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BNP, Commerzbank give jittery Asia millionaires cash alternative

Friday, February 3, 2017 - 16:34

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Wealthy Asian investors who are nervous about the market's outlook after President Donald Trump's election are moving into products that are almost as safe as cash and offer the possibility of extra returns.

[HONG KONG] Wealthy Asian investors who are nervous about the market's outlook after President Donald Trump's election are moving into products that are almost as safe as cash and offer the possibility of extra returns.

BNP Paribas SA has sold more than US$150 million of its 'Helium' structured notes since October that promise investors a higher-yielding alternative to holding cash, according to Prashant Bhayani, the chief investment officer for Asia at BNP Paribas Wealth Management. Commerzbank AG and Citigroup Inc are offering similar products.

"Going into 2017, despite our best efforts lots of clients are sitting on cash," said Singapore-based Mr Bhayani. "They are looking for what's low risk in terms of volatility and can generate higher returns."

Defying investor expectations that Trump's victory would hurt shares, the Dow Jones Industrial reached a record high in January, while bond yields jumped on speculation his promised tax cuts and infrastructure spending would fuel inflation. Tumbles in US shares this week on Mr Trump's immigration order highlighted the risk that his policy decisions could weigh on equity markets as well.

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BNP Paribas' US dollar-denominated 3.5-year product guarantees investors' capital, is tied to the performance of four funds across asset classes and allows investors to exit at any time for a fee. It also has a cap to guard against volatility if markets drop too sharply and a hedge against rising interest rates eroding the value of the embedded bonds. The minimum investment is US$100,000, making high net worth individuals its target buyers.

"Investors are concerned by the risk of rising rates. This is not a guaranteed return, getting just your capital back is the downside and historically we have been targeting a 4 per cent annual return," according to Bhayani, who said that the current performance is flat.

Commerzbank AG has sold similar notes tied to mutual funds in Europe to clients dealing with negative rates and are developing a product for Asian clients who are holding too much cash, according to Franck Fayard, Hong Kong-based head of product engineering for equity and funds at the bank.

"Some clients are interested in deposit alternatives that can be redeemed at any time," he said. "They are becoming more cautious and want products with protection as they may have lost money or received no coupons last year." Citigroup's offering in this area includes a fund-based product with a minimum three-month holding period paying the London interbank offered rate plus 30 basis points that has attracted more than US$1 billion since launching last January, according to Cyrille Troublaiewitch, the head of the multi-asset group for Asia Pacific at the US bank. The product doesn't offer capital protection.

"Last year many investors were sitting on the sidelines," he said. "There was an unexpected rally after Brexit and Trump that investors didn't benefit from so now they are looking for cash alternatives. They don't want risky products as the Trump rally may flatten out this year."

The global implementation of Basel III capital and liquidity rules - designed to make banks safer during a crisis - is another factor encouraging banks to channel money out of certain types of deposit.

"It's still expensive for banks to set aside capital against large deposits under Basel III rules so they are keen to offer alternatives," said Mr Troublaiewitch.

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