Issue offers retail investors access to growth potential of four Asian markets

 

By LYNETTE KHOO

 

UNFAZED by the recent softness in equities-laden structured products, JPMorgan yesterday launched equity-linked notes (ELNs) aimed at retail investors for the first time. The notes come with conditional principal protection.

 

The JPMorgan AsiaConfidence Notes are linked to four underlying Asian Indices - the MSCI Singapore Cash IX, Thailand's Set 50 Index, the Kuala Lumpur Composite Index and the MSCI Taiwan Index - giving investors a way to buy into the growth potential of these markets.

JPMorgan's executive director for equity derivatives, Ong Tsui Keng, said that the launch of the notes - previously available only to private banking clients - was prompted by increasing sophistication among retail investors.

'The flow of business for structured products has been tremendous and we think the retail market now is starting to enjoy that familiarity with structured products,' Ms Ong said.

While demand for structured products seemed to have slowed in the first quarter of this year, she said she does not foresee a huge dip in demand and believes there is room for new structured products as long as investors hold a view.

'I think structured products will remain a mainstay, and hopefully one day we will get to the point when investing in structured product is an alternative to investing in real estate,' she said. 'We see volatility in the next year or so. But long-term wise we are still fundamentally bullish on Asia.'

Giving a glimpse of the increase in this market, Ms Ong said that her team has grown from four or five staff in 2003 to close to 45 today, signalling an 'exponential growth'.

To counter the risks associated with the absence of full principal protection, JPMorgan is offering shorter tenure, fixed coupons and a buffer level for the ELNs. This is a move away from the typical offering of structured products that feature a long tenure with principal protection.

The principal value of the notes is at risk only if any of the underlying market indices falls more than 50 per cent. If all the markets stay above 50 per cent of current levels, the notes provide a fixed payout of 7.5 per cent per annum for a short investment period of two-and-a-half years, with early redemption mechanisms.

'We expect early redemptions to be high at some point,' Ms Ong said. But the 50 per cent buffer is more than sufficient to mitigate the risks, given that no foreseeable risk in these markets could cause the indices to fall more than 50 per cent, she said. The risk involved is also further mitigated by the low frequency of observation on a quarterly basis.

The notes are available with a $50,000 minimum investment, with increments of $1,000. The offer period runs from yesterday until June 20. HSBC and Standard Chartered Bank are the distributors.

JPMorgan's vice-president for equity derivatives Daryl Wong said that the minimum investment will, in effect, filter the type of retail investors who pick up these Notes. He is aiming for a total take-up of $50 million.

The bank is looking to push out a second retail structured product here in June that is alpha structured and non-principal protected with short tenure. Mr Wong said that the second product is also likely to be equity-linked and focused on the Asian markets.