Introduced by Societe Generale in 2017, Daily Leverage Certificates (DLCs) have become a key financial instrument in Singapore, with over $4 billion traded in 2023. These certificates offer leveraged exposure to the daily performance of assets such as indices and stocks, amplifying returns by up to seven times, making them ideal for short-term trading.
DLCs are listed on the Singapore Exchange (SGX) and enable investors to engage in leveraged trading both in long and short directions across various assets. They differ from options or warrants by offering a more linear payoff structure, directly mirroring a multiple (three, five, or seven times) of the daily return of the underlying asset from one trading close to the next.
A major player in the market, Societe Generale has notably broadened its range of DLC products, most recently including those linked to US single stocks. For Marcus Ng, Vice President of Societe Generale Corporate and Investment Banking, there is an ongoing trend in the investment market now where investors have a greater interest into investing in the US market. “The US single-stock DLCs ride this trend to give local investors access to US stocks.”
This expansion benefits Singapore investors by enabling them to gain exposure to popular US stocks during Asian market hours, a feature particularly advantageous for responding to significant US news while the US market is closed.
Known as the Magnificent Seven, these US stock DLCs offer three times leverage and can be traded in both long and short directions, enhancing flexibility based on market conditions. These DLCs, traded in SGD or USD, allow investors to react swiftly to overnight US developments or anticipated US market movements, providing a strategic advantage in global market engagement.
Long-Short Exposure to the Magnificent 7 Stocks
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“Investors can trade the DLCs to gain exposure to the Magnificent Seven stocks with 3 times leverage for both long and short directions. If they have a bullish or bearish view on a Magnificent Seven Stock with a short-term investment horizon, they can trade the DLCs to express that view,” adds Ng.
Recently, the US market has seen a flurry of activity, from the presidential elections to the earnings season. These events, often unfolding during Asian trading hours, can have a profound impact on the share prices of US stocks.
For example, investors who bought the 3x Long Tesla DLCs at the end of October and held it till end of November, would have stood to gain around 126% on the back of Tesla’s 38% share price rally fuelled by its positive momentum post earnings and Trump’s election win during this period.
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However, for those who bought the short DLC instead and got the direction wrong, losses will also be magnified. (See Table1 below)
| Table 1: Top three movers among the Magnificent Seven stocks in November | ||
| Month-on-Month % Change in Nov | Last close as of Nov 29 | |
| Tesla Inc | +38.15% | US$345.16 |
| TESLA 3xLongSG261006 (Code: TSYW) | +126% | S$10.90 |
| TESLA 3xShortSG261006 (Code: TSXW) | -75% | S$0.71 |
| Amazon.com Inc | +11.53% | US$207.89 |
| AMZN 3xLongSG261006 (Code: USAW) | +33% | S$5.76 |
| AMZN 3xShortSG261006 (Code: USBW) | -33% | S$2.44 |
| Apple Inc | +5.06% | US$237.33 |
| APPLE 3xLongSG261006 (Code: MACW) | +15% | S$4.56 |
| APPLE 3xShortSG261006 (Code: PODW) | -14% | S$3.40 |
Source: DLC.socgen.com (Data as of Nov 29)
The information relating to past performances is for illustrative purposes only, and is not a reliable indicator of future performance.
Asian Hour Exposure Post-earnings or High Impact Events
Investors can also look towards certain events such as earnings releases, company or political events that occur during Asian hours with the potential to generate significant price swings and thus trading opportunities for investors. For example, most recently when the US Election vote count was released during Asian hours on 6 Nov, the news sparked the surge in Tesla’s share price, rising close to 10% and correspondingly the 3x Long Tesla DLC gained closed to 30% during the SGX trading hours on 6 Nov. (see graph 1 below)
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Graph 1: Tesla Long DLC (TSYW) performance (US Election Day)
Source: Societe Generale (Data from Nov 5-7).
The information relating to past performances is for illustrative purposes only, and is not a reliable indicator of future performance.
“Investors would have missed out on this close to 10% move on Tesla if they had waited till the US market session opened. The US Stock DLC can be a useful tool for investors to capitalise on such opportunities during Asian hours and get in early ahead of the US market open,” says Ng.
Short-term hedging
The US stock DLCs provide leverage three times for now in long or short directions, enabling investors to amplify their returns — or losses — based on the daily performance of these well-known US companies.
Apart from capturing opportunities outside of the US trading hours, these instruments also offer a way to hedge existing US stock portfolio.
For instance, if an investor is concerned about potential losses from their US stock holdings due to overnight news or events, they can use a short DLC to hedge against this risk during the Asian trading session.
These US Stock DLCs are traded during SGX hours, and investors cannot manage their positions during the US market session, which investors must be comfortable with. This also means that the air bag mechanism of the DLCs can only be triggered during US market hours when the SGX is not open for trading,” says Ng. Traders must, therefore, have a clear understanding of the product features and their risk tolerance before using the DLCs.
For Ng, having these DLC instruments that offer that kind of exposure in the local exchange space will only serve to benefit investors. Given the size of the US market, he also sees “a lot of room to play”, and Societe Generale will be looking to continue expanding its offerings to investors.
Disclaimer
This advertisement has not been reviewed by the Monetary Authority of Singapore. This article is sponsored by Société Générale, 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.
