Recovery likely to spur SBL demand

Writer: NUNTAWUN POLKUAMDEE

Newspaper section: Business

KGI Securities expects a jump in demand for securities borrowing and lending (SBL) activity over the next few months as the equities market continues to grow with the economic recovery.

Naruemol: Profit-taking after recent gains could bring opportunities for short-selling.

Naruemol Artamnuayvipas, KGI's executive vice-president for equity derivatives, said total short-selling volume as of June was 20.15 billion baht in the local market.

KGI, the local market leader for SBL services, had outstanding borrowings of 12 billion baht as of June, or 60% of the market. The brokerage expects volume to reach 25 billion to 30 billion baht for the full year.

Ms Naruemol said the company currently had 411 SBL accounts, up from 353 at the end of June. Local institutional lenders total 54, up 33% from June, while local institutional borrowers total 38 accounts, up 19%.

Individual accounts comprise the bulk of KGI's client base for SBL transactions at 301 accounts, up 14% from the end of June, of which 80 to 100 accounts are considered active.

KGI offers SBL services for 52 stocks, representing constituents of the SET50 index and for two exchange-traded funds: Thaidex SET50 ETF and the Mtrack Energy ETF.

PTT Plc, the largest stock on the SET by market capitalisation, was also the most active stock for borrowing at 3.84 billion baht in the first half, followed by PTT Exploration and Production (3.19 billion), PTT Aromatics (1.85 billion), Siam Commercial Bank (1.14 billion) and Banpu (1.07 billion).

In an SBL transaction, an investor holding a stock may agree to lend his holdings for a set period in exchange for a fee. A borrower can sell the shares in anticipation of further declines in share prices.

If share prices are lower when the borrower repurchases the stock, the investor reaps a capital gain. But if the market price is higher compared to when he sold the borrowed shares, the investor will book a loss, in addition to the borrowing cost of the shares themselves.

SBL services are likely to become even more popular over the next few months with the growing activity in the equities market, Ms Naruemol said.

"The SET index has already gained 56% for the year, and the index is now at a 13-month high. So there should be some profit-taking and a correction in the short-term, which will open opportunities for short-selling," she said.

KGI typically does not hold stock for SBL activities, but instead co-ordinates between lenders and borrowers to match transactions.

Lenders are typically mutual funds, provident funds, institutional investors and insurance companies, while borrowers vary between local individual investors as well as local and foreign institutions.

Foreign investors typically borrow for periods of around one month, while local institutions may take a two-week position while individual investors may borrow for just one week.

"SBL will become more popular in the future, as investors can use the service to short-sell or arbitrage among stocks TDEX, the SET50 index and SET50 index futures," Ms Naruemol said.

In Hong Kong, she noted, SBL activity accounts for as much as 40% of total trade on the equities market.