Seventh year of Societe Generale’s DLC offering
Daily Leverage Certificates (DLCs) are a key financial instrument in Singapore. They were first introduced by Societe Generale in 2017, and they traded over $4 billion in 2023. They provide leveraged exposure to the daily performance of assets like indices or stocks, with returns amplified up to seven times. Ideal for short-term trading, DLCs offer fixed leverage based on the asset’s daily performance.
DLCs are listed on the Singapore Exchange S68 (SGX). They allow investors to take leveraged positions, both long and short directions, on various underlying assets. Unlike options or warrants and more like leveraged and inverse ETFs, DLCs’ payoff structure is more linear, reflecting a multiple (three times, five times or seven times) of the daily return of the underlying asset on a close-to-close basis.
Societe Generale, a major player in the DLC market, has greatly expanded its product range to include various leveraged instruments tailored to different investor strategies. Their offerings include DLCs linked to indices like the Hong Kong Hang Seng Tech Index (HSTECH) and the US Nasdaq-100 Stock Index, allowing investors to gain leveraged exposure to markets beyond Singapore shores.
For those interested in specific equities, Societe Generale offers DLCs on individual stocks. These include prominent Singapore-listed blue-chip companies such as DBS Group Holdings, Keppel and United Overseas Bank U11 (UOB), as well as popular Hong Kong-listed companies such as Tencent Holdings, Alibaba Group Holding and Meituan. The single-stock DLCs are also available in both long and short instruments, enabling traders to express their bullish or bearish views on these companies’ short-term share price performance.
Marcus Ng, vice president of Societe Generale corporate and investment banking, says: “We typically introduce the DLC linked to the index first when introducing a new underlying market to give investors a good feel of how the index and the DLCs move in tandem, before moving on to the individual index constituent stocks.”
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Societe Generale has grown its DLC product range from just 10 in 2017 to over 200 today, and it continues to expand. Initially focusing on US index-linked DLCs tracking the Nasdaq-100, S&P 500 and Dow Jones indices, it has recently introduced a new range of DLCs tied to US single stocks.
This expansion allows Singapore investors to trade the popular “Magnificent 7” US stocks during Asian market hours, providing significant advantages for those looking to respond to high-impact news during the Asian trading day.
Magnificent 7 US stocks
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These US stock DLCs provide three times leverage for now, enabling investors to amplify their returns — or losses — based on the daily performance of well-known US companies. One of the key benefits of these DLCs is the ability to trade them in both long and short directions, providing flexibility depending on market conditions. Moreover, the convenience of trading in SGD further adds to their appeal to local investors.
One of the standout features of these new DLCs is the ability to trade US stocks during Asian market hours (9am to 5pm Singapore time). This is particularly beneficial for investors who want to position themselves based on overnight developments in the US or ahead of the US market’s opening. It allows traders to react swiftly to earnings reports, economic data, or geopolitical events while the US markets are closed but could affect stock prices once they reopen.
These instruments also offer a way to hedge existing US stock positions. For instance, if an investor is concerned about potential losses from their US stock holdings due to overnight news, they can use a short DLC to hedge against this risk during the Asian trading session. This flexibility can be crucial for managing risk in a globally interconnected market.
Ng believes this product is ideal for investors seeking to capitalise on short-term opportunities in the market. “This is not an instrument for long-term investment”, he says, adding that investors can gain short-term exposure to US stocks in a cost-efficient and capital-efficient way with the DLCs. Ng adds that DLCs can also serve as a hedging tool for investors who actively manage their portfolios. “They can use a short DLC to hedge their investment stock portfolio against market corrections.”
While DLCs offer clear benefits, they also come with significant risks. Leveraged instruments like a three times DLC can triple daily losses as compared to holding the stock itself if the underlying stock declines, potentially leading to large losses. Investors should also understand the daily compounding effects of the DLC, which can greatly impact returns for better or for worse when held over more than one day.
Notably, as US Stock DLCs are traded during SGX hours, investors cannot manage their positions once the US market opens, potentially exposing them to unexpected overnight developments. “This also means that the in-built Air Bag Mechanism of the DLCs can only be triggered during US market hours when the SGX is not open for trading,” adds Ng. Hence, traders must have a clear understanding of the product features as well as their risk tolerance before using the DLCs.
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Increased interest in US markets (and during Asian hours)
For Ng, investors today are becoming more directed to trading the US market. This is a trend especially seen post-Covid-19 pandemic, where he has noticed a new wave of investors interested in trading stock and financial products, with a focus on the US market.
“We see that investors are only going to get deeper entrenched into investing in the US market. Hence, the US single-stock DLCs are riding on this trend to give local investors access to US stocks,” says Ng, adding that investors are also able to do so during Asian hours.
As it is, several other brokerages in Singapore have already offered the market a 24/5 trading feature of US stocks to meet investors’ demands for exposure during Asian hours.
“And having these DLC instruments that offer that kind of exposure in the local exchange space will only serve to benefit investors,” he adds.
Moving forward, Ng says Societe Generale will be looking to continue expanding its offerings. At this point, US single stocks will be the focus, as “there is a lot of room to play, given how big the US market is”.
Disclaimer:
This advertisement has not been reviewed by the Monetary Authority of Singapore. This article is sponsored by Societe Generale, Singapore Branch. The views expressed in this article represent the personal and independent views of the author and do not constitute investment advice. The content of this article does not form part of any offer or invitation to buy or sell any daily leverage certificates (the “DLCs”), and nothing herein should be considered as financial advice or recommendation. The price may rise and fall in value rapidly and holders may lose all of their investment. Any past performance is not indicative of future performance. Investments in DLCs carry significant risks, please see dlc.socgen.com for further information and relevant risks. The DLCs are for specified investment products (SIP) qualified investors only
