Rich Asian investors drive $200 billion revival in complex equity notes

Rich Asian investors are plowing record money into complex stock bets that saddled them with big losses just a few years ago.

- Bloomberg

The revival coincides with a surge in Asia's equities driven by the AI frenzy

(BLOOMBERG)

Issuance of structured products linked to Hong Kong and Singapore equities has surged 80% this year to a record of more than $200 billion, according to estimates from BNP Paribas SA, one of the top issuers. Products known as accumulators—which make their holders continuously buy stocks at preset levels—and fixed-coupon notes that offer monthly returns are particularly popular.

The revival coincides with a surge in Asia’s equities driven by the artificial intelligence (AI) frenzy. Typically marketed by private banks to wealthy clients, structured-note bets this year have been concentrated in Chinese mega-caps such as Alibaba Group Holding Ltd and Tencent Holdings Ltd, a shift away from US names like Nvidia Corp. The instruments help holders build exposure to stocks in a more controlled way, though their complex structure means losses can worsen under certain conditions.

“Issuance was very limited for the last few years, up until September of last year,” said Tony Lee, head of global equity-derivatives strategy at JPMorgan Chase & Co., referring to notes tied to Asian stocks. “Because of the recovery of the Chinese market, the product underlyings have shifted from US stocks into Hong Kong stocks.”