This article was updated on 18 July 2019 to include information on new Single Stock DLCs.
Ever since they were launched on the Singapore Exchange in 2017, Daily Leverage Certificates (DLCs) provided SIP-qualified investors a convenient way to gain leveraged exposure (long or short positions) to intraday price movements of leading Asian indices – namely the MSCI Singapore Index (SiMSCI), Hang Seng Index (HSI) and Hang Seng China Enterprises Index (HSCEI).
The Expanding Portfolio Of Daily Leverage Certificates
Initially, DLCs offered leverage levels of 3x and 5x. The 7x leverage DLCs were launched in January 2018 and has been well-received, according to Societe Generale.
On 1 November 2018, Societe Generale expanded the line-up of DLCs available to investors again. A first for Asia, new DLCs were launched to offer investors exposure to 5x leveraged exposure based on intraday price movements of individual stocks. The stocks offered were expanded on 28 June 2019.
The six underlying stocks consist of three Singapore stocks, namely CDL, SIA and SGX, as well as three Hong Kong stocks – Sunny Optical, AAC Technologies and Sands China.
These stocks were picked based on investor interest, liquidity, trading volume and market capitalisation.
9 of the stocks are SGX-listed companies:
- DBS Group Holdings Ltd (SGX: D05)
- UOB Overseas Bank Limited (SGX: U11)
- Overseas-Chinese Banking Corporation Limited (SGX: O39)
- Singapore Telecommunications Limited (SGX: Z74)
- Venture Corporation Limited (SGX: V03)
- Keppel Corporation Limited (SGX: BN4)
- City Developments Limited (SGX: C09) [Added on 28 June 2019]
- Singapore Airlines (SGX: C6L) [Added on 28 June 2019]
- Singapore Exchange (SGX: S68) [Added on 28 June 2019]
While 7 of the stocks are listed in Hong Kong:
- Tencent Holdings Limited (HKG: 0700)
- Ping An Insurance (Group) Company of China, Ltd. (HKG: 2318)
- PetroChina Company Limited (HKG: 0857)
- CNOOC Limited (HKG: 0883)
- AAC Technologies (HKG: 2018)
- Sands China (HKG: 1928)
- Sunny Optical (HKG: 2382)
When used correctly, the unique features of DLC make them a potent instrument worth adding to any investors’ toolkit. Here are 4 ways savvy investors can make use of DLCs.
# 1 Conveniently Take Short Positions
Since DLCs are traded on SGX, investors enjoy the same price transparency and convenience that stocks provide. Short DLCs allow investors to profit when the price of the underlying asset the DLC is tracking goes down.
Before DLCs, it is not as simple or convenient if you want to profit from negative market movements, such as through arrangements with a broker or by using warrants.
# 2 Hedging In A Bearish Market
Rather than needing to liquidate large portions of your stock portfolio to cut your losses during prolonged market downturns, DLCs give you the ability to easily hedge against potential losses arising from general market trends.
Since you buy DLCs using the same mechanism as the rest of your stock portfolio, you have one convenient place to monitor the performance of your entire portfolio and make tactical decisions quickly.
# 3 Leverage (Without Losing More Than Your Capital)
In typical leveraged instruments, getting leveraged exposure puts you at risk of losing more than your initial capital. Implementing a stop-loss is absolutely critical, especially when you’re buying stocks on margin, since you could be put in a situation where you cannot cover the magnified losses.
Like a regular stock, the worst thing that can happen is for a DLC is for its value to drop to zero, so you never lose more than your original investment, regardless of the market conditions.
From another perspective, the leverage element in DLCs mean that you can receive the same exposure to market movements by putting up a less capital (3x, 5x or 7x). In essence, it allows you to do more, with less money.
# 4 Gain Exposure To Overseas Indices (And Some Overseas Stocks)
As mentioned in the introduction, the original line-up of DLCs allow you to gain leveraged exposure to overseas indices like the Hang Seng Index (HSI) and Hang Seng China Enterprises Index (HSCEI), with the ease of buying a SGX-listed stock, without the worry about additional overseas broker charges or needing to set up additional accounts.
With the expansion of the DLC product line to Hong Kong listed stocks like Tencent and Ping An, Singapore investors can look forward to more investment choices and opportunities.
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