ABN AMRO's Sounds a Joyous Note

Bank says its new FX-linked equity notes geared for the retail market are capturing the attention of the man on the street

ABN AMRO'S Liz Hui, vice president for private investor products says she has received "quite a lot of inquiries through the hotlines" for the bank's new investment product, which is linked to the equity and foreign exchange markets - a first of its kind in the Hong Kong retail market.

Launched on July 28, the product, which is being advertised in Chinese-language newspapers and on Hong Kong's ubiquitous buses and the MTR (which is one of the stocks in the basket), has a classic Hong Kong name: "Joyous Notes". These Hong Kong dollar denominated notes wrap two proactive investment approaches in one, by linking to the Euro /US dollar foreign exchange rate and a basket of five blue chip Hong Kong stocks.

"ABN AMRO Joyous Notes is the first ever retail note whereby investors can, within the same launch, choose from two tranches (A and B), one of which links the investment performance to the foreign exchange market," explains Hui, who personally mans the hotline. She says she's receiving dozens of calls a day, but expects the numbers to pick up as people talk to their family and friends about their latest investment plans.

Joyous Notes pay a fixed return of 8% at the end of the first six months. Depending on the performance of the basket of five leading Hong Kong stocks, investors have the potential to receive a maximum of 15% under tranche A that links to the selected basket of stocks and a maximum of 20% based on the trend for the Euro/US dollar exchange rate for tranche B, over a two-year investment horizon.

At maturity, tranche A investors will either redeem the notes in cash at 100% of the amount invested, or alternatively by physical delivery in shares of the worst performing share of the basket, if the strike price at maturity is greater than the closing price. The companies whose shares comprise the basket are HSBC, Hutchison Whampoa, Sun Hung Kai Properties, MTR Corporation and PetroChina.

"Many retail investors already have experience with foreign currencies, mostly in the form of outright buying and selling, or dual currency deposits. However, they could make substantial losses if their positions are based on the wrong views," said Hui, adding that this derivative offers diversification that typically retail investors don't have the opportunity to access.

ABN AMRO says the advantage provided by the forex element of Joyous Notes is that investors will not make principal losses from its forex structure; they either receive additional amounts of varying degrees according to how long the forex view holds, or receive no additional amounts if the imbedded forex views prove to be completely wrong.

Moreover, the additional amount based on the forex portion is structured to accrue on a daily basis depending on how long the Euro/US dollar fixing rate stays within the prescribed ranges, such that it is highly unlikely that the additional amount will be zero, explains Hui.

The notes are available for public subscription until August 25. The minimum investment is HK$10,000 ($1,282). And it has more than just a classic Hong Kong name, Joyous Notes also has a classic Hong Kong offer: if a subscription exceeds HK$100,000, then the investor also becomes eligible to receive PARKnSHOP or JUSCO Department Store coupons as a bonus.