The JP Morgan Asia Confidence Notes is a structured product linked to the market indices of four Asian countries: Singapore, China, Hong Kong and Taiwan.
It offers a potential 7.2% p.a. coupon payout. The offer period is from 4 August 2008 to 29 August 2008 (noon) and the minimum subscription amount is $50,000.
Whenever you are thinking of buying any structured product, it is important to read the product prospectus to find out what are the risks involved. Click the link below for the prospectus.
JP Morgan Asia Confidence Series 3
How the notes work is that there is an initial strike and barrier level which is 100% of the inital index. The trigger level is defined as 50% of the initial index level.
A valuation date occurs every quarter. Coupons are payable every quarter.
A mandatory redemption event occurs when all four indices close above the barrier level. This can occur on one valuation date or on separate valuation dates.
For example, if Singapore and Taiwan close above their barrier levels on the first valuation date while China and Hong Kong close above their barrier levels on the second valuation date, the mandatory redemption will kick in.
If the mandatory redemption occurs, you will be paid a final coupon and your principal will be returned.
The (huge) downside of this product occurs if any of the four markets fall below their trigger levels on any of the valuation dates. If no mandatory event occurs before the maturity of the product, a formula is used to calculate how much money you will get back. Based on the formula, there is a high chance you will not get back any of your principal (Refer to scenario 4 of page 11).
Since you will be paid the coupon for the whole duration (2.5 years) of the product, what you do get back is approximately 18% of your principal in the form of 10 quarterly coupon payements.
Some other risks to the investor include:
- Credit risk of JP Morgan
- Volatility of the index
- The notes are non-liquid
- Certain unknown factors might trigger an early redemption of the notes which will be priced at “fair market” value
The JP Morgan Asia Confidence Notes is distributed by HSBC and Standard Chartered Bank.