Dr Wise on Structured Notes

The SFC today publishes the July issue of Dr Wise’s Column, Should You Invest in Structured Notes?

In this issue, Dr Wise points out that structured notes are different from plain vanilla bonds. First, a structured note may not pay any interest. Second, the majority of structured notes are not principal-guaranteed.  For instance, the returns on equity-linked notes depend on the price performance of a single stock or a basket of stocks, whereas the returns on credit-linked notes are determined by the credit performance of a single company or a group of companies. At maturity, it is possible for investors to receive an amount of cash or stocks that are worth less than the principal invested.

Besides, investors should carefully assess an issuer’s background, strength and financial status, as the responsibility to pay interest or repay principal to note-holders is on the issuer, not the company to which the note is linked. Investors should also consider their short-term liquidity needs, since a secondary market does not always exist for unlisted structured notes.

Dr Wise is a fictitious character. He represents the collective wisdom and knowledge of market specialists and experts at the SFC. Dr Wise, through his column, talks to investors about the key issues of investing and regulatory thoughts.

Dr Wise’s Column is published on the last Tuesday of every month.  From time to time, additional articles may be published on topical issues.  The column is posted under the “Features & Dr Wise” section of the SFC-operated Electronic Investor Resources Centre at www.eirc.hk.  Investors are welcome to send their feedback and questions to Dr Wise by email at investor.info@sfc.hk.

Ends

Notes:

1. News media are welcome to carry the column with acknowledgement of the source of the information.