Smart beta indices offer comfort in Mauritius, MCB Capital Markets

Mauritius has been operating as an offshore financial market for over two decades, but remains a developing market for retail structured products. Even though these products are used by institutional clients, the concept of alternative and derivative investments is still new to retail clients. Most recently there have been a number of retail products based on smart beta global asset allocation indices.

SRP talked to Vimal Ori, chief operating officer at MCB Capital Markets, one of the main providers in Mauritius, currently offering more than 20 structured products.

What are the pros and cons of working with strategy indices in a relatively new market?
Even though Mauritius is a new and relatively small market, working with underlyings such as smart beta indices gives us the comfort of independently calculated indices, which are more cost-effective to access compared to other indices. The challenge is to find the right balance between a strategy which can be properly explained to clients in layman's terms (ie. to which the client can relate) and one which exhibits performance potential. We usually tend to prefer thematic indices, the concept of which clients relate to more easily.

Do investors have a high risk appetite or do they prefer capital protection?
There is still a large number of retail clients in Mauritius who are risk averse and very conservative when it comes to investment products and they usually prefer capital protection. We consider structured products to be a mid-way compromise for clients who want to access the equity or alternative markets and, yet, are still weary of the associated possibility of capital losses inherent in a traditional mutual fund or direct stock investment.

In terms of underlying assets, will there be any diversification, and, if so, what assets do you think are likely to prevail?

Foreign exchange and commodities are in the general media limelight, with a lot of information available on what is happening in the markets worldwide. In Mauritius, there are very limited products which are solely FX-linked. This is due to very limited availability of hedges against the local currency.

The autocallable and long-term phoenix are among the most popular payoff choices for investors in Mauritius. Do you think the market has enough sophistication to offer more diversity?
Autocallable and long-term phoenix payouts have been mostly popular with high net worth individuals. With the nascent nature of the structured product market in Mauritius, we find it best to offer products which have simple payout structures, like plain calls or cliquet options: they are easier to understand and to sell properly. More complex and sophisticated combinations of payoff features usually make products harder to understand and, hence, it becomes difficult to sell. We focus on training our client-facing staff at each product launch, so they are better equipped to 'educate' our clients about the benefits and limitations of structured products. This approach will eventually result in increased awareness of these investment products.

What distinguishes Mauritius from other African markets and what are the expectations from the next year?
Mauritius is a very small market compared to the Africa continent and there are many opportunities still to be explored. The poor performance of African markets and currencies, coupled with the slump in commodity prices have been major challenges over the past two years. We are looking at a number of partners on the continent with which we can exploring development initiatives over the next year.

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