Deutsche Bank AG, the fourth-biggest issuer of structured notes globally outside the U.S., says increasing comfort with the products is boosting sales in Malaysia, where the base of affluent investors is expanding.
The bank’s sales of securities tied to credit and foreign-exchange rates surged “multiple times” to “a few hundred million dollars” in the first half of this year, compared with the same period a year ago, according to Lavanya Chari, head of fixed-income, currencies and commodities structuring for Asia including Japan at the lender. The products are mostly sold to wealthy individuals through private banks or asset managers.
Malaysia is leading Southeast Asian nations in wealth creation, adding high-net-worth individuals as the economy grows with inflation under control, Julius Baer Group, Switzerland’s third-largest wealth manager, said in a report last month. Structured products are luring the country’s increasingly sophisticated investors seeking to gain exposure to everything from currencies to global corporate bonds.
“We have seen a significant increase in structured-product demand in Malaysia,” Chari said in a telephone interview on July 5. “Clients look for yield. Client sophistication has also increased -- clients are becoming more comfortable with structured products to express their views.”
Until a recent slowdown in sales as expectations for appreciation in China’s currency waned amid signs of economic deceleration, the most notable products this year had been those betting on gains in the offshore yuan traded in Hong Kong, she said.
“The dollar-offshore yuan has been a very popular currency pair across Asia, and Malaysia is one of the countries where it’s extremely popular,” Chari said.
The renminbi-related investments helped the German bank’s currency-tied notes overtake those linked to credit in sales this year, she said, without providing exact issuance figures.
Popular yuan products include those that earn fixed coupons, with some paying 7 percent to 8 percent annually, over a year or two only when the currency is above fixed levels, she said. Malaysia’s current 12-month banking deposit rate is 3.15 percent.
A similar trend also contributed to an 88 percent jump in structured-note sales of all types at Overseas-Chinese Banking Corp., according to Ng Seow Pang, head of global treasury at the bank’s Malaysia unit. Currency-linked notes account for half the Singapore-based lender’s issuance in the country, he said.
Gains in equity markets may encourage investors to buy riskier, partial-principal protected products tied to stocks, said Judy Hsu, global head of wealth management at Standard Chartered Plc.
For OCBC, the focus in equities is on products giving access to individual stocks overseas or exchange-traded funds, rather than local shares, to meet the preference of its clients, Ng said.
“Investors in structured products are limited to high-net worth individuals who seek to participate in investments that are normally not readily available to non-institutions,” Ng said. “We structure products according to the investor appetite.”