Despite the recent boom in activity around the Alibaba share following its initial public offering (IPO) in mid-September, the main issuers of Alibaba-linked products said the share remains a marginal underlying and that Apple continues to be the most traded US underlying.
With over 850 leverage and investment certificates linked to the Alibaba share flooding the structured products markets in Germany, Austria, Switzerland, Belgium, Portugal and France investors piled their orders on the Chinese stock while media reports also suggested that Yahoo was one of the most traded US-based underlyings in Germany during September on the back of the firm’s plans to sell a portion of its 22.4% stake in Alibaba at the end of the year after the Hangzhou-based company’s initial public offering on September 19.
Anouch Wilhelms, director, equity markets and commodities, public distribution at Commerzbank, told SRP that there was an increased activity in issuance and trading around the Alibaba and Yahoo shares which coincided with the press coverage of Alibaba’s IPO.
“But demand around these two equity underlyings is not as significant as you would think,” he said.
Trading
According to Wilhelms, investors rallied to place short and long bids on Yahoo, but the share of the tech firm did not make it to the top 10 most traded underlyings on the month’s statistics at Commerzbank. Wilhelms said investors showed their optimistic or pessimistic views about the performance of the share by trading short/long put or call warrant and knock out certificates.
“We saw this kind of increased demand during the Facebook IPO and also when Apple came out with the iPhone 6,” added Wilhelms. “However, it is very difficult for foreign equity shares to make it to Commerzbank’s top 10 traded underlyings as this ranking is dominated by long-standing equity indices in the German market such as the DAX, the Eurostoxx50, as well as German blue chips such as Allianz, BMW or BASF.”
Commerzbank’s own rankings show that the Alibaba share was on 43rd position during the week of the IPO and was not comparable to Apple which continues to be the highest traded US-based underlyings in Germany and in the bank’s rankings. “During the same week, we saw Yahoo taking the 45th place in the ranking of most traded underlyings,” he said. “The top 10 ranking for the whole of September shows that Apple was in 9th position while Yahoo appeared in 25th position and Alibaba was ranked in the 77th position of the most traded underlyings.”
Strategies
Steffen Kapraun, structured products specialist at UBS in Germany told SRP that the bank reacted to the momentum stirred by the IPO of Alibaba by increasing its issuance of warrants and turbo warrants linked to Alibaba.
“The interest was there and the trading of warrants linked to Alibaba increased due to the big media attention,” he said. “[However] at the moment there are no plans to issue primary market products linked to Alibaba as we have not seen an increased demand [in this space]. compared with German blue chip shares and indices, products linked to Alibaba remain a relatively small portion.”
According to Kapraun, during the days following the Alibaba IPO investors were mostly looking for calls. “This has been equalised in the last few days and the call / put-ratio is now almost balanced,” he said while stressing that as a result of Yahoo’s plans the bank also saw an increase in trading of products linked to the tech share.
“We have seen a significant increase in trading activity in warrants on Yahoo in the last couple of weeks,” said Kapraun.
At Vontobel, the increased activity the topic of Alibaba and Yahoo was seen as a short-lived trend that was over after the IPO.
“Yahoo and Alibaba were not in the top 20 most popular underlyings for turbo certificates and warrants one week after the IPO,” Heiko Geiger, head of public distribution Germany and Austria at the Bank Vontobel Europe told SRP. “In the course of the press coverage these shares experienced an increase in value for around four days after Alibaba’s IPO. That’s why investors increased their trading on these shares."
Tech firms
According to Geiger, Vontobel marketed some 373 leverage certificates, nine discount and 20 bonus certificates on the Alibaba share and that in the mini future category Alibaba was ranked 19th.
“On the [German] primary market we did not offer products linked solely to Alibaba but we offered one protected multi reverse convertible on a basket with Alibaba, Facebook and Twitter whereas in Switzerland barrier reverse convertible were issued linked only to the Alibaba share.”
Geiger also told SRP that currently Apple and Tesla are the most popular US underlying in Vontobel’s trading books followed by Facebook and Twitter.
SRP data shows that between 2007 and 2011, there were 13 products linked to the Alibaba share sold in Germany and four in China.
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