CWs making a quiet comeback

It has been a long while since we last looked at CWs. And, it's a good thing too because you don't want to own a leverage product that exaggerate your losses in a bear market. Kenanga Investment Bank Bhd, where I presently attach, will be issuing its first batch of CWs over the shares of Resorts & Public Banks as well as the KLCI. Yesterday, three new CWs (IOICorp-CJ, Genting-CM & CHMOBIL-CD) issued by OSK were quoted and they traded at prices higher than their IPO price.

Is it a good time to look into CWs? The quick & simple answer is probably 'NO', but if one is worried that he will be an idiot for not buying when share prices are so attractive (see Jeremy Grantham's comment) or that he will be missed the Bottom (here), then positioning by way of CWs could be one way around this dilemma. It is an insurance against missing out on the market recovery but, like all insurance policies, it doesn't come cheap. One can expect to pay 10-20% premium for a duration of 8-16 months. If the market does not recovery, the entire premium could be lost. But, if the market recovers strong, then one would reap a handsome reward. CWs give investors "unlimited upside but limited downside".

I have tabulated below the CWs over Malaysian stocks (Table 1); CWs over foreign stocks (Table 2); and CWs over indices (Table 3). Most of these CWs are trading at excessively high premium. Any CW with premium of more than 20% should be avoided. The best way of getting into CWs, at reasonable premium, is to subscribe for them through the issuers or selling agents.


Table 1: CWs over Malaysia stocks as at December 9, 2008


Table 2: CWs over foreign stocks as at December 9, 2008


Table 3: CWs over indices as at December 9, 2008

In conclusion, one may consider buying CWs in order to position oneself in case the market put in a strong recovery (albeit, there is only tentative signs of bottoming at this stage). It is a leverage instrument that carries higher risk as well as higher reward. For new investors, I would strongly advise against buying CWs, without reading more on this instrument.

For more on CWs or Structure Warrants, go to the website of SIDC or SGX or DBS.