(Business Times (Malaysia) Via Thomson Dialog NewsEdge) CALL warrants are crucial in boosting market volume and they are in great demand from retail investors, but Malaysia will need more issuers - typically investment banks with adequate capital and infrastructure - to grow this product, CIMB Group says. A market leader in the area, CIMB Group currently issues 85 per cent of call warrants in the domestic market.
"The number is way too high. We hope to see more players here," Datuk Nazir Razak, chief executive officer of CIMB Group, said yesterday in Kuala Lumpur. Unlike in Singapore and Hong Kong where there are more than 10 issuers in the market, only three players are issuing call warrants in Malaysia - CIMB, AmInvestment Group and OSK Investment Bank Bhd.Nazir said the warrant market holds great potential since the number of issues here is just a fraction of that of the more established markets such as Hong Kong and Singapore. Over the past three years, the Malaysian market has seen just under 50 new issues. Comparatively, Singapore, which launched the product in 2005, has had more than 400 issues a year, while in Hong Kong, there are over 1,000 new issues a year.
Nazir said demand for the product is big, especially from retail investors. This is because call warrants give them the exposure to underlying blue-chips at a lower cash outlay and provide leveraged exposure - with higher upside and downside than the mother shares themselves.
"Call warrants would also help address the low trading-velocity problem on Bursa Malaysia as the product has high trading volume. The hedging activities of the warrant manufacturer would create more activities in the underlying shares too," he added. Still, Nazir said the high level of infrastructure, risk management and capital required of a market maker mean that only banks with such capabilities can afford to issue call warrants.
"We are committed to market-making ... CIMB is there to buy back and sell and that's important. If investors want to sell, there'll need to be a buyer ... the liquidity is crucial to provide confidence to investors," he explained."It's a game for the banks and not the small, niche brokers," he added.
The banking group yesterday launched a public website called CIMB Warrants Portal, providing investors with education and information that they will need in trading call warrants. Bursa Malaysia Bhd chief executive officer Datuk Yusli Mohamed Yusoff, who launched the portal, said many investors have been attracted to warrants lately due to their relatively cheaper entry points compared to blue chip stocks.
"There is a lot more to warrants than just their pricing, and all these factors are vital for investors to know," he said. Yusli said more call warrants should be issued to increase market volume, adding that the current value is about RM85 million.
Call warrants in Malaysia now account for over 5 per cent of the total market volume compared with less than 1 per cent before 2005, when the Securities Commission revised guidelines to allow faster and simpler issuance of call warrants.
source : http://www.tmcnet.com/usubmit/2007/02/05/2311703.htm
Monday, February 19, 2007
ROOM FOR GROWTH IN WARRANTS MARKET
source : http://thestar.com.my/news/story.asp?file=/2007/2/1/business/16744084&sec=business
Warrants have yet to stamp a mark here even though markets like Singapore and Hong Kong saw increased derivatives trading in 2006, thanks to Asia’s bull run. Today’s first of a six-part fortnightly series explores this instrument.
Structured warrant markets in Asia underwent big changes in 2006, partly due to the buoyant regional market and the growing familiarity with the instrument.
With bullish sentiment, warrant trading now accounts for nearly 30% of Hong Kong’s total turnover compared with 7%-9% a few years ago. In Singapore, it contributes to 5%-10% of total daily turnover.
Such appetite for volatility is evident in Malaysia, despite slowed momentum since the new Securities Commission (SC) guidelines in May 2003. Bursa Malaysia shifted gears in the second half of 2006 with CIMB accelerating its warrants issuance programme, followed by AMMB and OSK Securities.
Still, the warrants market here is small and inactive - from 12 call warrants at the end of 2005 to 35 currently.
For 2007, expect to see further relaxation of listing requirements. The current placement methodology (new issues need to be placed to 100 holders, or 50 holders each subscribing to a minimum value of RM100,000) is a barrier to expanding the warrant market. .
Hong Kong and Singapore abandoned such regulations in 2001 and 2004 respectively, replacing them with the “warrant supermarket” approach where issuers list warrants and “shelve” them for public consumption.
Risk management takes effect when the warrants are consumed in the secondary market, causing an influx of warrant launches. Listing fees were lowered as an effect (not a cause) of the huge issuance supply.
Such supply-driven effects fuel structured warrant popularity. Currently, there are 20 issuers in Hong Kong and 13 for Singapore though only a few dominate the market.
They compete to issue or roll over new warrants with relevant strike levels as the market trended upwards throughout 2006.
There are 550 Singapore Exchange (SGX)-listed structured warrants, compared with Bursa's 35 (in 2003, both SGX and SC revised guidelines). Another implication is that the greater range of issuers and warrant issues will translate to depth and market making efficiency with warrants.
Prior to the current system, daily prices of structured warrants were based on supply and demand without liquidity guarantee. Nonetheless, the existing system is not foolproof. Examples include quotations of two call warrants - Resorts-CA and Genting-CA, which traded in opposite directions to their underlying stocks.
The challenge for Bursa is to induce inter-warrant competition from foreign issuers running on a global platform to improve overall market making efficiency.
Risks will increase as more issuers compete for a selective group of stocks. Any inconsistent pricing from volatility manipulation or failure to maintain tight bid-offer spreads will be quickly acknowledged by demand.
While the appetite for volatility can become more manageable on the delta- and gamma-hedging fronts, increasingly competitive supply will evolve and issuers will adopt less defensive techniques.
Bursa, the issuers and the distributing brokers are anxious to keep the warrant market moving. Thus they need investors to understand structured warrants. In Hong Kong and Singapore, warrant issuers actively provide data on warrants indicators and conduct product seminars on warrant trading.
The structured warrant market in Malaysia needs to grow. The typical buy-and-hold warrant trading strategy will only succeed with efficient market makers from a range of issuers. High delta in-the-money warrants will be replaced and rolled over fast with relevant strike levels, and issuers need not resort to defensive market making tactics (e.g. widening the spreads) and rapid implied volatility adjustments.
Otherwise, investors and traders will adopt shorter holding periods for structured warrants upon closer scrutiny of the various market-making mechanisms employed by the issuers. In markets like Singapore and Hong Kong, about 90%-95% of total turnover on structured warrants were day-trades, a result of three to four years of product adoption.
The Malaysian warrant market cannot at such an early stage implement this, where participation from day-traders prevails over actual retail clients.
Warrants have yet to stamp a mark here even though markets like Singapore and Hong Kong saw increased derivatives trading in 2006, thanks to Asia’s bull run. Today’s first of a six-part fortnightly series explores this instrument.
Structured warrant markets in Asia underwent big changes in 2006, partly due to the buoyant regional market and the growing familiarity with the instrument.
With bullish sentiment, warrant trading now accounts for nearly 30% of Hong Kong’s total turnover compared with 7%-9% a few years ago. In Singapore, it contributes to 5%-10% of total daily turnover.
Such appetite for volatility is evident in Malaysia, despite slowed momentum since the new Securities Commission (SC) guidelines in May 2003. Bursa Malaysia shifted gears in the second half of 2006 with CIMB accelerating its warrants issuance programme, followed by AMMB and OSK Securities.
Still, the warrants market here is small and inactive - from 12 call warrants at the end of 2005 to 35 currently.
For 2007, expect to see further relaxation of listing requirements. The current placement methodology (new issues need to be placed to 100 holders, or 50 holders each subscribing to a minimum value of RM100,000) is a barrier to expanding the warrant market. .
Hong Kong and Singapore abandoned such regulations in 2001 and 2004 respectively, replacing them with the “warrant supermarket” approach where issuers list warrants and “shelve” them for public consumption.
Risk management takes effect when the warrants are consumed in the secondary market, causing an influx of warrant launches. Listing fees were lowered as an effect (not a cause) of the huge issuance supply.
Such supply-driven effects fuel structured warrant popularity. Currently, there are 20 issuers in Hong Kong and 13 for Singapore though only a few dominate the market.
They compete to issue or roll over new warrants with relevant strike levels as the market trended upwards throughout 2006.
There are 550 Singapore Exchange (SGX)-listed structured warrants, compared with Bursa's 35 (in 2003, both SGX and SC revised guidelines). Another implication is that the greater range of issuers and warrant issues will translate to depth and market making efficiency with warrants.
Prior to the current system, daily prices of structured warrants were based on supply and demand without liquidity guarantee. Nonetheless, the existing system is not foolproof. Examples include quotations of two call warrants - Resorts-CA and Genting-CA, which traded in opposite directions to their underlying stocks.
The challenge for Bursa is to induce inter-warrant competition from foreign issuers running on a global platform to improve overall market making efficiency.
Risks will increase as more issuers compete for a selective group of stocks. Any inconsistent pricing from volatility manipulation or failure to maintain tight bid-offer spreads will be quickly acknowledged by demand.
While the appetite for volatility can become more manageable on the delta- and gamma-hedging fronts, increasingly competitive supply will evolve and issuers will adopt less defensive techniques.
Bursa, the issuers and the distributing brokers are anxious to keep the warrant market moving. Thus they need investors to understand structured warrants. In Hong Kong and Singapore, warrant issuers actively provide data on warrants indicators and conduct product seminars on warrant trading.
The structured warrant market in Malaysia needs to grow. The typical buy-and-hold warrant trading strategy will only succeed with efficient market makers from a range of issuers. High delta in-the-money warrants will be replaced and rolled over fast with relevant strike levels, and issuers need not resort to defensive market making tactics (e.g. widening the spreads) and rapid implied volatility adjustments.
Otherwise, investors and traders will adopt shorter holding periods for structured warrants upon closer scrutiny of the various market-making mechanisms employed by the issuers. In markets like Singapore and Hong Kong, about 90%-95% of total turnover on structured warrants were day-trades, a result of three to four years of product adoption.
The Malaysian warrant market cannot at such an early stage implement this, where participation from day-traders prevails over actual retail clients.
Wednesday, February 07, 2007
CI TO REACH 1,332.04 to 1,440.00
news from theedgedaily.com
By Kevin Tan & Isabelle Francis
http://www.theedgedaily.com/cms/content.jsp?id=com.tms.cms.article.Article_975b9750-cb73c03a-126c6ea0-997a4ce0
Bursa Malaysia is expected to surpass the Kuala Lumpur Composite Index’s (KLCI) all-time high of 1,332.04 in Januray 1994 based on the current rally, underpinned by the increased liberalisation of economy, accommodative fiscal and monetary policies and improving corporate returns on equity (ROE), analysts said.
CIMB Research forecast the KLCI could reach 1,440, outperforming the region for the first time in four years due to a confluence of positive macro factors.
This would be above the KLCI’s all-time high of 1,332.04 during the super bull run on Jan 5, 1994.
On Feb 6, the KLCI surged to its 10-year high of 1,236.63, up 10.9 points while the FBM Emas added 54.31 points to 8,155.14. Turnover surged to 2.09 billion units valued at RM3.41 billion with 451 gainers against 470 losers.
Index-linked counters were the major gainers. Among them were British American Tobacco (Malaysia) Bhd and IOI Corporation Bhd, which rose 50 sen each to RM45 and RM20, respectively.
Resorts World Bhd was 40 sen up to RM16.50, MISC Bhd-foreign 40 sen to RM9.80, and Bumiputra-Commerce Holdings Bhd-CA and SP Setia Bhd 35 sen each to RM5.45 and RM6.60, respectively.
Volume leader Affin-WC with 78 million units done surged 14 sen to 50.5 sen.
CIMB said foreign investors were giving the stock market a significant boost and the local institutional and retail investors should provide the follow-through.
Roadshows by major corporations recently had also been successful in bringing foreign funds into the market. CIMB had taken Khazanah Nasional Bhd and seven companies — AirAsia Bhd, Bumiputra Commerce Holdings Bhd (BCHB), Bursa Malaysia Bhd, Genting Bhd, Malaysian Resources Corporation Bhd, UEM World Bhd and YTL Corporation Bhd – for a one-day conference in London on Feb 2.
It said the response was very good, with nearly 40 representatives from 30 fund management companies attending the one-on-one and small group sessions.
UBS Investment Research Malaysia forecast the KLCI to reach 1,348 by year-end, underpinned by news flow of further mergers and acquisitions, either from new deals or completion of existing deals.
“A better political climate combined with commitment to maximise capital management should bode well for market sentiment,” said its head of research Colbert Nocom (pic).
He said the market was expected to benefit from development spending which is set to rise 24% to RM44.5 billion in 2007 with the onward implementation of the Ninth Malaysia Plan.
However, he said there could be a possible correction for the KLCI given its 32% run-up over the past six months.
“But we think this correction could be short-lived backed by clear signs of increased liberalisation of economy, accommodative fiscal and monetary policies supporting Gross Domestic Product (GDP) growth of 5.5% in 2007 even amid a soft landing for the US economy, and improving corporate ROE,” he said.
Nocom said in terms of ROEs, he expected them to rise to 14.2% this year from 13.4% last year. Earnings per share (EPS) growth was expected to be around 17% in 2007, he said.
UBS Malaysia’s strategy for the first quarter of 2007 was an overweight on the banking and property sectors, which would become proxies to fiscal pump- priming policies. It was overweight on plantations as crude palm oil price was expected to hit record levels.
On foreign investors’ interest in Malaysia, he said it should be sustainable as long as the country’s politics remained stable and corporate earnings are high. Among UBS Malaysia’s favourite stock picks for the year are Malayan Banking Bhd, BCHB, AMMB Bhd, Genting Bhd, KL Kepong Bhd, SP Setia Bhd and IGB Bhd. UBS Malaysia monitors a pool of 44 stocks listed on Bursa Malaysia, most of them with market capitalisation of over RM1 billion.
The laggards included IOI Corporation Bhd, Astro All Asia Networks Bhd and Uchi Technologies Bhd.
By Kevin Tan & Isabelle Francis
http://www.theedgedaily.com/cms/content.jsp?id=com.tms.cms.article.Article_975b9750-cb73c03a-126c6ea0-997a4ce0
Bursa Malaysia is expected to surpass the Kuala Lumpur Composite Index’s (KLCI) all-time high of 1,332.04 in Januray 1994 based on the current rally, underpinned by the increased liberalisation of economy, accommodative fiscal and monetary policies and improving corporate returns on equity (ROE), analysts said.
CIMB Research forecast the KLCI could reach 1,440, outperforming the region for the first time in four years due to a confluence of positive macro factors.
This would be above the KLCI’s all-time high of 1,332.04 during the super bull run on Jan 5, 1994.
On Feb 6, the KLCI surged to its 10-year high of 1,236.63, up 10.9 points while the FBM Emas added 54.31 points to 8,155.14. Turnover surged to 2.09 billion units valued at RM3.41 billion with 451 gainers against 470 losers.
Index-linked counters were the major gainers. Among them were British American Tobacco (Malaysia) Bhd and IOI Corporation Bhd, which rose 50 sen each to RM45 and RM20, respectively.
Resorts World Bhd was 40 sen up to RM16.50, MISC Bhd-foreign 40 sen to RM9.80, and Bumiputra-Commerce Holdings Bhd-CA and SP Setia Bhd 35 sen each to RM5.45 and RM6.60, respectively.
Volume leader Affin-WC with 78 million units done surged 14 sen to 50.5 sen.
CIMB said foreign investors were giving the stock market a significant boost and the local institutional and retail investors should provide the follow-through.
Roadshows by major corporations recently had also been successful in bringing foreign funds into the market. CIMB had taken Khazanah Nasional Bhd and seven companies — AirAsia Bhd, Bumiputra Commerce Holdings Bhd (BCHB), Bursa Malaysia Bhd, Genting Bhd, Malaysian Resources Corporation Bhd, UEM World Bhd and YTL Corporation Bhd – for a one-day conference in London on Feb 2.
It said the response was very good, with nearly 40 representatives from 30 fund management companies attending the one-on-one and small group sessions.
UBS Investment Research Malaysia forecast the KLCI to reach 1,348 by year-end, underpinned by news flow of further mergers and acquisitions, either from new deals or completion of existing deals.
“A better political climate combined with commitment to maximise capital management should bode well for market sentiment,” said its head of research Colbert Nocom (pic).
He said the market was expected to benefit from development spending which is set to rise 24% to RM44.5 billion in 2007 with the onward implementation of the Ninth Malaysia Plan.
However, he said there could be a possible correction for the KLCI given its 32% run-up over the past six months.
“But we think this correction could be short-lived backed by clear signs of increased liberalisation of economy, accommodative fiscal and monetary policies supporting Gross Domestic Product (GDP) growth of 5.5% in 2007 even amid a soft landing for the US economy, and improving corporate ROE,” he said.
Nocom said in terms of ROEs, he expected them to rise to 14.2% this year from 13.4% last year. Earnings per share (EPS) growth was expected to be around 17% in 2007, he said.
UBS Malaysia’s strategy for the first quarter of 2007 was an overweight on the banking and property sectors, which would become proxies to fiscal pump- priming policies. It was overweight on plantations as crude palm oil price was expected to hit record levels.
On foreign investors’ interest in Malaysia, he said it should be sustainable as long as the country’s politics remained stable and corporate earnings are high. Among UBS Malaysia’s favourite stock picks for the year are Malayan Banking Bhd, BCHB, AMMB Bhd, Genting Bhd, KL Kepong Bhd, SP Setia Bhd and IGB Bhd. UBS Malaysia monitors a pool of 44 stocks listed on Bursa Malaysia, most of them with market capitalisation of over RM1 billion.
The laggards included IOI Corporation Bhd, Astro All Asia Networks Bhd and Uchi Technologies Bhd.
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