Rising interest rates may have dampened investors' appetite for retail structured notes, causing the market to shrink, according to Securities & Futures Commission research.

In the 12 months ending June, 147 retail structured notes valued at $9.755 billion were issued, representing a 53% year-on-year rise in number, but a 52% drop in value.

As the retail structured notes' attractiveness is likely to fade with rising rates, the decreased issue value might be attributable to the rates up-cycle that started in March last year.

The research noted that the rebounding volatilities of the Hang Seng Index and major constituent stocks since mid-2005 might have been caused by the rising interest-rate environment, which reduced the relative attractiveness of equity-linked notes.