ABN AMRO tries to muscle in on HK warrants

It hopes commodity-based products will wean punters away from established issuers.

ABN AMRO Bank has entered Hong Kong's crowded warrants market, making it the 13th issuer in the $46 billion market. The push began when it lured Heddy Tsang from SG at the start of the year.

SG is one of the top warrants issuers in Hong Kong, along with KBC, Macquarie Bank, Deutsche Bank and BNP Paribas. Tsang joined ABN AMRO as director and head of public distribution for private investor products. Her team has begun cranking out warrants and her goal is to account for 10% of all issued products in Hong Kong for 2005.

The warrants industry has become big business over the past two or three years, thanks in part to new listing rules on the Hong Kong Stock Exchange that made the market more transparent. Another, more fundamental reason is that because the world's abundance of liquidity has put paid to trends in equity markets, and so punters are eager to leverage bets to earn bigger bangs from fewer bucks. Third, the government's ill-fated attempt to kill off penny stocks two years ago drove more people to warrants, which can be bought in small lots.

Although most investors in Hong Kong have crawled back into their shells since the Asian financial crisis and the bursting of the tech bubble, there remains a hard core of stock investors who are not interested in mundane offerings such as guaranteed funds. "Hong Kong investors like leveraged products," Tsang says.

ABN AMRO is the second-largest issuer of warrants in Germany, which until last year was the world's biggest market, until it was pipped by Hong Kong. But it has been absent from the Hong Kong game. Now it wants in.

Tsang realizes that brand is key here, and that the high marketing costs make it tough for a newcomer to challenge the established market leaders. ABN AMRO's strategy is to introduce new asset classes.

Most existing product is based on Hong Kong equities and equity indices. ABN AMRO has instead introduced warrants based on gold and oil crude. It is also hoping to win clients by being more transparent, and giving investors a better idea of where warrant puts should be at a given price for the underlying asset. "We're trying to change investor attitudes," she says.

Other warrant issuers such as SG have also recently introduced derivatives on commodities like oil. ABN AMRO hopes it can break into the market by focusing exclusively on these, knowing that the equity warrant game is already overcrowded. It is considering future products based on silver or commodity indices for the second half of the year.