Macquarie upbeat on structured warrants in Malaysia

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KUALA LUMPUR: The trading volume of structured warrants accounts for less than 1% of daily trading volume on Bursa Malaysia, but Australia-based Macquarie Group is upbeat on the prospects of the retail investment tool here and plans to list another tranche of up to 10 structured warrants on the bourse by year-end.

“We think there are a lot of opportunities in the country,” Macquarie Securities Group head of derivatives in Southeast Asia, Barnaby Matthews, told a media briefing on structured warrants yesterday.

The structured warrants, which will be issued by the group’s Malaysian division, Macquarie Capital Securities (Malaysia) Sdn Bhd, will be a mixture of structured warrants on listed firms and index warrants.

The financial services provider is also planning to list more index warrants next year, Barnaby said, after pointing out that this class of warrants is benchmarked against any country’s main indices and are now increasingly popular with volumes accounting for more than 50% of daily trading volumes of most foreign markets.

Barnaby opined that investors would typically start off with views on foreign markets. Therefore, it could be difficult for investors to go for particular stocks in a country, which are deemed riskier.

Unlike warrants issued by listed companies, Barnaby said, “you don’t have to make a second payment [for structured warrants].”

Listed entities generally issue warrants to raise more funds, using the warrants as a sweetener for its issuance of new shares. In contrast, structured warrants are issued by third-party financial entities on the shares in an unrelated company or the shares in a basket of companies or an index. The investment tool is cash-settled upon the expiry date, which is normally shorter than warrants issued by companies.

“If the structured warrant expires in the money, the investors will get an economic profit. If it expires out of the money, warrants just expire without any value,” Barnaby explained.

He noted that structured warrants, which are a high-risk and high-returns investment tool, are designed to be traded in a shorter period.

“Demands in warrants here in Malaysia tend to be [for] longer dated warrants...that’s primarily due to their lack of understanding.”

He advised that if one were to buy a nine-month structured warrant, “you should still sell it after three months because it’s not designed as a long-term investment.”

To date, the Macquarie group has listed 43 structured warrants on the local bourse, with 15 index warrants and 28 single-stock warrants on listed companies.

“We have only just begun and we need to raise the profile [of structured warrants],” said Barnaby on the performance of the group’s listed structured warrants, adding that volume is still light but that it was expected.

But he also noted that Yinson-CG, a structured warrant listed by Macquarie Malaysia on Oct 30, was among the most actively traded warrants across the local bourse on its maiden day of trading.

In tandem with the 7.6% increase in its underlying shares, Yinson-CG was the top warrant in the market last Thursday, with 8.8 million units traded. It closed 31.7% higher to 28 sen on its maiden day of trading. Yesterday, it closed at 22.5 sen, down half sen or 2.17% from the previous day’s close.


This article first appeared in The Edge Financial Daily, on November 5, 2014.