The sale and issuance of retail structured products across the Americas has dipped, with falls in Canada and Latin America attributed to the decline in oil and commodity prices. Sales and issuance in the US dipped in June by 5%, to $4.4bn, and 4.7% respectively. In Canada, the end of the past quarter saw sales falling by 13% on the year, which was attributed by providers to a sharp decline in oil prices. Sales of structured products in Chile saw a drastic decline, from US$34m in the second quarter of 2014 to US$20,000, sales in Brazil are down 52% to $28m over the same period, while in the first six months of this year, sales fell 20% and issuance by 33% from the first six months of 2014, which was also attributed to falling oil prices.
Equity index-linked products ruled the roost in the US, with 324 products worth $2.1bn. Despite a month-on-month fall of 13%, sales linked to index basket equities are up 116% this year, due to uncharacteristically high sales in January in an institutional deal created by Barclays and Goldman Sachs that accounted for $1bn in sales. The top two trades in June were linked to a weighted basket comprising the Eurostoxx 50, FTSE 100, Nikkei 225, SMI, Hang Seng Index and S&P/ASX 200: the first was a leveraged index return note issued by Credit Suisse, which attracted $43m, and the second an accelerated return note issued by Barclays for $37m.
There was a continued decrease in products offering capital return higher than 100% for the benefit of more risky products in Canada, as well as 15% more US dollar-denominated products in the first half of 2015 compared with the same period last year. This trend has been inspired by the Canadian dollar depreciating against the US currency as a result of falling commodity prices (oil, gold, uranium), the contraction of the Canadian economy in the first quarter of this year and the Bank of Canada cutting the overnight interest rate. The Canadian dollar could further depreciate should the US Federal Reserve raise interest rates, as promised, by the end of the year.
The new products added to the SRP Chile database this quarter were wrapped as mutual funds. Banks in Chile prefer to issue products with relatively simple structures, such as capped call and digital, products that offer transparency and ease of understanding for investors. The benchmark interest rate in Chile has fallen to 3% since October 2014, which normally increases the desire for capital-protected products with capped or limited upside exposure.
The central bank of Brazil raised its key interest rate to 13.75% in the beginning of June, the highest level since the end of 2008, with almost all the new products issued over the month fully capital-protected investment funds with short tenors of less than two years.
In Mexico, June was marked by the issuance of fixed return products with 90% to 100% capital protection at maturity.
Additional reporting by Simona Katzartcheva and Petia Zaharieva.
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