SRP Apac Awards 2023: SG capitalises on new equity payoffs, FIC products

SG notes that 2022 was a challenging year for its distribution business in Asia.

The equity market correction, which was accompanied by an aggressive US dollar rates hiking policy to fight inflation, pushed Asian investors to explore new and alternative solutions to navigate these difficult market conditions.

In response, the French bank offered more diversification and alternative exposure through its multi-asset index franchise led by quantitative investment strategies (QIS) and environmental, social and governance (ESG) feature.

“In terms of demand, we see less equity and risk-on products and more FIC and multi-asset products, recovery and principal-protected products - Olivier Renoux, Société Générale

An increasing number of risk-off equity and fixed income solutions were designed to lock high interest rates, limit downside and seize any potential market recovery, according to SG.

Specifically, capped floored floaters and curve-linked solutions were popular among its FIC offerings while put extinguisher, Darwin, switch-to-mono and silk hat payoffs demonstrated the pivot away from correlation in equity as part of the innovation brought by bank.

Put extinguisher is like the traditional fixed coupon notes (FCNs), but only the put on the downside will be knocked out upon a knock-out event, which allows investors to lock-in a higher US dollar rate during the entire tenor, according to SG. It was traded with local securities houses in Japan in 2022, along with silk hat.

In the meantime, the payoff was also offered to private banks in Japan, South Korea, Hong Kong SAR and Singapore along with Darwin and switch-to-mono.

The SGI Diversified Multi-Asset Enhanced Index and the Green Multi-Asset Index were also highlighted by the bank. 

In Southeast Asia, principal-protected fund-linked structured products had been favored by investors before the Covid-19. The sharp rise in interest rates made the products even more attractive due to with a higher participation rate in 2022, which acted as ‘market entry points’ for many investors.

During the year, SG traded a volatility-targeting strategy linked to a mutual fund of a giant asset manager, which is designed to ‘offer attractive participation rate to the annualised performance of the underlying asset while limiting the downside risk’.

“The market has not recovered since 2022 due to rising rates, global expectations of US recession later this year or early next year, geopolitical tensions and the ongoing review of structured products regulations in Japan,” Olivier Renoux (pictured), co-head of global markets structuring for products and solutions, Apac, told SRP. “In terms of demand, we see less equity and risk-on products and more FIC and multi-asset products, recovery and principal-protected products.”

As a result, SG has continued to focus on offering more QIS, ESG and FIC products supported by automation, in line with its global pivot strategies of market activities since 2020, according to Renoux.

In the listed segment, the French bank has won the Best Warrant Provider for its leading and growing franchise in Hong Kong SAR, Singapore and Taiwan.

In 2022, the issuer marketed a total of 6,984 callable bull/bear contracts (CBBCs) in Hong Kong SAR, taking the crown of the league table by issuance among a group of 17 banks. It was also the first and only issuer of listed structured products on US indices in Hong Kong SAR and Singapore during the year.

By net notional sold, the bank took a lead in CBBCs for sectors including automotive, energy, utility, Internet, material, metal and mining.

“For derivative warrants, the investor flow in term of gross vega sold is testing the bottom of the last five years while the CBBC segment investor flow in term of gross notional sold is recently rebounding from 2022," said Horace Chow (right), director, cross asset listed distribution, global markets, Apac, told SRP, referring to the Hong Kong market.

In Singapore, SG launched daily leverage certificates (DLCs) on the FTSE Straits Times Index with up to 7x/-7x leverage, ‘overcoming several constraints from index licensing to an illiquid futures contract’ as the only issuer to offer a leverage or inverse instrument on the Singapore local benchmark.

On the investor education side, more than 200 medium-to-small-scale webinars were held by SG to provide latest updates on trading tactics in English, Cantonese or Mandarin. And over 50 short videos were produced to explain products such as US index linked CBBCs.