SGX adds 10 more leveraged exposure products

Singapore

COME November 7, investors in Singapore with a taste for volatile trading will have more daily leverage certificates (DLCs) to choose from.

The latest batch of DLCs, which are short-term trading instruments that amplify gains or losses, comes with a fixed leverage of five times on both long or short positions, and offers exposure to 10 single stocks - six Singapore blue chips including the three banking bigwigs and four Hong Kong-listed big caps.

With the 10 new DLCs, Singapore Exchange - the only Asian bourse to offer trading of DLCs - will have a total of 38 DLCs (19 each for long and short). All of them are issued by Societe Generale and traded on the SGX since the structured product was launched a year and a half ago.

The underlying stocks for the new DLCs consist of Straits Times Index constituents DBS, OCBC, UOB, Keppel Corp, Venture Corp, Singtel and well-known Hang Seng Index component stocks Tencent Holdings, Ping An Insurance Group, PetroChina Company and CNOOC (China National Offshore Oil Corporation).

The stocks were selected based on investor demand as well as their liquidity, trading volume and market capitalisation

A DLC is an investment product that has been popular in Europe since it was introduced there six years ago. It is largely a short-term instrument that gives investors a chance to make amplified returns of three, five or seven times based on the daily showing of the underlying component, be it market indices or single stocks.

The long or short positions allow investors to bet on both a bullish and bearish market. They are not for the faint hearted though - the leverage exposure means losses just like gains would be amplified.

But one major attraction of DLCs could be access to giant China corporations with a Hong Kong listing. At a briefing on Thursday, Keith Chan, head of cross asset listed distribution at Société Générale's global markets in Asia Pacific, said: "Investors will be able to trade DLCs with leverage on Hong Kong stocks via SGX stock accounts without the need to exchange currency and open new accounts." Eventually, the SGX plans to introduce more stocks and "big names in the region" to add to its DLC suite, said SGX head of research and products Chan Kum Kong, who was also present at the session.

One possible sweetener of the single stock DLCs may be its lower entry barrier to big-cap stocks as the DLC launch prices are lower than the underlying stocks. "So, you get more exposure with less capital," explained Mr Keith Chan.

The SGX launched the first of the DLCs back in July 2017 on three developed market indices namely MSCI Singapore, Hang Seng Index (HSI) and Hang Seng China Enterprises Index which now have leverage levels of three, five and seven times. The turnover of DLCs traded on SGX since the launch has exceeded S$3.5 billion and the number of active trading accounts have grown over 20 per cent for every quarter since 2017's fourth quarter except for this year's first quarter when it jumped 61 per cent during more buoyant times.

The most popular DLCs of the three are the MSCI Singapore and HSI with seven times leverage which generated about 80 per cent of total turnover in that space year to date.

Phillip Securities' trader and remisier Robin Ho, quite clearly a big proponent of DLCs, said the exchange traded product may be useful for investors to hedge their risks instead of heading for the door amid the current bleak environment as it helps them "pace" their risk tolerance levels.

Mr Ho said: "Investors have a choice in terms of their exposure to volatility and risk. If you don't want too much exposure, you can leverage three times. If you want to take on more risks, then your leverage can be higher... five or seven times."