The so-called Zero Certs were listed on the Singapore stock exchange on Friday with all the gong-bashing of a full-blown IPO, although the marketing and education campaign has yet to get underway û presentations start this week in Singapore.
"SGX is very keen to promote innovative new product ideas so they're a good partner to work with," says Miles Ashton, Asia head of sales and public distribution of private investor products at ABN AMRO in Hong Kong. "We see Singapore as a hub for the wealth management industry, not just in Asia but globally."
Investors can buy certificates that give access to stocks in Indonesia, Malaysia, the Middle East, Philippines, Pakistan, Thailand and Turkey, plus the Bric block of Brazil, Russia, India and China. The two thematic certificates track a basket of companies in the luxury goods sector and the climate change and environment sector.
Each of the certificates is linked to an ABN AMRO index that typically comprises the biggest and most liquid stocks in the underlying investment category. For example, the Middle East certificates track the 30 largest companies listed on exchanges in the UAE, Bahrain, Jordan, Egypt, Kuwait, Lebanon, Oman and Qatar, subject to a $400 million minimum market capitalisation and $1 million daily liquidity.
The product's selling point is the easy access it gives to markets such as Pakistan and Indonesia that would otherwise be difficult for most investors to buy into. The Zero Certs provide access to these attractive but difficult markets through call warrants with a strike price of zero. Unlike regular warrants, which are usually used to get leveraged exposure to stocks, zero strikes provide unleveraged, direct exposure to price movements in the underlying. They are cash-settled, so no transaction in the underlying shares takes place.
Investors can buy the certificates for a minimum stake of S$1,000 ($650) and can trade them easily on the stock exchange.
As the market maker, ABN AMRO earns its fee through the bid/offer spread and from the dividend payouts, which are not passed on directly to investors, though some of the more recent certificates on sale in Europe have employed structures that do capture dividends. Ashton foresees that future generations of the certificates will introduce new themes and product innovation.
"This is definitely just the first phase of this product," says Ashton. "What we want is to create a supermarket for investors."