Tech Angst Is Showing Up in Swiss Market for Obscure Bonds

(Bloomberg) -- Investor anxiety over U.S. technology giants has migrated across the Atlantic and climbed over the Alps to land in an obscure corner of the Swiss financial market.

Zurich-based Leonteq AG, one of the country’s most prolific issuers of structured products, has created a note allowing investors to bet against four of the world’s biggest tech stocks: Alphabet Inc., Amazon.com Inc., Facebook Inc. and Netflix Inc. The notes pay a coupon of as much as 17.4 percent and will return investors their principal as long as none of the linked shares rises by 50 percent or more over the next year. If any of them do, holders of the bonds could lose their entire investment.

The new product, launched last week, may prove timely. Global tech shares are coming off their worst week in nearly eight years after a series of industry setbacks, from Facebook’s data scandal to a fatal incident involving an Uber Technologies Inc. autonomous car. The Nasdaq 100 Index posted its steepest weekly decline since 2015, before reversing course on Monday to climb nearly 4 percent.

To be sure, at about $20 million the planned size of the offering of so-called inverse reverse convertibles represents a tiny fraction of the 199 billion Swiss francs ($210 billion) of structured products outstanding in Switzerland as of the end of January, according to Swiss National Bank data.

But it signals a shift in sentiment among investors who are typically on the more bullish end of the spectrum, according to Manuel Duerr, head of public distribution at Leonteq. While tech megacaps underpin hundreds of millions of dollars worth of structured products around the globe, virtually all the securities are one-way bets -- that the shares will rise, or at least trade sideways.

“Some investors aren’t extremely bullish anymore,” Duerr said. They’re “looking for hedges on one side but also structures where you can benefit from sideways or decreasing markets,” he said.

Structured product broker HPC Investment Partners has also seen bearish technology bets emerging, according to London-based managing partner Arthur Teixeira. The firm recently sold a one-year inverse reverse convertible linked to Tesla Inc. that will repay investors’ full capital with a coupon as long as the shares don’t rise beyond a certain level.

Bearishness on tech “is not a massive tendency, but it is a tendency,” he said. “These are trades we haven’t seen before.”

©2018 Bloomberg L.P.

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