Investors Stocking Up on Bank Contracts

Dec 4, 2007

WARRANT WATCH
Investors stocking up on bank contracts

BANKS have attracted renewed buying interest from investors after a sharp selldown last month. Traders have been loading up on bank call warrants as an affordable way to get exposure to banks.

Especially popular are warrants whose strike prices are close to current market prices. This is because a small percentage change in the mother share price may be magnified in the warrant price's percentage change.

Analysts have been making buy calls on banks. Citigroup, for one, has noted that while banks have been significant market laggards due to concerns over their collateralised debt obligations, third-quarter results have shown that any impact on earnings has been minimal.

Yesterday, one popular bank warrant was a call contract issued on DBS Group Holdings by Macquarie Bank, with a strike price of $20 and expiring next May.

It gained two cents, or 8.9 per cent, to 24.5 cents with 16 million units changing hands, as DBS gained as much as 60 cents before closing 30 cents higher at $20.40.

Macquarie Securities' head of warrants, Mr Barnaby Matthews, said: 'We have seen a lot more buyers in the calls, with the stocks down at these levels.'

He added that investors had been going for warrants with lower strike prices, echoing the cautious market sentiment.