Portfolio Management Demand up with January's Volatility

OREANDA-NEWS. Asia continued to see broad declines today following on from downward revisions to global growth overnight and China booking 6.9% growth for 2015. When regional growth rates come in below historical trend rates, or growth outlooks are revised downwards, there will typically be an effect upon the outlook for businesses aligned to grow with the region. The International Monetary Fund (IMF) recently downwardly revised global growth projections by 0.2% to 3.4% in 2016 and 3.6% in 2017.  The IMF noted that the four downside risks to these projections are a generalised slowdown in emerging market economies, China’s rebalancing, lower commodity prices, and the gradual exit from extraordinarily accommodative monetary conditions in the United States. In the past, the smaller trade dependent and advanced economies of the region such as Singapore and Hong Kong have responded quickest to downside and upside risks, or regional growth revisions.

In the Options markets, put-call ratio is a popular indicator to gauge the overall sentiment of the market. The ratio is calculated by dividing the number of traded put options by the number of traded call options. A Put/Call ratio above one means more puts than calls are being traded, indicating the majority of traders are bearish. As this ratio increases, it can be interpreted to mean that investors are putting their money into put options rather than call options. An increase in traded put options signals that investors are either starting to speculate that the market will move lower, or starting to hedge their portfolios in case of a sell-off.

Some market participants feel a dollar weighted Put/Call ratio might be more useful than one using contract value. This ratio is constructed using not only the volume of each option traded, but its price as well. The reasoning is that it is more important to know how much total money is being spent on puts versus calls, rather than just simple contract volume. Applying this put-to call-ratio concept to SGX structured warrants, we see that month-to-date Jan 2016 has seen the highest ratio of puts-to-calls in terms of traded value since Sep 2015. Hang Seng Index warrants currently also have the highest Puts-to-Call ratio.

The table below details the other active warrants traded on SGX in the month-to-date.  

Specified Investment Products

Structured warrants are an example of Specified Investment Products (SIPs). The MAS has introduced measures for intermediaries to safeguard the interests of individual investors investing in SIPs, which are products with features that might be more complex in nature.