ABN AMRO is back with another retail derivatives investment for Hong Kongers with a view on select blue chip and H-share stocks. On Wednesday the bank launched its latest "Double-Up Callable" notes to Hong Kong's retail investors. As a sequel to last month's "Double-Up Protect" notes, these give investors the potential to double their return in a shorter time period.
Investors can choose from two tranches. Tranche A is linked to two blue chip stocks - HSBC and Hongkong Electric; whilst Tranche B is linked to two H-share stocks - PetroChina and Bank of Communications.
It offers a maximum potential return of 25.6% per annum for the A notes and 48% per annum for the B notes - however this return is an annualised figure, based on the best case scenario when the call event is triggered three months after the issue date.
Although the notes have a two-year tenor, investors can redeem the notes as early as three months after the issue date if the callable mechanism is triggered. That happens when the closing price of the worst performing share is equal to or greater than 103.2% of its initial reference price for A Notes and equal to or greater than 106% for B Notes. With a "double-up" element, investors would therefore enjoy a return of 6.4% for A Notes and 12% for B Notes.
"Double-Up Callable Notes are alternative equity investments that allow investors, who see the market upside in the short term, to further magnify returns under a lower risk exposure," says Polly Wong, director of private investor products at ABN AMRO.
If there is no mandatory early redemption until the maturity date, investors can obtain 100% of the note denomination plus a return (if any), up to 6.4% for A Notes and 12% for B Notes, when the final reference price of the worst performing share in the relevant basket is equal to or greater than its strike price. However, investors may receive physical delivery of the worst performing share in the relevant basket at maturity if the final reference price of the worst performing share in the basket is lower than its strike price.
"The strike price of the Notes is set at a discount of 7% and 12% to its initial reference price for A Notes and B Notes respectively," explains Wong. "Even if investors receive the stocks because of poor market performance, the discount still provides some buffer for the investors and reduces their risk exposure."
The minimum subscription amount of the Notes is HK$10,000 with no initial charge or management fee. The maximum investment term is two years. The notes are open for public subscription from Wednesday (October 19) and November 4.