Vincent Yeung (pictured), deputy general manager of the asset management department at China Merchant Bank is in charge of the bank's structured products, derivatives trading and cross-border alternative investment. Yeung has extensive experience of derivatives trading and structured product design, and joined CMB from Hang Seng Bank (China), where he was executive vice president of wealth management and product development.
Describe the Chinese structured products market in one sentence?
This year may mark the start of a new era for the Chinese structured products market, given the evolution in both regulation and the market.
How does last year's asset management market compare with this year?
Last year was one of rapid growth, whereas 2016 has been one of consolidation and transition. The increase in 2015, with the outstanding volume of bank wealth management products reaching CNY23.5tr (US$3.5tr), versus approximately CNY6tr in 2014, was partly a result of the A-share market crash that triggered the movement of funds back to bank wealth management products as a safe haven.
We also saw significant product innovation in 2015, with formats like asset-backed securities (ABS), mortgage-backed securities (MBS), QDIE (Qualified Domestic Investment Enterprise), QDLP (Qualified Domestic Limited Partner) gaining more attention. In 2016, market participants have seen domestic regulators introducing new rules, aiming to guide the development of China's asset managment market in a healthier and more sustainable direction.
Is the new structured products regulation going to favour asset management plans linked to precious metals?
Apparently, the new guidelines on domestic wealth management products (WMPs), which are still undergoing discussions, will not only favour precious metals-linked products in particular, but structured products in general, since they will be a good supplement to traditional WMPs that have been over-relying on 'non-standard' assets. Structured products could also facilitate the transition of domestic WMPs aimed at striking a more sensible risk/reward balance, one of the prime goals of local regulators.
In view of the fact that technical innovation, organisational restructuring and product transformation takes time, institutions equipped with better innovative capacities would certainly benefit. Traditional 'non-standard' asset-based, 'principal guaranteed' products will inevitably be replaced by net asset value-type and structured products.
What is your experience of challenging markets?
Structured products design has always been challenging in China, given the fact that we have an ample supply of fixed-income products relying on 'non-standard' assets that provide investors with above risk-free rate return, together with virtual principal protection. As manufacturer, we will have to put aside a minimum return, whilst simultaneously striving for a more sensible risk/reward balance with little cushions left. In addition, investor education is vital, as many investors still perceive derivatives as demons.
What educational initialves does CMB implement for structured products?
Since derivatives and variable return WPMs are relatively new concepts, both to bank staff and local investors, we have undertaken educational initiatives such as internal staff training, investor seminars, regular publications, etcetera. We pay special attention to in-house training, requiring the employees involved to sit professional exams regarding structured products and derivatives. We will elevate our collaboration with profession media in order to better promote a right perception of structured products.
How would you describe CMB's structured products strategy?
As it takes time for mass market participants to comprehend structured products, keeping things simple and straight-forward is our strategy. Since market rates keep trending lower, this would be favourable to structured products. Manufacturers could lower the minimum return in tandem with lower market rates, leaving more cushion to play around with option premiums.
Which products sell best in China?
Products with simple structures (eg. call spread, shark fin) are selling best, with investors preferring CSI 300, gold and Brent crude as underlyings. Commodities and precious metals are likely to remain the focus over the next 12 months, especially in China and in the Asia Pacific region.
Are gold-linked products quoted on the Shanghai stock exchange suited to the Chinese market?
Judging by product data since 2015, as CMB has been launching structured products linked to both London and Shanghai gold fixings, the reception to the latter has been encouraging. Geographic proximity and renminbi quotation seem to be the main reasons for this.
What is the impact of online asset management in China?
The rapid development of online finance has very much changed the landscape of China's wealth management market, pushing ahead interest rate liberalisation and elevating interests in asset management from the mass market. Online finance, although in some instances a regulatiory grey area, has also revolutionalised domestic wealth mangement market, breaking the oligopoly of commercial banks. Hand-in-hand with interest rate liberalisation, online finance has provided structured products with a long-awaited platform that could facilitate the transaction of structured products, enabling financial institutions to mimic overseas structured products like equity-linked notes and dual-currency investments.
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