Equity derivatives houses are considering launcing structured products referenced to baskets of emerging markets shares, following last quarter's demand for single country emerging market instruments. Structures which give exposure to the 'BRIC' emerging markets, Brazil, Russia, India and China, are in demand, according to Onno Vriesman, director in the exotic structuring group at Deutsche Bank in London. The German house has already started trading a mixed basket with Chinese and Eastern European underlyings, said an official.
But, high volatility in the emerging markets means the options are expensive and limits the participation the banks can offer if they combine it with a 100% capital guarantee. This means the structured notes are likely to have a lower protection level or contain embedded exotic features, such as cliquets to lock in gains.
Interest in emerging market underlyings has mostly been seen from the private banking sector, mid-sized institutional investors and asset managers, said one product structurer. As the market for this kind of product expands, and investors regain confidence in the emerging markets, this could filter down to the retail market, he added.
