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Cross Asset Strategy

<ul><li>TOP STORIES Tariff / In Depth: Chinese exporters pivot to domestic consumers in trade war hedge</li><li>The recent 90-day truce in the U.S.-China tariff war has prompted a flurry of activity among Chinese exporters, with traders rushing to ship goods overseas before tensions escalate again.</li><li>But at the same time a major shift is underway among exporters — many are now trying to sell those same goods at home, as they scramble to hedge their bets against future global instability.</li></ul>

TOP STORIES Tariff / In Depth: Chinese exporters pivot to domestic consumers in trade war hedgeThe recent 90-day truce in the U.S.-China tariff war has prompted a flurry of activity among Chinese exporters, with traders rushing to ship goods overseas before tensions escalate again.But at the same time a major shift is underway among exporters — many are now trying to sell those same goods at home, as they scramble to hedge their bets against future global instability.

CX Daily: Chinese Exporters Pivot to Domestic Consumers in Trade War Hedge 

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

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<li>
Amidst increased volatility in global markets, DLCs may be a useful tool in hedging investment portfolios and capturing short-term market trends. DLCs offer the flexibility to trade both rising and falling markets, and for each underlying and leverage level, there is a long and short DLC available. 
	 </li>
	<li>
SGX hosts the trading of 76 DLCs on Singapore and Hong Kong stocks. The Single Stock DLCs provide 5x leverage on the daily performance of the underlying stock. For March 2020, total DLC turnover reached S$564.4 million, more than double Feb’s S$267.0 million. Turnover for Single Stock DLCs jumped 90% MoM to S$414million, accounting for 73% of overall trading activity. 
	 </li>
	<li>In March, the five most traded Single Stock DLCs were 5xShort HSBC, 5xShort DBS, 5xLong DBS, 5xLong Tencent and 5xShort OCBC. The best-performing DLCs during the month were Short DLCs on SIA, DBS, HSBC and UOB, with gains ranging from +93.2% to +112.5%.</li>
</ul>
 

Daily Leverage Certificates (DLCs) are financial instruments issued by a third-party financial institution, in this case Societe Generale, and are traded on SGX. DLCs seek to achieve short-term investment results that correspond to the daily magnified performance of the underlying index or stock.

DLCs offer the flexibility to trade both rising and falling markets, and for each underlying and leverage level, there is a long and short DLC available. The instrument offers investors fixed leverage of up to 7 times of the daily performance of the underlying asset (eg. market indices or single stocks). The basic principle is simple – if the underlying asset moves by 1% from its closing price of the previous trading day, the value of a 3x DLC will move by 3%, and correspondingly that of a 7x DLC will move by 7%. More information on DLCs, including risks, can be found <a href="https://www2.sgx.com/research-education/securities-products#Daily%20Leverage%20Certificates">here</a>.

SGX hosts the trading of 76 DLCs on Singapore and Hong Kong stocks, including the three local banks, Venture, Tencent, and Geely Automobile. The single stock DLCs provide 5x leverage on the daily performance of the underlying stock. View the full list of Single Stock DLCs at the issuer’s website <a href="https://dlc.socgen.com/en/product/search">here</a>.

Single Stock DLC Turnover for March Increases

For the month of March 2020, total DLC turnover reached S$564.4 million, more than double February’s S$267.0 million. Turnover for Single Stock DLCs also jumped 90% month-on-month in March to S$414 million, accounting for 73% of overall trading activity. For Single Stock DLC flows, Short DLCs comprised 54% of total turnover, with Long DLCs taking up the remaining 46%.
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<figure>
 <img src='https://api2.sgx.com/sites/default/files/2020-04/DLC%20Turnover%20in%20March.PNG' alt='DLC Turnover in March ' />
 </figure>
 <div class='content-caption'>DLC Turnover in March </div>
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<html><body>The five most traded Single Stock DLCs in March were 5xShort HSBC (DYAW), 5xShort DBS (DFFW), 5xLong DBS (DOXW), 5xLong Tencent (DANW) and 5xShort OCBC (DJWW).</body></html>

<figure>
 <img src='https://api2.sgx.com/sites/default/files/2020-04/5%20most%20traded%20dlcs.PNG' alt='Five Most Traded Single stock DLCs in March ' />
 </figure>
 <div class='content-caption'>Five Most Traded Single stock DLCs in March </div>
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Best- and Least-Performing Single Stock DLCs in March

The best performers in the month of March were the Short DLCs for SIA, DBS, HSBC and UOB, with gains ranging from +93.2% to +112.5%. The least performers were the Long DLCs for AAC Technologies, City Developments, CNOOC, SIA, and Sunny Optical, with declines ranging from - 83.3% to -100%.
</body></html>

<figure>
 <img src='https://api2.sgx.com/sites/default/files/2020-04/March%20%20Performers.PNG' alt='March Performers' />
 </figure>
 <div class='content-caption'>March Performers</div>
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Banking and airline stocks have been battered in recent weeks as countries impose stringent lockdowns. With the Federal Reserve cutting US interest rates for the second time in less than two weeks on 15 March, net interest margins (NIMs) of most bank stocks will be impacted. UK-based banks have also been affected by the Prudential Regulation Authority’s (PRA) recommendation that the country’s financial institutions suspend investor payouts until at least the fourth quarter.

On 31 March, the International Air Transport Association (IATA) published an updated <a href="https://www.iata.org/en/pressroom/pr/2020-03-31-01/">analysis</a> showing that airlines may burn through US$61 billion of their cash reserves during 2QCY20, while posting a quarterly net loss of US$39 billion. The estimate was based on the modelling of severe travel restrictions lasting for three months.

Listing of New Long DLCs with Higher Sensitivities 

<table class="table table-striped"><tbody>
<tr>
<td>
			Stock Codes
			</td>
			<td>
			Trading Name (22)
			</td>
			<td>
			Type 
			</td>
			<td>
			Leverage Factor
			</td>
			<td>
			Underlying Stock
			</td>
			<td>
			Listing Date
			</td>
		</tr>
<tr>
<td>
			DVPW
			</td>
			<td>
			DLC SG5xLongGeely B
			</td>
			<td>
			Long
			</td>
			<td>
			5x
			</td>
			<td>
			Geely Auto (0175.HK)
			</td>
			<td rowspan="5">
			08-Apr-20
			</td>
		</tr>
<tr>
<td>
			DBTW
			</td>
			<td>
			DLC SG5xLongGalaxy A
			</td>
			<td>
			Long
			</td>
			<td>
			5x
			</td>
			<td>
			Galaxy Ent (0027.HK)
			</td>
		</tr>
<tr>
<td>
			DAFW
			</td>
			<td>
			DLC SG5xLongAAC A
			</td>
			<td>
			Long
			</td>
			<td>
			5x
			</td>
			<td>
			AAC Tech (2018.HK)
			</td>
		</tr>
<tr>
<td>
			D00W
			</td>
			<td>
			DLC SG5xLongPetChina B
			</td>
			<td>
			Long
			</td>
			<td>
			5x
			</td>
			<td>
			PetroChina (0857.HK)
			</td>
		</tr>
<tr>
<td>
			DTJW
			</td>
			<td>
			DLC SG5xLongCNOOC A
			</td>
			<td>
			Long
			</td>
			<td>
			5x
			</td>
			<td>
			CNOOC (0883.HK)
			</td>
		</tr>
<tr>
<td>
			DEUW
			</td>
			<td>
			DLC SG5xLongCityDev A
			</td>
			<td>
			Long
			</td>
			<td>
			5x
			</td>
			<td>
			City Dev (C09)
			</td>
			<td rowspan="3">
			09-Apr-20
			</td>
		</tr>
<tr>
<td>
			DQAW
			</td>
			<td>
			DLC SG5xLongAREIT A
			</td>
			<td>
			Long
			</td>
			<td>
			5x
			</td>
			<td>
			Ascendas REIT (A17U)
			</td>
		</tr>
<tr>
<td>
			CZAW
			</td>
			<td>
			DLC SG7xLongMSG230404
			</td>
			<td>
			Long
			</td>
			<td>
			7x
			</td>
			<td>
			MSCI Singapore Index
			</td>
		</tr>
</tbody></table>
Reason to Issue More Than One DLC

When a DLC’s unit price reaches too low a level, it may become less sensitive to the underlying asset movement. In this case, the issuer may list a new DLC on the same underlying asset, direction and leverage factor, but at higher unit price with increased sensitivity to the underlying asset movement, which is more favourable for short-term trading.

How to Differentiate Between Existing and New DLCs

For index DLCs, investors can differentiate between the existing and new DLCs by their expiry date as indicated in the counter name and by their stock code. The new products will have a longer dated expiry.

For single stock DLCs, apart from the difference in stock code, a letter ("A", "B" and so forth) will be added to the new product name for easy identification. For example, the name of the new 5x Short DLC on Tencent is "DLC SG5xShortTencent A". Investors can also go to SGX website under “Prices” page or SocGen's <a href="https://dlc.socgen.com">website</a> to check the difference in expiry date.

What Will Happen to Existing DLCs

Despite the difference in price sensitivity and expiry date, investors should note that both the existing and new products will move in line with the underlying asset multiplied by the leverage factor. SocGen will continue to provide the same market making quality for both new and old DLCs.

DLCs and Compounding

Investors that hold the DLCs for longer than one Trading Day will notice that the return could be more or less than the leverage factor that is embedded within the DLC. This is because the performances of the underlying asset and the DLCs are reset at the end of each Trading Day.

When markets open on the next day, the performances of the underlying asset and the DLCs will be measured from the intrinsic closing levels recorded on the previous Trading Day. What this means, in practice, is the performance each day is locked in, and any subsequent returns are on top of what was achieved the day before. This is a process referred to as “compounding”.

The compounding effect can positively enhance returns in trending markets (upward or downward) whilst negatively impacting returns when the markets are more volatile or trend sideways for long periods. To learn more about the compounding effect and other features of the DLCs, click <a href="https://www2.sgx.com/research-education/securities-products#Daily%20Leverage%20Certificates">here</a>.

Specified Investment Products (SIPs)

Daily Leverage Certificates (DLCs) are for investors who are willing to accept the risk of substantial losses up to the principal investment amount, possibly within a very short time frame. Investors should also have sufficient understanding of the product and should possess either a high level of knowledge or sufficient trading experience to properly evaluate and assess the product structure, associated risks, valuation, costs and expected returns. All investors need to be Specified Investment Products (SIP) qualified to invest in DLCs.

Investors should also read all listing documents provided by the issuer for other features such as the airbag mechanism, the risks and other information related to the product before trading the DLCs. The documents can be found under company information on <a href="https://www.sgx.com/research-education/securities-products?fireglass_rsn=true#Daily%20Leverage%20Certificates">SGX</a> or the Issuer’s <a href="https://dlc.socgen.com/">website</a>.
</body></html>





Amidst increased volatility in global markets, DLCs may be a useful tool in hedging investment portfolios and capturing short-term market trends. DLCs offer the flexibility to trade both rising and falling markets, and for each underlying and leverage level, there is a long and short DLC available. 
	 
	
SGX hosts the trading of 76 DLCs on Singapore and Hong Kong stocks. The Single Stock DLCs provide 5x leverage on the daily performance of the underlying stock. For March 2020, total DLC turnover reached S$564.4 million, more than double Feb’s S$267.0 million. Turnover for Single Stock DLCs jumped 90% MoM to S$414million, accounting for 73% of overall trading activity. 
	 
	In March, the five most traded Single Stock DLCs were 5xShort HSBC, 5xShort DBS, 5xLong DBS, 5xLong Tencent and 5xShort OCBC. The best-performing DLCs during the month were Short DLCs on SIA, DBS, HSBC and UOB, with gains ranging from +93.2% to +112.5%.

 

Daily Leverage Certificates (DLCs) are financial instruments issued by a third-party financial institution, in this case Societe Generale, and are traded on SGX. DLCs seek to achieve short-term investment results that correspond to the daily magnified performance of the underlying index or stock.

DLCs offer the flexibility to trade both rising and falling markets, and for each underlying and leverage level, there is a long and short DLC available. The instrument offers investors fixed leverage of up to 7 times of the daily performance of the underlying asset (eg. market indices or single stocks). The basic principle is simple – if the underlying asset moves by 1% from its closing price of the previous trading day, the value of a 3x DLC will move by 3%, and correspondingly that of a 7x DLC will move by 7%. More information on DLCs, including risks, can be found here.

SGX hosts the trading of 76 DLCs on Singapore and Hong Kong stocks, including the three local banks, Venture, Tencent, and Geely Automobile. The single stock DLCs provide 5x leverage on the daily performance of the underlying stock. View the full list of Single Stock DLCs at the issuer’s website here.

Single Stock DLC Turnover for March Increases

For the month of March 2020, total DLC turnover reached S$564.4 million, more than double February’s S$267.0 million. Turnover for Single Stock DLCs also jumped 90% month-on-month in March to S$414 million, accounting for 73% of overall trading activity. For Single Stock DLC flows, Short DLCs comprised 54% of total turnover, with Long DLCs taking up the remaining 46%.



      
    
    DLC Turnover in March 

The five most traded Single Stock DLCs in March were 5xShort HSBC (DYAW), 5xShort DBS (DFFW), 5xLong DBS (DOXW), 5xLong Tencent (DANW) and 5xShort OCBC (DJWW).


      
    
    Five Most Traded Single stock DLCs in March 


Best- and Least-Performing Single Stock DLCs in March

The best performers in the month of March were the Short DLCs for SIA, DBS, HSBC and UOB, with gains ranging from +93.2% to +112.5%. The least performers were the Long DLCs for AAC Technologies, City Developments, CNOOC, SIA, and Sunny Optical, with declines ranging from - 83.3% to -100%.



      
    
    March Performers


Banking and airline stocks have been battered in recent weeks as countries impose stringent lockdowns. With the Federal Reserve cutting US interest rates for the second time in less than two weeks on 15 March, net interest margins (NIMs) of most bank stocks will be impacted. UK-based banks have also been affected by the Prudential Regulation Authority’s (PRA) recommendation that the country’s financial institutions suspend investor payouts until at least the fourth quarter.

On 31 March, the International Air Transport Association (IATA) published an updated analysis showing that airlines may burn through US$61 billion of their cash reserves during 2QCY20, while posting a quarterly net loss of US$39 billion. The estimate was based on the modelling of severe travel restrictions lasting for three months.

Listing of New Long DLCs with Higher Sensitivities 




			Stock Codes
			
			
			Trading Name (22)
			
			
			Type 
			
			
			Leverage Factor
			
			
			Underlying Stock
			
			
			Listing Date
			
		


			DVPW
			
			
			DLC SG5xLongGeely B
			
			
			Long
			
			
			5x
			
			
			Geely Auto (0175.HK)
			
			
			08-Apr-20
			
		


			DBTW
			
			
			DLC SG5xLongGalaxy A
			
			
			Long
			
			
			5x
			
			
			Galaxy Ent (0027.HK)
			
		


			DAFW
			
			
			DLC SG5xLongAAC A
			
			
			Long
			
			
			5x
			
			
			AAC Tech (2018.HK)
			
		


			D00W
			
			
			DLC SG5xLongPetChina B
			
			
			Long
			
			
			5x
			
			
			PetroChina (0857.HK)
			
		


			DTJW
			
			
			DLC SG5xLongCNOOC A
			
			
			Long
			
			
			5x
			
			
			CNOOC (0883.HK)
			
		


			DEUW
			
			
			DLC SG5xLongCityDev A
			
			
			Long
			
			
			5x
			
			
			City Dev (C09)
			
			
			09-Apr-20
			
		


			DQAW
			
			
			DLC SG5xLongAREIT A
			
			
			Long
			
			
			5x
			
			
			Ascendas REIT (A17U)
			
		


			CZAW
			
			
			DLC SG7xLongMSG230404
			
			
			Long
			
			
			7x
			
			
			MSCI Singapore Index
			
		

Reason to Issue More Than One DLC

When a DLC’s unit price reaches too low a level, it may become less sensitive to the underlying asset movement. In this case, the issuer may list a new DLC on the same underlying asset, direction and leverage factor, but at higher unit price with increased sensitivity to the underlying asset movement, which is more favourable for short-term trading.

How to Differentiate Between Existing and New DLCs

For index DLCs, investors can differentiate between the existing and new DLCs by their expiry date as indicated in the counter name and by their stock code. The new products will have a longer dated expiry.

For single stock DLCs, apart from the difference in stock code, a letter ("A", "B" and so forth) will be added to the new product name for easy identification. For example, the name of the new 5x Short DLC on Tencent is "DLC SG5xShortTencent A". Investors can also go to SGX website under “Prices” page or SocGen's website to check the difference in expiry date.

What Will Happen to Existing DLCs

Despite the difference in price sensitivity and expiry date, investors should note that both the existing and new products will move in line with the underlying asset multiplied by the leverage factor. SocGen will continue to provide the same market making quality for both new and old DLCs.

DLCs and Compounding

Investors that hold the DLCs for longer than one Trading Day will notice that the return could be more or less than the leverage factor that is embedded within the DLC. This is because the performances of the underlying asset and the DLCs are reset at the end of each Trading Day.

When markets open on the next day, the performances of the underlying asset and the DLCs will be measured from the intrinsic closing levels recorded on the previous Trading Day. What this means, in practice, is the performance each day is locked in, and any subsequent returns are on top of what was achieved the day before. This is a process referred to as “compounding”.

The compounding effect can positively enhance returns in trending markets (upward or downward) whilst negatively impacting returns when the markets are more volatile or trend sideways for long periods. To learn more about the compounding effect and other features of the DLCs, click here.

Specified Investment Products (SIPs)

Daily Leverage Certificates (DLCs) are for investors who are willing to accept the risk of substantial losses up to the principal investment amount, possibly within a very short time frame. Investors should also have sufficient understanding of the product and should possess either a high level of knowledge or sufficient trading experience to properly evaluate and assess the product structure, associated risks, valuation, costs and expected returns. All investors need to be Specified Investment Products (SIP) qualified to invest in DLCs.

Investors should also read all listing documents provided by the issuer for other features such as the airbag mechanism, the risks and other information related to the product before trading the DLCs. The documents can be found under company information on SGX or the Issuer’s website.



Single Stock DLCs Dominate March DLC Turnover

Hong Kong

Galaxy Entertainment Group Limited, through its subsidiary, operates casino, hotel and other entertainment facilities in Macau. The company also manufactures sells and distributes construction materials.

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Galaxy Entertainment Group (27 HK)

CX Daily: Chinese Exporters Pivot to Domestic Consumers in Trade War Hedge

TOP STORIES Tariff / In Depth: Chinese exporters pivot to domestic consumers in trade war hedge The recent 90-day truce in the U. S. -China...

Caixin Global

Single Stock DLCs Dominate March DLC Turnover

Amidst increased volatility in global markets, DLCs may be a useful tool in hedging investment portfolios and capturing short-term market...

Singapore Exchange Ltd (SGX)

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