Principal-protected retail equity-linked notes are back in vogue in Asia as global uncertainty triggers greater investor caution. "As the interest-rate and political situation [in the Middle East] remains unclear, clients are displaying an added degree of caution," said Patricia Lau, in equity risk management at UBS in Hong Kong. She noted investors have been shifting back to the capital guaranteed structures which dominated the retail note market two-to-three years back.
The equity-linked deals now being sold in Hong Kong are primarily daily accrual structures with auto-callable observation dates every three months. The ELNs are typically referenced to three or four regional stocks or indices and may be called early if all underlying is above 98% of the original strike level on any observation date. Maturity is usually four years and the deals are sold via consumer banks.
