MSCI has won the Best Index Provider accolade at the SRP Apac Awards 2023 for its growth of in the structured product market in 2022 on the back of its offering focused on ESG and China.

For the index provider, structured products, which falls under thematics, listed and unlisted derivatives scope, has been its fourth core focus, according to Douglas Walls (pictured), managing director, Apac head of index and analytics business at MSCI.

Over the last four years, MSCI has seen its structured products-related revenues post "very solid double-digital growth" globally in accordance with the index provider’s plans.

Apac is a much newer business [compared to US and Europe] where we have intensified our resources over the past year and expect similar growth to come this year - Douglas Walls, MSCI

"Apac is a much newer business [compared to US and Europe] where we have intensified our resources over the past year and expect similar growth to come this year," said Walls, adding that MSCI's licensing fee from structured products in the Asian markets, which consists of Hong Kong SAR, Singapore, China, Japan, South Korea and Southeast Asia, has "increased dramatically" across both standard and customised indices year-to-date.

Walls didn't reveal the amount but noted that climate indices have been "a big winner" in Asia as they're more regularly requested than in the Americas. 

Within Asia, the indices that are most used by structured products include the MSCI World Climate Change ESG Select 4.5% Decrement Index, MSCI World ESG Screened 5% Risk Control Index, MSCI Asia Pacific ESG Leaders 7% Risk Control Index and MSCI China A Future Society Multi-themed Select Index, according to Walls without disclosing any assets under management (AuM).

At MSCI, climate and other non-market cap strategies currently take the top priority while the index provider aims to bring its range of tools and services to fast-growing sub-regions that include greater China and Southeast Asia.

The MSCI China A 50 Connect Index is “a good example and emphasises the importance of building a product ecosystem through listed derivatives so they can be a lot more effectively hedged for structured products”, according to Walls.  

Launched in August 2021, the index seeks to represent the performance of the 50 largest cap China A shares through a sector-neutral approach. The MSCI China A 50 Connect Index Futures went listed at Hong Kong Exchanges and Clearings (HKEX) two months later and listed derivative warrants tracking the index became available in August 2022.

The average daily contract volume of the index futures dropped 5.0% to 8,858 in May from the previous month after delivering a record high daily volume of 65,682 on 16 February 2022, HKEX data shows.

"Despite the relatively volatile state of capital markets, we still have globally US$5 billion of open interest across listed and unlisted derivatives, physically managed entities on the MSCI China A 50 Connect Index," said Walls. "There's additionally a reasonably decent number of structured products on the index."

According to Walls, MSCI is still in the first phase of setting up the ecosystem around the A-share index as MSCI is working to onboard more tier-one exchange-traded-fund (ETF) sponsors. 

"In China, MSCI indices are primarily used to capture offshore exposure in the structured product market," said Walls.

SRP database includes 45 live structured deposits with a tenor of two years linked to the MSCI World ESG Screened 5% Risk Control Index and the MSCI Asia Pacific ESG Leaders 7% Risk Control Index in China issued by HSBC Bank.

Another flagship product is the MSCI Climate Action Futures, which went live in December 2022 and saw its futures contracts listed at Singapore Exchange last week.  

Beyond thematics

"We've seen a lot of demand for rotation indices, be it sector, factor or thematic, over the past 18 months," said Stéphane Mattatia (below right), managing director, global head of derivatives licensing and thematic indexes at MSCI.

Investors expect changing economic environments and want indices that're agile and adapt well over the coming 10 years, which we call 'evergreen indices' - Stéphane Mattatia, MSCI

The MSCI Global Thematic Sentiment Rotation Select Index, which has been "very well-received" and features an overlay of risk control mechanism in Europe, has been licensed to two structured product issuers in Asia. The new index is among 25 thematic indices offered by MSCI, according to Mattatia.

"Thematic indexes are broad indexes with approximately 200 stocks by default. But when it comes to hedging, end investors prefer a narrow version quite often," he said. "Investors expect changing economic environments and want indices that're agile and adapt well over the coming 10 years, which we call 'evergreen indices'."

Moreover, there is growing interest in indexes that’re built based on smart tech tools like AI and natural language processing beyond market cap indexes.

In April, several SPs were issued on a customised index co-developed by MSCI and a global investment bank in Europe, which allocates 50% equity and 50% credit plus a full climate overlay, said Mattatia who declined to name the index or AuM.

On the digital assets side, MSCI launched its first suite of indexes in the segment following a two-year discussion on 3 November 2022 when the liquidation of cryptocurrency exchange FTX started.

"Investors have shifted to vanilla products on digital assets from very complex structures post-FTX collapse, [but] we expect their interest to come back even stronger," said Mattatia.

On 28 March, ETC Group launched an exchange-traded product (ETP) on the MSCI Digital Assets Select Top 20 Capped Index in Germany.

According to MSCI, the most traded ESG or climate indices for structured products globally include the MSCI EMU Circular Economy Sustainable Impact Select 50 Points Decrement Index, MSCI World/EMU/ Germany Climate Change ESG Select Decrement Index Family, MSCI EMU SRI Select 30 Decrement Index Family, MSCI Euro Climate Select 50 Paris Aligned 5% Decrement Index, MSCI Select Green Decrement Family, MSCI World ESG Leaders 3% Decrement Index and MSCI World SRI Sustainable Select 3.5% Decrement Index.