Capital protection: Asian clients’ eternal theme
Principal-protected products have long been popular in Asia but appetite tends to fall away when markets are booming. Witness the huge surge in interest in capital-protected products in the Middle East: that’s largely a function of the crippling correction in Gulf stock markets last year.
"At the end of a bear market you tend to get the largest demand for principal protection, and as the bull market has progressed over the last four years complacency went off the charts," says Goetti. "People are not looking for principal protection but taking more risk. You could see an environment where volatility increases and you will see renewed demand for principal-protected products."
Fung at SG agrees. "We see demand for [capital protection] product less and less over the years," he says. "A few years ago when interest rates were very low, the opportunity cost for investing in capital guaranteed products was very low" so they were popular. At this time there were other issues like the tech bubble, Sars and 9/11 that made investors jumpy. "But as we have progressed from there, as interest rates have risen and the global markets have improved, demand for such product has dropped."