[Herald Interview] KIS Vietnam to become first foreign brokerage to launch covered warrants in Vietnam

HO CHI MINH, Vietnam -- In Vietnam, one of the fastest growing economies in the world, investors have been searching for ways to hedge risks in times of equity market volatility. Last year, the benchmark index on Ho Chi Minh Stock Exchange (Hose) slipped 9.3 percent, while that of the development board fell 10.8 percent.

One alternative they found was the derivatives market. Among the many instruments, they pounced on covered warrants -- a publicly traded product that allows investors to make leveraged investments with lower exposure to risks and more strategic investments. CWs will premiere in June by getting listed on Hose, the first in Vietnam.

Of the eight issuers that won approval, KIS Vietnam Securities is the only foreign entity, according to its CEO Park Won-sang. The brokerage is wholly owned by Korea Investment & Securities. KIS Vietnam will issue CWs from June 28. It received approval for the launch in July 2018. 

“The opportunity to issue CWs is not open to all players in the securities market, since there are regulatory preconditions, such as human resources and operation capability,” Park said in a recent interview with The Korea Herald.

Having opened just two years ago in August 2017, Vietnam’s derivatives market is still in the early stage. Currently, the country has only one derivatives product tradable on the market -- VN30-Index futures. It tracks the performance of the top 30 largest stocks by market cap on Hose. Moreover, in Vietnam, few institutional investors have participated in the domestic derivatives market, while retail investors -- mostly high net worth individuals -- are dominant in the scene.

Despite such uncertainties, Park, who heads the 10th-largest brokerage in Vietnam as of the first quarter of 2019 by market share, is poised to blaze a new trail.

Park is betting on the track record of Seoul-based brokerage house KIS.

“(KIS Vietnam) is confident of developing the product because our parent firm has dominated the domestic market with equity-linked warrants, which is similar to CWs,” said Park.

KIS’ market share in ELW in terms of the volume of average daily transaction reached 78.2 percent in the first quarter of 2019, partly thanks to Macquarie’s closure of its banking operations in Korea.

Investors in CWs may opt to either exercise the warrants or hold them until the predetermined date, in accordance with the performance of underlying stocks.

CWs are classified as call warrants and put warrants. If an investor bets on a price hike, an investor may choose to buy the underlying asset for gains before maturity, if its value is higher than the strike price. On the other hand, those investing in put warrants can make a profit by selling an underlying asset, if its value is lower than the exercise price.

Park did not elaborate on how many CW codes it will issue for investors in Vietnam and what are their underlying assets.

The CEO said the brokerage is still testing the waters to pinpoint investment products most suitable for Vietnam’s financial sector. He added that there are some limits in hedging risks through stock acquisitions due to KIS Vietnam’s status as a foreign investor subject to ownership restrictions applied to listed companies in insurance, security and telco sectors.

This article is the result of collaboration between the Korea Herald and Antara, sponsored by the Korea Press Foundation.

By Son Ji-hyoung (consnow@heraldcorp.com)