During the course of yesterday, every single significant stock market saw loses, with over £64bn wiped off the value of the UK’s blue chip index, the FTSE 100, alone. This decimation was seen around the world, with the Dow Jones and S&P 500 in the US falling 3.51% and 3.19% respectively, Hong Kong’s Hang Seng index shedding 4.85%, the German Dax falling 4.96% and France’s CAC 40 decreasing 5.25%, among many others.
In light of this, the SFC is stepping up its warnings to investors, highlighting the need for them to understand the products in which they are investing and to “pay careful attention to the financial strength and credit worthiness” of companies issuing products.
The SFC said investors which have invested in structured products, particularly uncollateralised products – i.e. without asset backing – to be prudent. If the provider of an uncollateralised structured product were to become insolvent and defaults on its listed securities, investors will be considered as unsecured creditors and will have no preferential claims to any assets held by the issuer.
In a statement the SFC said: “Investors should ensure that they understand the nature of structured products and study the risk factors set out in the listing documents and, where necessary, seek professional advice before making investments in structured products.”
Earlier this week the SFC issued a similar warning, with SFC chairman Eddy Fong saying: “With sovereign debt problems, weakening economic prospects and other uncertainties in Western economies, international financial institutions could be particularly vulnerable.”
“Investors must monitor the market situation and understand what implications it has on their investments, such as whether the credit rating of any product they’ve invested in is declining.”
