Comparing Structured Products in Europe and Asia

In the constantly changing financial markets, the utilization of structured products has become a pivotal strategy for investors seeking to optimize their portfolios. This article explores the intricate world of structured products, drawing a comparison between the European and Asian markets. As these markets continue to evolve, understanding the nuances of consumer behavior, market trends, and innovative financial solutions becomes imperative.

Consumer base takeaways

Wealth Growth and Market Potential

Since 2011, Asia has been experiencing double digit annual growth in overall wealth, and surpassed Western Europe in 2016. Asia’s millionaire count grew by 45% in five years, reaching 4.4 million in 2015, and 6.2 million in 2023. Given structured products represent 4-5% of overall wealth investments in Asia, this signals substantial growth potential as this customer base grows.

Market Trends and Challenges

An examination of recent market dynamics un- veils both opportunities and challenges: South Korea experienced a 20.1% decline in structured product traded volume in 2021. UBS (China) introduced structured solutions to hedge local financial institutions’ FX and interest rate exposures. Singapore saw a rise in US market exposure through diverse trading strategies and products. Despite risks, Asian investors are more willing to take risks compared to European counterparts. The focus on regional stocks, US equities, and themes like RMB appreciation shapes Asian investment strategies.

Geographical Market Overview

North America, Asia Pacific, and Europe account for over 98% of structured product issuance. Europe dominates issuance, while Asia leads in sales volume, particularly in structured products.

Financial Products Insights

In Europe, 50% of products are in note format, and the OTC market accounts for 9%. In Asia, only 30% are in securitized format, with about 50% in deposits and an OTC format. Asian investors tend to focus regionally but show growing interest in Europe and global markets.

Investment Horizon and Payout Structures

European products have an average 2-3 year investment horizon, while Asian products have a shorter 6-month horizon. Europe supports a broader product range with 400 pay-off structures, while Asia has fewer, but this is expected to grow rapidly.

Product Preferences and Market Dynamics

In Europe, structured products account for around USD 800 billion outstanding through 3 million products. Asia ex-Japan has seen structured product volumes grow from USD 700 billion to nearly USD 800 billion. European investors favor equity-linked products (75%), while Asia’s preference is more diversified: 40% equity-linked, 50% FX-linked.

Innovation & landscape developments

Banking practices innovations (2022)

Société Générale issued daily leverage certifi- cates linked to the S&P 500 on the Singapore Exchange.
HSBC Global Private Banking launched online trading for structured products in Asia via mobile.
Maybank issued the first ever structured warrants on Hong Kong-listed stocks on Bursa Malaysia, reflecting market sales and volume growth.
Société Générale, for the first time, launched a batch of Callable bull/bear contracts (CBBCs) based on US indices in Hong Kong jurisdiction.

Automation and Solution to drive Growth (2022)

In Asia, European multi issuer platforms became important actors to deliver tailored automated solutions for trading of products. Automation is a driver of competitiveness in the region, especially given the smaller size of transactions and growth journey of Asian financial institutions. Bespoke solutions, depending on growth ambitions of banks, are considered crucial for improving product offering and overall revenue.

Structured Products: A Changing Landscape

Recent regulatory changes in Hong Kong to boost market confidence in structured products. In 2021, JP Morgan issued its first ESG-linked structured note in Hong Kong jurisdiction. ESG becomes increasingly important in APAC, with amongst others, UOB, HSBC China, and JP Morgan actively participating.

As we navigate the ever-changing terrain of structured products, this comparative analysis provides insights into the unique trajectories of Europe and Asia. From wealth accumulation and market trends to innovation and regulatory shifts, understanding these dynamics is crucial for investors, financial institutions, and policymakers alike. Join us on this journey as we unravel the complexities and opportunities in the dynamic world of structured products.