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Jubilee links to Hang Seng China Enterprise Index

Jubilee Financial Products has introduced the early redemption plan, a capital-protected bond linked to the performance of the Hang Seng China Enterprise index for a term of five years.

The index measures the price performance of the biggest Chinese-incorporated companies by market capitalisation listed on the Hong Kong Stock Exchange.

Jubilee selected this index for several reasons. It says that the pricing for FTSE 100-linked products with an early kick-out feature is not attractive at the moment, so it wanted to explore alternative areas that could produce attractive returns for investors. It also believes that China has an important role to play in diversifying investors’ portfolios, since its growth potential is well documented. It designed this product, which offers capital protection and requires no index growth to produce a return, for investors who feel that direct exposure to the Hang Seng China Enterprises index is too risky.

Investors in this product will receive 11.25 per cent at the end of year one, plus their original capital, if the index is at or above its initial value at this point. If it is not, the product will continue until the end of year two, when 22.5 per cent growth could be paid if the index is at or above its initial value. The product will continue on this basis, with potential growth of 33.75 per cent at the third anniversary, 45 per cent at the fourth or 56.25 per cent growth at the end of the term.

The original capital will be returned in full provided the index does not fall by 50 per cent or more without recovering to at least its initial value. If this safety net is breached, investors will lose 1 per cent of their capital for every 1 per cent fall in the index.

According to the Structured Retail Products adviser website, this product is unique in its link to the Hang Seng index. It could be suitable for investors who want some exposure to the Chinese growth story with a degree of capital protection. However, some potential investors and their advisers may be wary of structured products due to the repercussions of the collapse of Lehman Brothers, which are still being felt in the industry. If investors do choose structured products to fill a need, they may prefer those linked to a more familiar index.

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