As 2017 comes to a close, Gidon Kessel (pictured), head of structured products at UOB, answers six quick questions about the market for structured products in Singapore in the past 12 months and provides his forecast for 2018.

Describe the market for structured products in Singapore in 2017 with three words.

Buoyant, resurgent, momentum.

What were the preferred structured products in Singapore?

Non-principal protected flow payoffs remained dominant (ie. stepdown autocall and fixed-coupon notes) with tenors ranging from six to 15 months with average coupon of 8-10% (US dollars). Coupled with the above, the advent of fund-linked principal protected structures proved popular with better optics catering for more conservative profiled clients. This was further complemented in the latter half 2017 by incorporating safety features to traditional non-principal protected flow payoffs to insulate against market corrections (i.e. Knockout Glider and Reset).

What underlyings did investors in Singapore prefer?

US equities remained the dominant underlying, albeit this year there was also interest in European equities, fund-linked & some bespoke WTI/Brent.

What was the main driver of activity?

Strong markets provided supportive tailwinds, which stimulated flow momentum and knockout velocity. Likewise, persistent low cash rates continued to provide a catalyst for clients to continue searching for yield through structured note solutions.

What challenges did 2017 bring in the market?

Low cash rates and low volatility constrained the ability to offer wider array of payoff alternatives to a broader range of clients with varied risk appetites, as has been the case over the last few past years. While there was no direct impact in 2017 for UOB as a distributor in Asia, regulatory and tax factors will continue to be on the radar (ie. Mifid 2, 871M US tax requirements); likewise the need to automate processes to overcome efficiency challenges.

What is your outlook for the structured products market in Singapore?

Cautiously optimistic, where we expect the first half of 2018 to be market supportive and flow momentum to continue. The second half of 2018 is expected to be more challenging, with further emphasis on protecting flow by means of expanded safety features, principal and partial protected alternatives. We expect more diversification into non-US equities, as all-time highs may taper off, and multi-asset solutions, if optics permit. Automation efficiencies will continue to play a key part in the industry in 2018 either via providers themselves or external multi-issuer solutions.

As of December 20, 2017, a total of 285 structured products worth S$575m (US$773m) were issued in Singapore, according to SRP data. UOB remained the major distributor group in the country with net sales of S$300m, year-to-date. Macquarie Group was the second largest distributor in Singapore, according to SRP data, with sales volume of S$160m this year; Commerzbank was placed third, with net sales of S466m as of December 20.

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