loader image
[elementor-template id="8262"]
WSDWSDWSD

Canada Q1 2023 Market Review

Despite potential improvements for the later part of the year, the structured products market in Canada is facing challenges in line with the broader economy. During the first quarter of 2023, the Canadian structured products market experienced a decline in bank-issued products, amounting to CAD $9.8 billion. This marks an estimated 3.6% decrease compared to the same period in 2022.

The market has been influenced by the increasing interest rates, which have had a substantial impact on the economy. However, this situation has also presented opportunities for structured products to offer attractive investment options. Notably, there has been a growing demand for capital-protected products, which accounted for 55.5% of the market share in Q1 2023, compared to 45.5% in Q1 2022. This suggests that investors are increasingly seeking products that prioritize capital preservation, likely due to concerns over the deteriorating global outlook.

Despite this trend, the first quarter of 2023 witnessed a significant decline compared to the outstanding performance seen in Q1 2022. It’s also important to note that 2022 saw a slight rise in overall volume sold, reaching CAD $41.8 billion for the year.

By acknowledging the challenges facing the structured products market and highlighting the potential impact of interest rates and investor preferences for capital preservation, we expect a challenging year that will depend on the performance of the equity and specific underlyings that live structured products are currently dependent.

Underlyings and product types

In terms of underlying assets, approximately 42.2% of structured products traded in Q1 2023 had an equity index underlying, while 19.2% had an equity share underlying. This suggests that equity-based investments remain popular choices for investors in structured products.

Within the underlying asset categories, the broad market exposure experienced steady growth of 9% since last year, capturing a 13% market share. The energy sector witnessed significant growth of 131%, holding a 5% market share.

The Solactive Canada Bank 40 AR Index emerged as the most popular underlying asset for 2023, with a notable market share of 24.5%. Following closely, the S&P 500 Index ranked as the second most popular underlying asset, with around 7.8% of all products exposed to it.

Regarding payoff types, capped protected participation deals regained their status as the most popular, accounting for 34% of the market share. Barrier phoenix deals followed closely behind, holding a 24% market share.

Capital-protected products experienced an 11% increase in demand in Q1 2022, in contrast to a decline in demand for income and growth products. Autocallable products decreased by 14% from Q1 2022 to Q1 2023, while non-autocallable products demonstrated a modest growth rate of 2%.

Single underlying deals maintained their dominance in the market, with a market share of 64% in Q1 2023, compared to 30% in 2022. Basket deals ranked second in popularity, capturing a market share of 36%. Conversely, the demand for worst of deals appeared to decline since 2022.

Knock-in barriers continued to be the preferred form of downside protection in Q1 2023, representing 48% of the market share.

In terms of returns, the average annualized estimated returns for structured products displayed an upward trend in 2023. All products achieved an average return of 5%, called products offered 12% returns, while matured products yielded an average of only 4%.

Examining investment trends, the average coupon barrier for structured products has been consistently increasing, reaching an average of 69.8% over the last four quarters. On the other hand, the average knock-in barrier level stands at 69.1%, and the average coupon rate paid out is 9.36%. These figures indicate the prevailing market conditions for structured products.

In light of these market trends, it is essential for market participants to closely monitor and adapt to the evolving landscape. The decline in bank-issued structured products during Q1 2023 suggests a need for financial institutions to reassess their product offerings and adapt to changing investor preferences. Emphasizing capital preservation and providing attractive investment options will likely be key factors for success in the structured products market moving forward. Additionally, market participants should closely track interest rate movements and regulatory developments, as they continue to have a substantial impact on the market dynamics and investor sentiment.

Looking ahead, the structured products market in Canada is expected to face ongoing challenges and opportunities. Economic conditions, including inflation rates and interest rate fluctuations, will continue to influence investor behavior and shape the demand for structured products. It will be crucial for market participants to enhance their risk management strategies, diversify underlying assets, and develop innovative product structures to meet the evolving needs of investors. The second key point will be the underlyings performance. With a considerable increase of total volume invested in structured products in Canada, the higher is the successful early redemption of autocall products, it can potentially increase new volume sold by end of year. By staying attuned to market trends, and investor sentiment, industry players can position themselves for success in this dynamic and ever-changing landscape.

Related articles

SPi USA Awards 2024: Shortlist Announced!

We are thrilled to announce the 2024 shortlist for the SPi USA Awards. Congratulations to all the nominees.

Announcing the 2024 Hall of Fame Winner: Tom Layton

We are thrilled to announce that Tom Layton, Senior Vice President of Product Management within Raymond James Global Wealth Solutions, has been named the 2024 Hall of Fame winner.

Unlocking Market Insights with Structured Products Intelligence (SPi)

In the complex world of structured products, obtaining reliable and comprehensive information can be challenging. SPi is designed to address this challenge, offering a global database and market intelligence tool.
Sprechen Sie mit einem unserer Experten, um zu erfahren, wie wir Ihr Unternehmen auf die nächste Ebene bringen können.

Abonnieren Sie unseren Newsletter.






    Durch Anklicken von "Abonnieren" erklären Sie sich damit einverstanden, Newsletter, exklusive Einladungen zu personalisierten Veranstaltungen und sorgfältig ausgewählte Angebote von WSD per E-Mail zu erhalten. Sie können sich jederzeit abmelden.

    info@wsd.com +44 (0) 203 865 1787 Level 3, 40 Bank Street, London, E14 5NR, United Kingdom

    At vero eos et accusamus et iusto odio digni goikussimos ducimus qui to bonfo blanditiis praese. Ntium voluum deleniti atque.

    Melbourne, Australia
    (Sat - Thursday)
    (10am - 05 pm)