MBf Unit Trust Management, one of Malaysia's largest asset managers with USD300 million in assets under management, is looking to enter the over-the-counter equity options market in 12 to 15 months for the first time since 1998 to hedge its USD300 million equity portfolio. "If possible we'll have our portfolio hedged 100%," said Philip Tan, senior fund manager in Kuala Lumpur, adding that the fund is looking to buy over-the-counter puts and calls as well as listed futures and options to hedge the portfolio, of which 90% is invested in domestic equities. "We don't want to subject investors to high volatility," said Tan.
Tan noted that with the rumored merger of the Kuala Lumpur Stock Exchange and the Malaysia Derivatives Exchange platforms expected by year-end, listed options and futures will likely become more liquid. Mohamad Azam Ali, v.p. of public affairs at the KLSE, said the KLSE bought the MDEX last year but denied plans to merge the two platforms.
Possible OTC option strategies include buying straddles with puts and calls at different strikes or purchasing long-dated options, where the maturity is not available on the exchange. He added it could also buy derivatives to hedge exposure to certain sectors.
Tan noted that before the 1998 capital controls were enacted in Malaysia, MBf UT had 20% of its portfolio hedged with listed derivatives and had also purchased OTC baskets of warrants from Credit Suisse First Boston.
Potential counterparties for OTC derivative transactions include CSFB and JPMorgan. It will select counterparties on the basis of pricing and credit rating.
Josephine Lee, spokeswoman at Credit Suisse in Hong Kong and Joanne Shephard, spokeswoman at JPMorgan in Hong Kong did not return calls.
