Following their debut one year ago, structured warrants listed on the domestic exchange have seen increased activity with the underlying focus mostly on commodities and banking stocks.

A year after the Indonesia Stock Exchange (IDX) listed the first ever structured warrants, the Southeast Asia country’s nascent market is growing by leaps and bounds.

Structured warrant products are clearly in high demand right now in Indonesia, with all of IDX30 index constituents having been used as the underlying

The Jakarta-based stock exchange listed 182 structured warrants in 2023, with the average daily trading value of structured warrants reaching IDR3.5 billion (US$1.75m), a 34.8% year-on-year (YoY), compared with 2022 which recorded around IDR2.6 billion, according to a spokesperson for the IDX’s business development division.

“Structured warrant products are clearly in high demand right now in Indonesia, with all of IDX30 index constituents having been used as the underlying of structured warrants,” the IDX spokesperson told SRP.

The rapid growth came after RHB Sekuritas Indonesia,  a subsidiary of Malaysia's RHB Bank, listed the first batch of structured warrants in this market in September 2022 following the formation of the listing guidance unveiled by the IDX in April 2022. This was closely followed by Maybank Sekuritas Indonesia, a part of Maybank Investment Banking Group, which tapped into the market in February 2023.

Market data from IDX shows that all of these listed structured warrants have a bullish outlook as they have a call behind, which gives their holder the right to buy underlying securities at a certain price and a certain period of time.

The most widely used underlyings are concentrated on local banks and commodity stocks, including local mining giant PT Adaro Energy Indonesia Tbk (ADRO), the mining company that primarily produces gold and nickel Aneka Tambang Tbk (ANTM), the country’s largest bank PT Bank Mandiri Tbk (BMRI), and natural gas transportation and distribution company Perusahaan Gas Negara Tbk (PGAS).

Maybank Sekuritas Indonesia, the latest player to enter the market, has followed a similar pattern.

Among a total of 80 structured warrants it listed last year, its five most popular underlying shares comprise mining companies such as PT Merdeka Copper Gold Tbk (MDKA), PT Bukit Asam Tbk (PTBA), PT Vale Indonesia Tbk (INCO), as well as ANTM and ADRO, according to Azzahir Azhar (pictured), deputy regional head of investment management at Maybank Investment Banking Group.

“Their underlying shares were in demand given their earnings prospects, buoyed by positive news flows,” Azhar told SRP.

For instance, after PT Barito Renewables Energy Tbk (BREN) were listed on the exchange on 9 October, its holding company PT Barito Pacific Tbk (BRPT) recorded strong price movement, making it a favourite underlying share for warrants’ investors, he said.

According to Azhar, there was strong trading activity in Q1 23 but that momentum faded away at the end of Q2 due to the “overall market trading sideways and recording lower volume”.

Yet, stronger take-up rate and trading volume resurfaced in the warrants market in Q4 23 as the Jakarta Composite Index, or IDX Composite, made new gains in Q4 23, reaching 7,272.80 points by closing on the last trading day in 2023.

Investors shifted their preference from these warrants over mining stocks to banking stock warrants at the end of 2023, Azhar added.

Looking ahead

Maybank Sekuritas Indonesia has a positive outlook for the trading activities on IDX in the new year, according to Azhar. As the markets widely expect an interest rate cut later this year, this potential interest rate cut could boost equity market trading in Indonesia, which “would indirectly drive warrant trading activities”.

For IDX, besides the two existing issuers, there are three new joint venture securities houses currently in the pipeline looking to enter the country’s structured warrant issuance market, the IDX spokesperson told SRP.

The exchange is also planning to expand the choice of underlyings with 80 new stocks (constituents of the IDX80 index), with the top three sectors by weight focusing on financials, infrastructure and basic materials.

The expansion is subject to approval from Otoritas Jasa Keuangan, Indonesia's Financial Services Authority.