Malaysian less affected by structured products losses
Filed Under (Market News) by Webmaster on 19-03-2009
Tagged Under : loss, malaysia, structured products
Structured products, the most famous of which is possibly the credit default swap, have burnt a lot of high net worth investors in the region during the current downturn.
However, Malaysian investors in structured products, unlike those in Singapore, suffered less losses stemming from the collapse of Lehman Brothers and other US investment banks, CIMB Private Banking co-head Alan Inn said during the panel discussion on Are structured products still relevant in today’s investment portfolio?.
CIMB executive vice president and head of structured products and derivatives Chu Kok Wei characterised structured products as having “some form of capital-protected element plus exposure to the upside”.
Despite the recent bad experience of investors, structured products were a valuable investment tool, said J.P. Morgan, Singapore executive director, derivative sales Yeoh Hong Nam.
While structured products had been sold as a capital-protected substitute for bank deposits, and investors had lost part of their principal in the global meltdown, these products had actually done their job of protecting capital, he said.
“In commodities, if you look at oil (at about US$48 a barrel yesterday), it is down more than 50% from its peak (of US$140 a barrel) but the structured products investor would only be down by about 10% (in his investment),” he said.
Hwang-DBS Investment Management Bhd chief executive officer Teng Chee Wai suggested simple structured products that were “easy to market, understand and buy”. Investors need to know when products provided capital protection and when they did not.
“The moment you feel uncomfortable with the underlying asset, you must sell,” Teng said.
On what was being done to address investor dissatisfaction, Yeoh said regulators in Singapore were taking steps to curb over-the-counter sales of structured products, allowing such investments to be sold only through private banking advisers.
“We have all heard the story of the grandmother who only speaks Hokkien buying a Lehman mini-bond. The Singapore government is taking steps to prevent that from happening again,” he said.
The panel concurred that there was a lack of understanding of structured products among investors and the need for institutions to “chase returns” with increasing complicated products.
As for Malaysia, Inn said local regulators had been more restrictive in the kinds of structured products on offer in the country, which had bode well for investors in the current crisis.
