Structured Products Investors Boost Bullish Bets on Equities

Investors in structured products are making the most bullish bets on equities in six years as they speculate an acceleration in global economic growth will boost corporate earnings, according to Deutsche Bank AG. (DBK)

Notes betting on rising stocks accounted for $1.75 billion of trades on Switzerland’s Scoach exchange last month, compared with $693 million in April, according to data from Scoach. The bourse is Europe’s largest for structured products.

Growth in the world’s largest economy will increase to 3 percent or more in 2014, the fastest rate of expansion in the U.S. since at least 2005, according to projections by forecasting firms Moody’s Analytics Inc. and Macroeconomic Advisers in St. Louis. That’s giving investors the confidence to bet on products linked to asset appreciation rather than those offering leveraged returns or high interest rates.

“There’s been a change in attitude from investors wanting yield at all costs to wanting growth,” said Murray Roos, co-head of European equities at Deutsche Bank in London.

More than 3.8 billion Swiss francs ($4 billion) of structured products were traded on the Scoach in May, the most in 21 months, according to the exchange. Securities known as participation certificates, which typically replicate gains in an underlying asset, accounted for about half of the traded volume.

German Demand

The Stoxx Europe 600 Index climbed for a 12th consecutive month in May, the longest period of gains since 1997, reaching a five-year high of 311.07 on May 22. The index has since fallen 5 percent on concern the Federal Reserve could reduce asset purchases if the U.S. employment outlook shows a sustainable improvement.

“When markets are more bullish and equities are rising, investors are more likely to feel comfortable in going long via participation structures,” said Dominique Boehler, head of derivative public distribution and exchange-traded funds at Commerzbank AG in Zurich.

Investors in Germany’s 100 billion-euro structured products market are also increasing bullish bets, according to Deutscher Derivate Verband, the country’s derivatives association that compiles data from 17 banks including Barclays Plc, Citigroup Inc. and Goldman Sachs Group Inc.

Trading in participation products in Germany reached 587 million euros ($770 million) in April, a 25 percent rise from the previous month, data from the DDV show. By contrast, turnover of capital-protected certificates, which investors buy to seek shelter from price declines in underlying assets, fell 15 percent to 95.2 million euros.

“For a long period investors only wanted capital-protected notes due to fear of inflation,” said Andrea Vathje, the Frankfurt-based head of advisory sales for Germany, Luxembourg and Austria at Vontobel Holding AG. (VONN) “But now, more of the volume is invested in short-dated bullish equity-linked notes.”

To contact the reporter on this story: Alastair Marsh in London at amarsh25@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.