High net worth individuals exposed
Generally, only the high net worth individuals, who are serviced by private banking consultants flying in from Singapore, would have had opportunities to invest in sophisticated products which are issued by the American financial institutions to raise funds to finance their own activities.
According to industry officials, thanks to the tight restrictions by the Securities Commission (SC) and Bank Negara Malaysia (BNM), the retail investors have limited access to the sophisticated structured products.
“Due to the stringent regulation by BNM and SC, sophisticated structured products and investment tools such as derivatives or bonds that are linked to foreign companies are not made available to retail investors,” said an official who is a wealth management consultant.
“The high net worth individuals would have got expsoure to such products through their investment accounts overseas and also from their private wealth management consultants,” said the official.
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With hindsight, the country’s regulated investment environment seems to have shielded investors from the shockwave triggered by collapse of Lehman Brothers and American Insurance Group (AIG) that wiped out US$3.62 trillion (RM12.4 trillion) in market capitalisation from stock markets worldwide and about RM33 billion on Bursa Malaysia in just three days last week.
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Investors in Hong Kong have marched to government offices claiming that the authorities failed to provide proper oversight on the structured products that were sold to retailers. The investors, holding papers that are now risk becoming junk, alleged that the banks and financial advisers who sold them the structured products did not perform their duty to warn them of the high investment risks involved in those complicated products.
These products include Lehman-linked minibonds in Hong Kong -- notes secured by swap obligations guaranteed by Lehman. Another structured product is DBS Group’s High Notes 5 series, which are linked to eight securities including Lehman bonds. The products generally offered returns of between 4% and 6%.
Such structured products are sold over the counters in commercial banks in Hong Kong and Singapore, mostly in small denominations. For Malaysians, the minimum investment in these sophisticated products is RM250,000, certainly not meant for the man in the street.
Alternatively, an investor needs to show net worth of at least RM3 million to purchase the structured products in smaller denominations.
Related : The Most Important Quadrant , An accredited investor
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