Hang Seng Contracts Active

Aug 4, 2008

WARRANT WATCH: Hang Seng contracts active after recent volatility
By Alvin Foo, Markets Correspondent Straits Times

RECENT market turbulence is drawing investors into fresh positions for warrants linked to Hong Kong's Hang Seng Index.

Despite the volatility, the Hang Seng closed up 0.5 per cent at 22,862.6 points for the week. Last Friday, it rose 131.5 points despite beginning the day in negative territory after Wall Street dived the previous night. Of the index's 43 components, there were 29 gainers, 13 losers and one unchanged.

A Societe Generale (SG) warrants report noted: 'Investors continued to exercise caution, as the economic and financial news from the United States has been rather mixed. With no clear leads, turnover remains low.'

Hang Seng contracts were the most active in Singapore last year. They accounted for $7.89 billion, or 28 per cent, of total warrants turnover.

Investors who are bullish over the Hang Seng can consider an SG call warrant expiring on Oct 30 with a strike level of 22,800 points. Last Friday, this contract was done at 46.5 cents, with 46,000 units traded.

In contrast, those who are bearish can look at an SG put warrant, also lapsing on Oct 30, but with a 21,800-point strike level. No trades were conducted last Friday. SG feels that the short-term technical outlook for the Hang Seng is neutral.

The index was trading at between 22,089 and 22,881 last week. It is now trading at a resistance level of 22,871 points.

'If it can break through this level, the next resistance can be found at around 23,400. Support will be at around 22,000, should the index falter,' SG said.

Dealers expect the Hang Seng to face a volatile journey this week, as the market looks for direction from earnings results of blue-chip firms such as HSBC and Hang Seng Bank.
A call warrant lets an investor buy into a stock or index at a pre-set price over a period of three to nine months.

A put warrant, on the other hand, allows an investor to sell the stock or index at a pre-set price.