Fifty-three percent of HSBC products in the local currency are linked to foreign underlyings which shows the objective of HSBC in expanding their offer beyond domestic assets.

"A large group of our customers hold a bullish view on the European market," said Kyle C Y Kang, product manager, wealth management structured investment at HSBC Bank. "If you look into our product shelf, you can easily find out that we offer a lot of famous global indices or ETFs for the customers".

Investing in foreign securities, while a good thing for any portfolio, continues to pose risks to investors. As such, structured products provide a good vehicle to offer the adequate risk-return ratio to the Chinese investor. HSBC Bank (China) expanded during 2016 their suite of overseas underlyings, mainly in the local currency, where the investor doesn't need to worry about the currency risk, usually present in investments in other currency denominations.

According to SRP data, out the 222 products issued by HSBC last year, 132 products were yuan-denominated structures linked to foreign underlyings, making quanto options a big part of the Chinese structured product market. A Quanto option has a payoff linked to underlying(s) of one currency, but the payoff is calculated in different currency. From an option holder's perspective, Quanto options enable them to get exposure to foreign underlying(s) without taking on any FX risks, as the FX rate is effectively fixed at the outset.

Nevertheless, pricing quanto derivatives involves modelling financial variables in a currency which is different from their actual currency. As such the biggest factors are not only the underlying volatility but the FX rate volatility (FX rate between the pricing currency and the modelled variable currency and correlation between both.

While many equity-linked structured products feature Quanto options, HSBC has also offered different products denominated in US dollars. "We also offer USD product with the same payoff to our clients," said Kang. "They can choose the product according to their own preference."

An increasing number of Chinese banks are beginning to offer simpler structured products, following the introduction of a more strict regulation by the China Securities Regulatory Commission (CSRC) to curb the amount of leverage used by wealth management products. This has resulted on an increasing number of Chinese investors willing to explore overseas investments and to take more risk to gain higher returns.

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