Reflecting the strategic importance of our second home market in Asia, we have already started very early to transfer and localize the respective expertise and pedigree in the main financial hubs of Hong Kong and Singapore. We are strongly committed to continuously expanding our capabilities, and further sharpening our offering, to cater for the local preferences of our esteemed clients in Asia. Supporting intermediaries to harness investment opportunities and implement best-in-class solutions, we will soon reinforce our digital capabilities and with that be able to offer unprecedented flexibility and timeliness in the area of structured products.
Recent research has shown that structured products have become of strategic importance for intermediaries located in the thriving markets in Asia. With the domestic markets continuing to grow and investors seeking unique investment opportunities, I am convinced that structured solutions will continue to play an important role for addressing existing and future client expectations.
Structured products are growing in popularity compared with other asset classes in Asia’s thriving markets. They have become increasingly popular due to their ability to protect the downside, their versatility and the convenience of “Actively Managed Certificates” for intermediaries.
At Julius Baer, we allocate considerable resources to our unique array of structured products engineering capabilities. We are also ranked one of the most creditworthy issuers.
Research shows that they are becoming a strategic product for intermediaries. We are convinced that structured solutions will continue to play an important role for addressing existing and future client expectations.