Invt seek equity exposure, capital protection: Barclays

Dixit Joshi, MD and Head-Equity Linked Products, Barclays Capital said there are a few demographic changes seen in Asia and other mainstream economies. He told CNBC-TV18 that there is a younger workforce in Asia looking for longer-term products with more growth. He added that in mainstream economies, there are a larger percentage of retirees looking for products with more annuity.

He further said there is growth in alternative investment and a rise in the amount of assets under management in that space. Hence, diversification will play an important part in investors’ portfolios.

According to him, there is a subset of investors who are going to want equity upside exposure but protect their principle at the same time. He observed that both these elements are fairly healthy to the growth of the market.

Excerpts from CNBC-TV18’s exclusive interview with Dixit Joshi:

Q: How do you see investor appetite for these structured products currently? Are our derivative markets mature enough, in terms of volumes and the number of products and options to facilitate such structured products?

A: We are seeing a few key global trends. One of them is around demographic changes that we are witnessing in Asia and some of the mainstream economies.

As a consequence, we are seeing a younger workforce in Asia that is faster growing and looking for products that are perhaps longer-term with much more growth element.

At the same time, in some of the mainstream economies that we operate in, we are seeing a proportionately larger percentage of retirees looking for products that are more annuity like.

These demographic changes are influencing the nature of products and the demand for products out in Asia and especially in India.

I would also like to highlight the growth in alternative investment. We are seeing a tremendous rise in the amount of assets under management in that space and we estimate that numbers are in the region of USD 2 trillion or more.

As a consequence, as that grows, we are expecting diversification to play an important part in those investors portfolios. Asia has a key role to play as it has been underinvested for some time.

The third key element that we look at when we observe the growth of structured products and likely demand coming up is the size of the financial wallet.

A crude proxy for this could be the size of financial stock in the system in the US, Europe and in Asia. As a guide in the United States, this would probably be in the region of 400% of GDP - that is financials stock as a percentage of GDP. In Europe, this is likely to be between 300-400% and in India the number is in the region of 200%. So, there is a tremendous scope to grow.

The US and European set of financial stocks is probably going at the rate of about 10% per annum whereas the growth rate that was seen in India is probably in the region of in excess of 20% per annum. So, this is a fairly young market. This is a very exciting and very dynamic market. We see tremendous prospects out here.      

Q: Would you say that this groundswell of savings and investment growth in the Asian region and in India as well would lend some support to these markets, even though you see a lot of foreign investors quitting the market at the moment?

A: We are seeing feedback from clients of ours on the ground and these are the largest distributors of structured products, the largest asset managers on the ground, private banks and security’s houses in India. They have seen a tremendous amount of demand right now for principal-protected products and related products, which most of them have never seen in the past few years.

We are entirely expecting that two factors would contribute to this demand: the fact that we are on a low base in the entire range of products that we offer and an industry that is going to have a big part to play in the growth of this market. So, we are expanding the size of the pie.

At the same time, you are going to find a subset of investors who are going to want equity upside exposure but protect their principle at the same time. Both of these elements are fairly healthy to the growth of the market.