The Bank of China

Investors chase BOC warrants

PUBLISHED : Tuesday, 11 July, 2006, 12:00am
UPDATED : Tuesday, 11 July, 2006, 12:00am

Turnover reaches $645m, accounting for 9pc of the total, as the market remains bullish on China

Bank of China's warrants were well received by the market on their trading debut yesterday, helped by investors' interest in the underlying shares and their need for derivatives to hedge risks.

Turnover of 33 derivative warrants on the country's second-largest lender amounted to $645.84 million, accounting for about 9.16 per cent of total derivative turnover of $7.05 billion yesterday.

They were the second most heavily traded derivative warrants on a single company by value yesterday after those on China Life Insurance which accounted for about 13 per cent of total warrant trading.

'Liquidity of warrants on Bank of China was largely driven by the strong market demand towards mainland-related stocks, while there has been a lack of catalyst for blue chips at present,' said Edmond Lee, senior vice-president of the derivatives department at SG Securities, the second-biggest warrant issuer by turnover in Hong Kong.

Investors' interest in Bank of China has been growing since its H shares began trading in Hong Kong last month.

The stock climbed 0.7 per cent to close at $3.575 on turnover of $1.1 billion yesterday.

The lender has seen its stock jump 21.19 per cent since its trading debut on June 1, beating a 4.7 per cent rise in the benchmark Hang Seng Index.

Issuers generally said the debut performance of the first batch warrants on Bank of China was within expectations and expected more warrants on the stock to come in the near future.

'Investors' demand for large-cap mainland banking stocks such as Bank of China is undoubtedly on the rise,' said Venus Wong, executive director of KBC Financial Products, the largest warrants issuer in Hong Kong.

'But market interest in derivative warrants on Bank of China depends largely on the volatility of the underlying stock in the near future.'

KBC Financial Products and SG Securities each issued three Bank of China derivative warrants and KBC is set to launch another two warrants on the giant mainland lender tomorrow.

The debut of 33 derivative warrants on Bank of China yesterday was a new record, outnumbering the 24 warrants on China Construction Bank in November last year.

The Bank of China warrants were offered by 14 different issuers. Thirty one of them are call warrants and two are put warrants. Call warrants allow investors to bet on the share price going higher while put warrants take a bearish view of the stock.

Johnny Yu, director of equity risk management at UBS Securities Asia, said momentum on derivative warrants on Bank of China will continue to build as more warrants on the underlying stock become available on the market.