Citigroup has recently launched a three-year Nikkei-linked note as a potential higher-yielding alternative to domestic products in Australia. "Stocks here are fully priced at these levels," said Michael Walker, director and head of equity structured products in Sydney, explaining that following another strong run-up in the local equity market this year, some investors feel the momentum may not be sustained. They are looking for exposure overseas where they can find higher potential gains.
The bank has pushed out the Market-Linked Investment auto-call note referenced to the Nikkei 225, for its private banking and high-net worth clients. In the structure there are auto-call dates set on the first and second years. At these points, if the Nikkei 225 is trading at 100% or above the initial reference level on the selected date, the structure will be called early. If there is early redemption the first year, the investor receives back the initial capital plus an 11% coupon, and if called on the second year receives 122% return. If the product continues to the third and final year the investor will receive a 33% coupon and principal if the index is above the initial reference level. Capital is at risk if the Nikkei falls below a 65% barrier level from the initial reference. If this happens, the note will be redeemed and the investor will receive the principal amount, less the percentage fall on the index.
Walker explained the structure is a good way for private banking clients with a positive view on Japan to take a position in their home currency. The investment size is AUD2.5 million (USD1.87 million).
