Panelists discussed how interest rates and the large swing in China market volatility has impacted investor sentiment and structured products design at the SRP China 2024 conference in Shanghai.

A group of panellists at the “Macroeconomic and market dynamics: navigating uncertainty” panel discussion kicked off the SRP China 2024 conference in Shanghai last week, sharing how market participants capture investing opportunities in the structured product market.

The high-rate environment has made it possible for investors or investment bankers to develop structured products that can provide capital protection - Yi Shen

While China maintains a low interest rate environment, domestic investors are still seeking the same yield as overseas markets, according to Chinese hedge fund manager Shenyi Investment CEO, Yi Shen (pictured).

Shen described China’s recent market volatility as “quite strange” since the frequency and speed of the change are “way bigger” compared with overseas markets where market watchers usually expect the volatility to stay at a level for a while regardless of whether its high or low.

According to Shen, the CSI 1000 index provided a good example. In late January, the volatility benchmark reached 30, but a couple of weeks later, it went up to 95. It then dropped to 25-30 soon after, before increasing again and hovering around 27 and 28.

“This reflects anxieties from investors about how to make the judgment call,” he said, highlighting that geopolitical tensions such as export control against China have been a “prominent” factor swaying sentiment.

Despite the deposit rate sitting at one percent and the 10-year treasury yield in China lingering around or above two percent, Shen still believes interest rates could eventually go up, perhaps next year.

“The high-rate environment has made it possible for investors or investment bankers to develop structured products that can provide capital protection,” he said.

William Ma, global chief investment officer at GROW Investment Group, who was also the panel’s moderator, pointed out that pension funds have been concerned about the market uncertainty driven by high volatility index.

 “We believe that sticky inflation [in the US] will stay with us at the macro level,” Ma said. “But I think there's going to be more uncertainty.”

Kevin Liu (below), vice chairman and China country head at the Association of Family Offices in Asia (AFO), shared that family offices’ growth remains strong based on recent research, which examined hundreds of family offices across the country.

We believe there will be more direct involvement in equities - Kevin Liu

According to Liu, between 2022 and 2023, 40% of those family offices reached an annual return of five to 10%, while 30% saw a return of greater than 10%.

Despite the majority seeing growth, Liu noted that family offices still tend to be “prudent in [investing] strategies".

By industry sector, family offices in China have large exposures to real estate, followed by hedge funds, derivatives and alternative investments such as charitable foundations and art investments.

Cryptocurrencies have become one of the investing considerations among those being analysed while the research also suggested that longer investment tenors have gained traction among family offices.

“We believe there is going to be more direct involvement in equities,” he said.

Among family offices, investing strategies that have the purpose of adding social value have been an important but under-looked area that needs to be seen more.

The panellists also discussed the current policy environment in China, which is currently unfavourable to structured products.

“The Phoenix storm was in 2018, and the snowball has hit hard twice in recent months,” Shen said. “In terms of hedging, exchange-traded products being used as a hedge could sometimes solicit regulatory attention.”

According to Shen, when the market starts experiencing large ups and downs, "you need to be careful with how you trade options [from a hedging persepctive]".

“In the overseas market, I’d say investors go for growth [when choosing investing opportunities]. In China, you’d go for stability,” he concluded.

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