Several derivatives houses, including JPMorgan, Deutsche Bank and UBS, have stepped up their retail structured offerings in Hong Kong in recent months. The firms have been offering products in their own name rather than just providing the hedge or the instrument on a white-label basis. This is seen as a bold move because even the largest hedge providers in this sector, such as SG CIB, don't offer products in their own name, according to a rival equity head at a bulge bracket house in Hong Kong.
The move follows a jump in demand from retail investors for structured products, who are searching for yield. Dickson Cheung, managing director and Asia ex-Japan head of equity derivatives marketing and sales at Calyon in Hong Kong, said its most recent equity derivative structured product was its highest selling issue in Hong Kong ever. The market has grown to such an extent now that Calyon's latest products are being advertised on the subway.
"There's been a lot of aggressive expansion into this market and it will be even more competitive next year," said Cheung. In response to the growing competitive nature, Calyon plans to launch new products every month rather than bi-monthly as well as bring credit/equity hybrids to Hong Kong in the coming weeks.
Other derivatives shops will have to address if they will be ready to build the infrastructure for such a venture. The legal framework needed is extensive because of the possible reputational damage if a retail product goes wrong, noted an equity head.
JPMorgan recently launched its debut retail product in Hong Kong, a credit/equity hybrid product, being distributed by local banks (DW, 11/8). SG CIB, which has long been a major provider of derivative components for retail products, sells its instruments through local banking syndicates, which market the products in their own name. Officials at the firm declined comment and Laura Schalk, spokeswoman in Hong Kong, did not return calls by press time.
UBS kicked off its Super Note series last year and has brought out issues more frequently this quarter. "It's fair to say there's still investor appetite for this series, we envisage subsequent instruments being launched," said Mark Panday, spokesman in Hong Kong. Michael West, spokesman at Deutsche Bank in Hong Kong, confirmed the German bank's entrance into the market in recent months and said it has launched seven products so far.
