Clients who want exposure to the Asian tigers but are scared of getting bitten should consider looking at structured products that invest in the region.
The Asia excluding Japan region contains some of the world’s fastest growing and most dynamic economies, but many investors fear a mauling if we are heading into a global downturn.
However, they can tame the tigers and enjoy the twin benefits of enhanced exposure to the markets with the additional security of capital protection by choosing to access the region through a structured product.
Structured products used to be the preserve of the cautious investor but with such attractive terms currently available, they are increasingly being pounced on by more experienced investors and fund managers alike.
The high participation rates on offer are also one way for investors to make concerns about rising inflation work in their favour.
The markets are expecting central banks, not just in Asia but around the world, to raise interest rates in order to combat this. This has driven down the cost of the capital protection enabling plan managers to buy more options and so provide much higher exposure to the markets.
Some products in the market are offering investors as much of 230 per cent of the returns from baskets of Asian indices. Many of these plans have six year terms but also include early exit features, which enable investors to cash in after three years if the underlying investments have risen by a set amount.
By tracking the performance of several stock markets, these plans will have lower volatility than one that only invests in a single country. Investing in a basket of indices also enables investors to spread their risk and benefit from the diversity of the region.
The Hong Kong Hang Seng Index, for example, is dominated by the financial and commerce and industry sectors, which combined make up more than three quarters of its value. This is in stark contrast to the MSCI Taiwan Index where the information technology, materials and finance sectors account for almost 90 per cent of its value.
By investing in the Asia region, clients are also able to benefit from the phenomenal development of China, one of the most compelling economic growth stories of this century.
Many of the leading Chinese companies are listed on the more liquid Hang Seng index and investors can take comfort from knowing that to do so they have to meet rigorous international accounting standards.
Another advantage of investing in a structured product is that it can be held in either an Individual Savings Account or a Self Invested Personal Pension.
So, investors looking to add a bit of bite to their portfolio can take advantage of the region’s growth potential without having to worry about losing any of their hard-earned savings.
Marc Chamberlain is vice president of Morgan Stanley.
The views expressed in this article are those of its author and do not necessarily represent those of the company he represents, IFAonline or any other Incisive Media affiliated organisation.IFAonline
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