The Swiss equity market welcomed the new year 2023 in a much more positive frame of mind than it ended the previous one. The leading SMI index appreciated tangibly in the first two days of trading, hurdling the psychologically important 11,000 barrier again for the first time in three weeks. The start-of-year rally was driven by hopes that inflation would weaken and enable central banks to engage a lower gear. It could be a little too early for a general all-clear, however. Latvia’s central bank boss Martins Kazaks, for instance, reckons monetary policy will initially be even more restrictive. “Currently I would see that at the February and March meetings we will have significant rate increases,” the ECB Governing Council member said to news agency Bloomberg at the start of the year.
The uncertainties regarding interest rates, inflation, economic growth and geopolitical developments will likely dominate the new stock market year as well. Although the majority of experts are hopeful that equity markets will see a return to better times in 2023, it can't do any harm to take out some partial protection. The most popular yield optimisation products in Switzerland are barrier reverse convertibles, which are instruments that enable returns to be made on shares that are treading water. Should the markets actually head upwards in the coming months, though, this structure does not allow any participation. A remedy is provided by bonus certificates which on the one hand protect owners from losses thanks to a risk buffer, and on the other enable them to profit on a 1:1 basis from price increases above the bonus level.
Leonteq has combined the best of both structures to design a bonus certificate with a secure coupon payment. That means investors receive a guaranteed coupon however the share prices of the underlyings perform. This comes to 4% p.a. and is distributed on a pro rata basis every three months within the 2.5-year term. The certificate participates fully when prices of the equally weighted basket of shares, which consists of Nestlé, Novartis and Roche, rise above the bonus level of 100%. There is no cap in the structure, so the upside potential is unlimited. The product is thus perfectly in keeping with the times: if the situation on the markets remains tight, the coupon payments ensure regular interest at a rate above market level. If the shares pick up again, investors enjoy the full upside benefits.
The barrier, which is fixed at 69% of the starting values, protects investors from temporary setbacks. Should the hopes of higher shares prices be dashed, the guaranteed coupon means that the bonus certificate still comes out better than a direct investment in the trio. What is more, even if a stock falls below its barrier, this does not automatically mean a loss – in that case the classic “worst of” principle applies, and the repayment is governed by the performance of the underlying with the weakest showing. if this makes it back to at least its starting level by the end of the term, the investment can deliver a profit despite having breached the barrier. Take care, however: should the barrier be reached, investors will receive the weakest stock of the three, even if it is trading above the initial fixing at the end of the term.
We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.