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Bargain hunting in HSI calls continued in bearish market

Warrants Commentary (17 to 20 September)

The overall warrants turnover for last week was RM342.3mil., a slight decrease of 1.4% from the week prior. The Hang Seng Index (HSI) warrants remained the biggest contributor, making up 80.6% of turnover. Last week, one of the top news was the benchmark interest rate cut, which saw the US Federal Reserve (the Fed) lower the interest rate by 0.25% to a range of 1.75% to 2% last Wednesday during its September meeting. This was the second rate cut since July this year, amid global growth concerns and muted inflation pressures. A top Fed official signalled Friday that further interest rate cuts could come before year-end (The New York Times, 20 Sept).

Hours after the Fed’s quarter point cut, the Hong Kong Monetary Authority (HKMA) also cut its benchmark interest rate by a quarter points, in line with the Fed, seeing its interest rate reduced to 2.25% from 2.5%. The HSI entered into a bearish state as it fell five days in a row, registering the longest losing streak in six week, as the latest move added to investors’ worry about the impact of the continuing violent protests on the city’s economy. Week-on-week (w-o-w), the index plunged 3.4%. 

Throughout last week, investors net bought a total 51.2mil units of the call warrants over the HSI, and net sold 55.3mil units of the put warrants over the HSI. Call warrant HSI-C7F continued to be investors’ favorite, taking up the top position in last week’s warrants space as its traded value rose 10.6% to RM49.1mil. Meanwhile, put warrant HSI-H6T came in a close second, with its traded value recording at RM49.0mil. HSI-C7F, which tracks the movement of its underlying index, plunged 33.3% w-o-w, while HSI-H6T, which moves in an opposite direction from the HSI futures, jumped 47.9% w-o-w. 

Elsewhere, on the local front, Frontken shares had a strong bullish momentum last week with its share price closing in the green for four consecutive days. The share price surpassed the RM1.70 mark last Wednesday and recorded a gain of 5.4% w-o-w as it closed at RM1.75 last Friday (+0.6%). Call warrant FRONTKN-CD became the most active warrant over Malaysian counters, with investors trading a total 17.7mil units; FRONTKN-CD’s price rose 5.3% w-o-w. 

Top warrants by value traded:

Warrant nameValue
(RM’mil.)
IssuerExercise levelExpiry date
HSI-C7F49.1Macquarie27,40030 Dec 2019
HSI-H6T49.0Macquarie27,00030 Oct 2019
HSI-H8B46.4Macquarie25,60028 Nov 2019
HSI-C7J26.9Macquarie30,00027 Feb 2020
HSI-H8E25.7Macquarie24,60030 Dec 2019

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Provided for Malaysian residents information only. It is not an offer or recommendation to trade and is not research material. Past performance is not indicative of future performance. You should make your own assessment and seek professional advice.