HK Warrants - Another Reason To Whack Small Local Brokers

The Standard: Hong Kong's warrant market in 1Q2008 saw its average daily turnover dropping by 22 percent as it could not escape the wrath of the overall bear market.

Edmond Lee Kam, director of equity derivatives at Societe Generale, expects to see a rebound in warrant trading activities this quarter, with average daily turnover hitting HK$30 billion, up from the average daily HK$26.9 billion in turnover for warrants in HK. "The overall market sentiment might turn better, mainly because after a deep correction of over 35 percent, we might see a technical rebound," Lee said. "Even though we expect the overall investment environment in the second quarter to get better, the volatility will remain high."

Lee said if the average daily turnover on the local bourse's main board manages to stay at HK$100 billion for the rest of the year, turnover of derivative warrants can reach HK$30 billion each day. Average daily turnover in the derivative market for the fourth quarter last year was HK$34.7 billion.

From January through March, total turnover in the warrant market hit HK$1.6 trillion, down 25 percent from HK$2.1 trillion in the fourth quarter of 2007, but still 140 percent higher than HK$671 billion in the first quarter last year.

Lee says warrants of mainland banks such as Industrial and Commercial Bank of China (1398) and China Construction Bank (0939), and telecom stocks including China Mobile (0941), China Telecom (0728) and China Netcom (0906), will attract buying interest this year.

Comment:

Just a few points to ponder. Its daily average volume for warrants alone is HK$26bn, which is equal to US$3.3bn, which is equal to RM10.6bn. Now that's a warrant market for you. What they have in HK is a deep warrants market where 50%-70% of actual transactions are done between the differing issuers themselves. They would buy and sell and trade in each others' papers. For each company there could be up to 5 or more papers on the same company with differing maturity dates and strike prices. This promotes transparency and liquidity, and at the same time better pricing. For the issuers the multiple warrants on the same company provides some hedging alternatives as well. Hence it is very hard for any one issuer to make supernormal profits, unlike here in Malaysia. The issuers in Malaysia will regard themselves as b.s.d. but its not their dicks which are big, it just look big because its a small pond with few players.

If properly nurtured, the warrants market can get to 20% of total turnover of an exchange easily. Well, KLSE and SC have to ALLOW for put warrants - that will spice things up. We also need to allow a few more foreign players to issue in KLSE - since the other fuckers have been so slow in coming up with warrants issuing desk. Besides CIMB, OSK, AMMB ... ARE THE REST OF THE HOUSES DEAD? Well, llet the foreign players in and let them show the small fuckers how people make money. Then they will scream and shout that foreign players are eating into their rice bowl - grow up fuckers, you are in the broking and investment banking business, you are no longer in the 70s peddling shares and margin financing then close shop and have teh tarik. If you do that, you deserve to be swallowed or die a natural or even an unnatural death - you are obsolete.