Investors in Asia are losing their appetite for risk and focusing on features that can guarantee capital protection, according to Gidon Kessel (pictured), head of structured products and equities at United Overseas Bank (UOB).

"Q1 was a blockbuster but the sentiment has turned," said Kessel. "Capital protected offerings are becoming more prominent. Even with principal-at-risk structure, you see more safety overlays and features."

The sales of structured products in the Asia Pacific (Apac) region with a minimum principal return level of over 90% accounted for 40.2% in the third quarter this year, according to SRP data. This marks an increase from the 30% posted in the second quarter and 38% in the first three months of 2018.

The rise in the ratio of capital protected products in the three-month period ending in September also came despite a drop in overall sales of structured products, though the final figure is incomplete. The total sales volume in the third quarter stood at US$16.6 billion, down from the US$27.1 billion posted in the first quarter. The sales volume during the April to June period edged up from the first three months to US$28.5 billion.

"A lot of that is driven by the sentiment that has changed in the whole macro news - Turkey [currency] situation, trade wars [between the US and China] and so forth," said Kessel. "I think people are much more risk-averse, perhaps, not re-investing in what they did previously or cashing out in some cases."

The sluggish momentum is also driving investors to look for non-equity exposure, according to the head of the structured products business at the Singaporean bank. "Even from an underlying perspective, you can find more of less volatile underlyings, so diversifying away from equities."

Kessel did add though that structured products provide more leeway for investors to monetise different market events, regardless of whether they create a bullish or bearish momentum. "Structured products can be structured irrespective of what the market conditions are as they [investors] are trying to monetise a view. They give you a bit more flexibility vis-à-vis other solutions."

UOB is the largest distributor in the structured products market in Singapore, accounting for 70% of the total sales in the first half of this year. Its sales volume reached SGD$450m (USD$ 327m) in the first half of 2018, followed by Macquarie, Maybank and Commerzbank.

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