Warrants and CBBCs maintain strong momentum into March

Hong Kong's warrants and callable bull-bear contracts (CBBCs) market has maintained the strong momentum it enjoyed in February following the Lunar New Year, recording another month of solid turnover as the Hong Kong equities market continued rallying, with the Hang Seng Index (HSI) adding over 10% in year-to-date turnover as of April 3.

Over HK$366bn (US$47bn) worth of warrants and CBBCs changed hands on the Hong Kong Exchange (HKEx) during March, after HK$368bn was traded in February, which was the highest monthly figure since March 2016, when turnover totalled HK$384bn.

Interest in autocallable CBBCs, in which the HSI is the preeminent underlying, has picked up, climbing to HK$109bn, as compared with HK$100bn in February and HK$73bn in January.

Investor demand in warrants has remained largely fixed to the household Hong Kong-listed names, primarily Tencent, HKEx and HSBC, with the HSI benchmark retaining strong investment appeal. Names outside of the top 10 generated 10.6% of turnover in March, up from 8.4% in February. This compares with a peak of 23.6% in January, when HSI and HKEx volumes, in particular, slumped.

Notably, interest in HKEx positions has dropped from a peak in February, while China Mobile and Tencent contracts enjoyed a large increase in trade.

Call warrants remain the preferred directional trade, with long contracts accounting for 89% of turnover in March, as compared with 88% in February and 84% in January. Bullishness on the HSI was on the up last month, with call warrants generating 58% of turnover on the benchmark, as compared with 56% in February, and 46% in January.

The index has climbed over 10% this year, as of April 3, keeping a consistent level above the 24,000-point mark for the first time since mid-2015.

In CBBCs, however, where HSI accounts for over 90% of turnover, long positions demand has declined, with Bull contracts generating 42% of turnover on the benchmark, down from 44% in February. This compares to 49% in December.

Trade with CBBCs on other underlyings were broadly tilted towards the long side, with Bull contracts generating 74% of turnover on non-HSI CBBCs, as compared to 76% in February and 72% in January.

A total of 829 CBBCs were added to the SRP database in the month of March, 507 of those on the HSI.

The Hang Seng Index remained the most popular trade on the Singapore Exchange as well, where the five most active warrants on the HSI generated SG$662m (US$473m) in turnover in the month to March 29, with a put warrant with an HSI strike level of 23,600 topping ranks with SG$169m.

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