Structured financial solutions designed to address specific risk-return objectives
Structured Product
System.String[]
Structured Products Advantages
Structured Products are hybrid investments made up of a bond and an option to offer the potential for higher returns compared to standard deposits
Tailor-made solutions for your specific needs
Product structures are designed to meet with client's specific needs and financial goals.
Equity Linked Note (ELN)
Equity-linked note (ELN) is one of the most popular structured products in the market for investors looking for yield enhancement, which can be further divided into "bullish", "bearish" and "hybrid" notes.
Category
Equity-linked
Common Assets
Performance of an individual stock, a specified lot of stocks or a stock index.
Related Products
Equity-linked instruments, equity high-yield note, equity-linked fixed coupon note, equity-linked range accrual note, cumulative option contracts.
Precautions

Investors are subject to the risks of stock price fluctuations, the effects of dividends and corporate actions. When the note expires, they may receive the underlying stock or receive the cash amount that is less than the original investment amount. It may lose some or all of the principal, resulting in loss of partial.

Equity-linked note is not listed or traded on any market managed by the Hong Kong Exchanges and Clearing Limited or any other stock exchanges. Although some issuers offer secondary market trading, investors may need to bear the loss on the spread if selling before the maturity date.

Investors would bear the credit risk of the issuer or the guarantor. If the issuer or the guarantor is bankrupted or closed down, the investment principal may be suffered, and it may lose part of or all of the principal.

Main Risks

There are many types and forms of structured products. Investors should beware of the following investment risks, including but not limited to:

Credit risk: The credit risk of the issuer or guarantor of a structured product. When the issuer or guarantor goes bankrupt or fails, even if it is a principal-protected product, the investment principal will still cause loss

Liquidity risk: Structured products generally do not provide a secondary market. Due to the lack of a secondary market, investors might able to unwind transactions at the bid price that is determined by the issuer and the transparency is low.

Interest Rate Linked Notes
Most interest rate-linked products are principal-protected structured products.

The index interest rate is based on the interest rates of domestic and foreign currencies. The product payoff mainly depends on the product structure and interest rate trends. Mostly the operating strategy of interest rate-linked product is to exchange and trade in the money market and interest rate market. Its structure is characterized by stable but not high returns and a long investment period, which is suitable for medium and long-term investors. Common related interest rates are as follows:

Interbank Offered Rate is a universal reference rate for lenders and bond issuers worldwide. It is also one of the most important and common market benchmark interest rates. Depending on the currency of the structured product, the interest rate can also be divided into those major interbank rates such as USD, Libor, EUR Libor, Hibor, or BSSW.
Constant Maturity Swap (CMS) is varied with regular interest rate swap. Common reference rates are CMS 10y, CMS 2y, CMS 30y, or the spread of interest rate swaps with different years as indicators.
Category
Interest Rate Linked
Common Assets
Interbank interest rate and constant maturity swap rates
Related Products
Interest rate-linked notes, interest rate range accrual note
Precautions
Investors need to pay attention to the structure of the product and the risk of interest rate movement.
Main Risks
There are many types and forms of structured products. Investors should beware the following investment risks, including but not limited to:
  • Credit risk: The credit risk of the issuer or guarantor of a structured product. When the issuer or guarantor goes bankrupt or fails, even if it is a principal-protected product, the investment principal will still cause losses;
  • Liquidity risk: Structured products generally do not provide a secondary market. Due to the lack of a secondary market, investors cannot sell contracts before maturity. Therefore, investors can only enter into liquidation / unwinding transactions with the issuer, the price is determined by the issuer, and the transparency is low.
Credit-linked
The structure of Credit-linked product is composed of bonds position and its related credit derivatives. Credit derivatives include credit default swaps, total return swaps, and credit spread options:

Credit-linked product = bonds + credit derivatives

Credit-linked note is a contract that transfers or avoids credit risk. The issuer pays additional premium to the investor of the note to transfer credit risk. When the credit rating of the relevant asset changes, the investor will be responsible for the losses related to the change of credit, when a credit default event occurs, investors may have to bear some or all of the principal losses.
Category
Credit-linked
Common Assets
Credit performance of a company, bond or lots of bond.
Related Products
Credit-linked note
Precautions
Investors need to pay attention to the structure of the product and the risk of changing in the credit rating of related assets and also credit default events.
Main Risks

There are many types and forms of structured products. Investors should beware of the following investment risks, including but not limited to:

  • Credit risk: The credit risk of the issuer or guarantor of a structured product. When the issuer or guarantor goes bankrupt or fails, even if it is a principal-protected product, the investment principal will still cause losses;
  • Liquidity risk: Structured products generally do not provide a secondary market. Due to the lack of a secondary market, investors cannot sell contracts before maturity. Therefore, investors can only enter into liquidation / unwinding transactions with the issuer, the price is determined by the issuer, and the transparency is low.
Commodity Link
The basic structure of the commodity-linked and equity-linked is quite similar. In addition to being subdivided into "bullish", "bearish" and "hybrid" notes, special terms can be added to increase expected returns or protection level.
Category
Commodity Link
Common Assets
Commodity spot price, commodity futures contract, commodity index & fund.
Related Products
Gold-linked notes and crude oil-linked note.
Precautions
Investors need to pay attention to if the commodity-linked note need to settle the relevant commodity at the strike price after the fixing date, and whether the settlement method can be settled in cash, or must be settled in physical method that is needed to pay for related transportation, Storage, tariffs and other expenses.
Main Risks

There are many types and forms of structured products. Investors should beware the following investment risks, including but not limited to:

  • Credit risk: The credit risk of the issuer or guarantor of a structured product. When the issuer or guarantor goes bankrupt or fails, even if it is a principal-protected product, the investment principal will still cause losses;
  • Liquidity risk: Structured products generally do not provide a secondary market. Due to the lack of a secondary market, investors cannot sell contracts before maturity. Therefore, investors can only enter into liquidation / unwinding transactions with the issuer, the price is determined by the issuer, and the transparency is low.
Cumulative Option Contract
Cumulative option contracts are "hybrid" products that can be divided into Accumulator and Decumulator, which are a combination of a series of synthetic forward contracts. For Accumulator, investors will buy the relevant stocks at a specified price (lower than the Spot price) every day according to the contract, while Decumulator will sell the relevant stock at the specified price (higher than the Spot price) every day according to the contract. Both of the above would have a KO feature that the contract will be terminated immediately once the KO event occurs.

As for the options structure, for example Accumulator, is equivalent to buying call options and selling put options at the same time and all of those options are with KO feature.
Cautions and Main risks
  • Admission fee is high. Although the minimum investment amount depends on different counterparties, the requirement would be HK $ 2,000,000 or more normally;
  • If investors would like to early terminate the contract before expiration, they might have to pay unwind cost that is much higher than expected;
  • When the price of the underlying stock rises (falls ^), the contract held by investor may trigger the "Knock-out" event. Once triggered the "Knock-out" event, the relevant contract will be terminated immediately, and investor is no longer able to continue buying (selling ^) the stock at the specified price;
  • When the price of the underlying stock falls (increases ^), the investor buys (sells ^) the stock at the specified price, and the customer is obliged, may suffer loss as a result.
  • Specific terms can also be added to the cumulative option contract: if the price of the relevant asset falls (rises ^) through the strike price, the client must accept to buy (sell ^) two or three times the number of shares at the specified price.
  • If the counterparty breaches its obligations or becomes insolvent, might not be able to buy (sell) the shares at the specified price, and therefore, investors may lose the entire investment amount.
  • ^Is a Decumulator
NEXT
Insurance
Representing 30+ insurance companies, KGI Asia delivers advisories according to clients' age, occupation, personal goals and specific needs. Visit this section to learn more.
Share your investment experience