Thailand’s volatile equity market has revived trading in derivative warrants (DW), with turnover climbing to 3-4% of total market trading value, according to KGI Securities (Thailand).
Jenvit Chinkulkitniwat, managing director of equity derivatives at KGI, said the brokerage plans to issue more than 1,100 DW series this year, of which 370 series have already been launched, marking the highest level in the company’s history.
KGI aims to expand its investor base and support a broader range of trading strategies, he said.
DWs are leveraged investment instruments that allow investors to profit from price movements in underlying assets such as stocks or indices using relatively small capital, although they carry higher risks due to volatility and expiry constraints.
Thailand’s benchmark stock market index started the year strongly, rising towards 1,500 points and generating returns of 15-20%.
Sentiment later weakened as geopolitical tensions in the Middle East and higher oil prices complicated expectations of US Federal Reserve rate cuts, keeping Thai equities trapped near current levels.
KEY DRIVER
Mr Jenvit said investors are paying closer attention to global fund flows rather than domestic fundamentals, as Thailand’s economic slowdown has already been reflected in the market’s relatively low valuation levels.
The Stock Exchange of Thailand currently trades at around 17 times earnings, compared with 25-30 times for US equities. While global technology stocks continue to attract investment flows, elevated interest rates and inflation risks have made international markets more vulnerable to sudden sell-offs, prompting some investors to rotate back into lower-risk markets such as Thailand, supported by attractive dividend yields and lower valuations.
Against this backdrop, DW trading has accelerated, particularly during periods of heightened volatility. In March, severe market swings forced Thailand’s stock exchange to temporarily halt trading through circuit breakers, lifting speculative trading in SET50-linked call and put DWs.
HEDGING TOOL
According to KGI, its DW13 products linked to large-cap Thai stocks and the SET50 index captured a record 70% market share, reflecting growing investor demand for both speculation and portfolio protection.
Mr Jenvit said investors increasingly used SET50 put DWs as a hedge when the index approached 1,500 points, treating them as a “shield” for equity portfolios. In range-bound markets, traders have also adopted short-term strategies by switching between SET50 call and put DWs within the same trading day, while applying strict stop-loss discipline.
KGI has recorded rising interest from a new generation of traders adopting “beyond buy and hold” strategies, including the use of extremely high-leverage DWs on individual stocks that have undergone deep corrections but are beginning to show signs of renewed trading volume.
Another factor behind KGI DW13’s market leadership was its ability to maintain liquidity during periods of severe volatility, including the Middle East crisis earlier this year, he noted. The company’s trading systems and market-making capabilities helped sustain investor confidence during turbulent conditions.
“We remain confident that KGI DW13 can maintain its market leadership while helping raise industry standards and supporting the development of new financial products,” said Mr Jenvit.