SG eyes new warrant issues to ride on growing market

THE Singapore warrants market is growing at such a fierce pace - up 11.2 per cent at $5.2 billion in the first quarter - that a major issuer is spicing up its product range.

French bank Societe Generale (SG) believes the market is poised for even greater growth and aims to be the key player by expanding its offerings.

It is eyeing new issues of South Korean and Malaysian-based warrants, and plans to have another go at offering contracts based on South Korea's Kospi index. These flopped when they were launched eight months ago.

Rival issuer Macquarie Bank views the move with caution. Its head of warrant sales here, Mr Barnaby Matthews, said the challenge of listing warrants based on foreign firms is that the average Singapore investor may lack intimate knowledge of the firms and not have access to live prices.

Neither Macquarie nor BNP Paribas has existing contracts on South Korean and Malaysian firms.

However, SG believes the Singapore market is fast maturing and it is determined to be the industry's 'first-mover', said Mr Edmond Lee, its senior vice-president for equity derivatives for Asia ex-Japan.

'Singapore is seeing stronger market participation, with a greater choice of underlying stocks/indexes and investors becoming better educated in warrants investing,' he said.

There are now 13 stock-based warrants on Hong Kong and China firms and two Malaysian-based ones on utility firm Tenaga Nasional and Malayan Banking.

Investor appetite is growing at a blistering pace. The total number of warrants traded jumped by 12 per cent to 871 in the January to March period compared with the last three months of last year, with average daily turnover hitting $85.4 million.

The last quarter saw warrants issued on eight new entities, including those on Temasek-sponsored CitySpring Infrastructure Trust, jewellery retailer Gems TV and Mapletree Logistics Trust.

Of the 352 newly listed warrants last quarter, calls outnumber puts by 271 to 81.

A warrant, which is linked to an underlying stock or index of stocks, allows the holder to buy - or sell - the underlying asset at a predetermined price.

Mr Lee expects warrant turnover in Singapore to grow by 30 per cent this year, well ahead of Hong Kong's growth of 10.6 per cent.

Warrants account for just 4.4 per cent of total trading on the Singapore Exchange, so there is significant room for growth if the local market is to catch up with Hong Kong, where warrants trading comprises 20.6 per cent of daily turnover, he said.

Warrants issued on Hong Kong's Hang Seng Index (HSI) remain the most popular among investors in Singapore, accounting for 27.9 per cent of turnover, with 68 new HSI warrants listed last quarter.

However, Mr Lee noted that the buzz over China-based warrants fizzled out in the last quarter, with the turnover of Chinese-related contracts falling from $794.8 million to $361.3 million.