Societe Generale has issued a Reverse Express-Zertifikat linked to the EUR/USD currency pair in Germany. The five-year long growth autocallable product will be redeemed early paying-out 100% capital return plus the sum of 3% coupons per observation date elapsed if on any of the valuation dates the FX pair performs at or below its initial level. With that, the product bets on the euro's depreciation to guarantee investors an early payout and thus, reinvestment opportunity. If the product reaches maturity, investors will receive their initial investment and the accumulated coupons, as long as the euro has not breached the 120% barrier. Otherwise, the initial capital will be reduced by the fivefold difference between the currency pair's final level relative to its starting price and the barrier.
According to Peter Boesenberg (pictured), director and head of cross asset distribution Germany & Austria at Societe Generale, the reverse autocallable certificate is "a public placement aimed at a broader clientele". The reverse feature implies a strengthening US dollar, said Boesenberg, while protecting the client from a further rising euro through setting the barrier 20% over the initial fixing, due on September 25. Unlike most of the house's autocallables which offer a separate fixed or variable income cashflow, with its 5.39% p.a., the reverse express certificate is structured for those who prefer the "classic" autocallable payoff type, usually corresponding with higher returns, Boesenberg said.
According to the SRP database, bearish market sentiments and the FX asset class are not particularly popular features for subscription structured products in Germany, let alone their combination. Since the start of 2010, there were eight FX-linked products with a bear payoff on the BRL/EUR, TRY/EUR, and RUB/EUR pairs added to the German database, from which two are still live. All products were issued around dramatic movements of the base currencies, such as that of the Brazilian real which grew by 50% between December 2008 and March 2011 amid the Brazilian bubble, or the unexpected drop of the Russian ruble against the US dollar beginning of 2015 after the Russian Central Bank decided to cut key rates to support the real economy.
The euro has been enjoying a persuasive momentum, marking 13% increase against the US dollar since the start of 2017, up to its almost three-year high. The appreciation of the euro has led to a downward revision of the medium-term inflation forecast, while posing "market uncertainty", according to ECB President Mario Draghi. "Inflation forecasts have no direct impact on the product's performance", said Boesenberg. "Nevertheless, the change in the forecast might affect the EUR/USD cross-rate."
According to Boesenberg, "structured products on FX are less common than equity-based products, but [Societe Generale] still sees regular requests and trades on FX." With 26,688 products since start of 2017, Societe Generale is the leading issuer of currency-based instruments on the German flow market. Mainly thanks to its extended offering of inline warrants, the bank has significantly strengthened its position on the FX side compared to the same period last year with 370% increase in issuance.
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