Underlying reference. The performance of the bond depended on the underlying index of S&P Pan Asia Low Volatility EUR Index that is composed from about 50 companies, whose share prices are associated with a lower volatility risk than the average share price in the region.

Index-linked bond performance review

The bond was structured to benefit from the expected positive economic growth of China, Japan, Australia, Malaysia and four Asian tigers - Hong Kong, South Korea, Singapore and Taiwan.

At bond’s issuance date the Asian region gradually began to become the center for international trade and a global driver of growth, which promoted cooperation between the above mentioned countries.

Asian region enjoyed a period of strong economic growth during the lifetime of the bonds, which outpaced all other regions. Such economic growth improved the wealth of the population, resulting in growing consumption. At the same time synchronized economic growth worldwide contributed to a rise in global trade volumes. These developments led to higher corporate revenues and earnings, which are the main drivers of equity returns. 

As the underlying index is diversified between both developed and emerging markets, the returns did not suffer from the general negative sentiment towards emerging markets. Moreover, according to the structure of the bond, the final price of the underlying was calculated as an average of 10 closing prices recorded during the tenure of the bond with 6-month intervals. As a result, the negative effects of trade war, tariffs and stronger dollar had a very low influence on the final return.

The Low Volatility index implies that it includes only fairly mature companies with lower risk coming from the stable economic sectors. Therefore the underlying index is dominated by financial, real estate, utilities and telecommunication companies, while almost totally lacking exposure to the information technology sector. Consequently, such index allocation, which omitted growth companies, resulted in a much more moderate performance of the underlying index compared to the overall equity market of the region, which was driven by growing IT and industrial companies. Still, the final return provided by the bond was decent considering the principal guarantee and low levels of global interest rates.

Index-linked bond performance

Further investments

We recommend considering reinvestment of the nominal value and return on your investment. To get a recommendation on the possible investment options that are suitable for your investment goals, please contact your personal investment advisor. In order to get more information on all current investment solutions, please visit Luminor homepage luminor.lv.