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Unformatted text preview: Tuesday, January 17, 2006 South China Morning Post WARRANTS Volatile Link Reit restrains warrant issuers Only eight derivative products launched as against CCB's 24 -------------------------------------------------------------------------------The unusually high volatility of the Link Reit has forced warrant issuers to alter plans to issue related derivative warrants, holding it back from breaking the record set by China Construction Bank Corp. Eight issuers launched just eight call warrants yesterday on the Link, which will list and debut on January 23, against the 24 warrants issued on China Construction Bank on its first day of warrant trading in November last year - a record for a single company. KBC Financial Products, a normally active issuer, did not launch any Link warrants yesterday. "To factor in the high volatility of the Link, issuers need to price the warrants at a high level. From this point of view, the Link may not be the most ideal underlying asset at this moment," director Venus Wong said. "We will wait and see and if there is strong investor demand on [Link warrants], we will surely consider joining the herd." The Link, regarded as a yield play, saw a drastic change in its fortunes after British hedge fund Children's Investment Fund Management snapped up an 18 per cent stake. Then becoming a growth play, it surged 45.6 per cent to yesterday's close of $15 since listing on the back of strong buying momentum. Recently, however, trading in the stock has slowed. According to Henry Pang, BNP Paribas head of Asia institutional equity derivatives sales, annualised average volatility of the Link over the past 30 days was 48.9 per cent, coming down to 23.5 per cent in the past 10 days. "It takes time to observe the Link's real behaviour as there is too much speculation," another issuer said. "There is no reason to rush for a warrant issue." Issuers expect modest demand for the Link, leading them to issue only a small number of warrants to test the waters. Johnny Yu, a director of equity risk management at UBS Securities Asia, said his investment house issued only one Link call warrant, given that investor interest had shifted to blue-chip warrants such as HSBC Holdings and Hutchison Whampoa with the expectation of a sustainable bull run ahead. ABN Amro, BNP Paribas, Calyon, SG Securities, JP Morgan, UBS, Rabobank and Goldman Sachs all issued one call Link warrant each. 2 Sunday, November 20, 2005 South China Morning Post INVESTMENT TIPS Reit rekindles hope for property -------------------------------------------------------------------------------Hope has been rekindled for Hong Kong's property market after the launch of the Link Reit and signs that the US Federal Reserve may be ready to cool its policy of increasing interest rates. The property market plunged when Hong Kong banks made a "larger-than-Fed" increase in the prime rate. Both property prices and the property index were affected. The Hang Seng property index has fallen more than 9 per cent since October 1. Now the launch of the Link Reit has boosted sentiment after it was over-subscribed 18 times for retail investors and 13 times for the international allotment. I predict the Fed rate will possibly be capped at 4.5 per cent to 4.75 per cent. Sino Land has recaptured 4 per cent in the past fortnight. The share price of Cheung Kong has slipped 1 per cent on fears that Hutchison may delay its US$2.9 billion initial public offering of Italian phone business 3 Italia due to legal hurdles. The star of the portfolio has been sports retailer Li Ning, which is maintaining steady and resilient growth, gaining more than 45 per cent since acquisition. There has also been a spate of unseen positive signs, such as its successful image building, market positioning and control of costs. Li Ning is a national sportswear brand and continues to maintain its market leadership through research and development, advertising and improved internal systems. Achieving a profit margin of about 7 per cent, will place it in line with international brands such as Nike. Meanwhile, the Bank of Communications and China Construction Bank China are poised to benefit directly if China decides to eliminate the banking sector's corporate tax. Some analysts estimate bank profit margins will go up 20-30 per cent, leading to a surge in share prices. A further 5 per cent gain for China Construction Bank may be possible. In telecoms, China Mobile has surged about 8 per cent in the past two weeks. The world's largest GSM operator has secured major advertising contracts in the broadcasters' annual bidding auction. It has also won the right to sponsor live broadcasts of the soccer World Cup next year. I may take some profit when the share price reaches $38.50. The mainland's growth relies heavily on capital investment and exports. Interest rate increases, inflationary pressure, yuan appreciation and tightened international trade around the globe limit the economic drive. 3 The savings rate is declining, therefore private consumption is going to be important for future economic growth. Lianhua Supermarket and Xinyu Hengdeli should reap the benefits. I am considering another retail stock, Parkson Retail Group, which has a fair price/earnings ratio of around 19 times. Since the enthusiasm for initial public offerings in the market is fading, an allocation of 20,000 shares may be possible. The oil price has dipped to around US$57 per barrel in the past two weeks, turning attention to aviation stocks. An aggressive investor could consider acquiring China South Air. The appreciation of the yuan and implementation of a fuel surcharge were the keys to an exceptional quarter profit of 850 million yuan. I have been cautious in the past weeks, and deferred new investment until the market rallies. Though less than 80 per cent of the portfolio was invested, the performance of my portfolio was far beyond the index. For the year to date, my portfolio is ahead 9.91 per cent. Paul Pong is managing director of Pegasus Fund Managers. He is an SFC licence holder. Neither he nor his associate hold any stocks mentioned above. 4 ...
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This note was uploaded on 09/06/2010 for the course FINA FINA0805 taught by Professor Tse during the Spring '09 term at HKU.
- Spring '09