How Investors Can Now Gain Exposure To The Magnificent 7 Stocks Through US Stock DLCs Listed On The SGX

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As the largest and most influential stock market globally, investing and trading in the US stock market has long been appealing to investors in Singapore. Many of the biggest and most exciting companies in the world, including the “Magnificent 7” stocks of Apple, Microsoft, Alphabet (Google), Amazon, Nvidia, Tesla, and Meta (Facebook), are listed in the US.

These technology giants are not only leaders in their respective fields but also combine the prospects for transformative innovation and growth potential with the stability of their financial strength.

Now, investors in Singapore can gain exposure to these Magnificent 7 stocks via US Stock Daily Leverage Certificates (DLCs) listed on the Singapore Exchange (SGX) since 4 October 2024.

What Are The US Stock DLCs You Can Invest In?

US Stock DLCs are leveraged instruments issued by Société Générale and listed on the Singapore Exchange (SGX).

Currently, US Stock DLCs offer investors a unique opportunity to magnify their exposure to daily performance of the Magnificent 7 stocks. Investors can now have 3x leverage, in both long and short directions, on the daily performance of the tech giants.

The convenience of trading US Stock DLCs on the SGX (and in Singapore Dollars) means Asian investors have a new trading window (9am to 5pm Singapore Time) to access some of the most popular US companies even when the US stock markets are closed.

US Stock DLCs That We Can Trade On SGX

There are a total of 14 US Stock DLCs listed on the SGX, offering 3x leverage for both long and short positions on the Magnificent 7 stocks.

Here’s the full list of US Stock DLCs:

Source: Société Générale

How Does Leverage For The US Stock DLCs Work?

A 3x leveraged US Stock DLC will magnify the daily performance of the underlying Magnificent 7 stocks by a factor of three.

This means that if the underlying Magnificent 7 stocks, Nvidia in this example, increases in price by 1% on a US market close-to-close, the price of the 3x Long Nvidia DLC will increase in price by close to 3% . Similarly, if Nvidia decreases in price by 1%, the 3x Long Nvidia DLC will decrease in price by 3%.

Investors can buy the 3x Long Nvidia DLC to express their bullish view on Nvidia or can instead buy the 3x Short Nvidia DLC to express their bearish view.

Performance on a US close-to-close basis

Here, it is important to note that leverage can be a double-edged sword. While it can amplify gains, it can similarly amplify losses. Investors should carefully consider their risk tolerance before trading leveraged products like DLCs.

How Investors Can Benefit From The US Stock DLCs Listed On SGX

US Stock DLCs offer investors a unique opportunity to capitalise on short-term price movements (be it rising or falling) of the Magnificent 7 stocks during Asian hours. By tapping on the 3x daily leverage, investors can also potentially amplify their returns during periods when price swings may occur, such as earnings announcements or major news events.

Notably, such announcements also tend to happen after the US market closes. Being able to trade US Stock DLCs on the SGX provide investors the ability to potentially capitalise on market movements on popular US stocks during Asian trading hours, even though the US markets are closed.

This strategic advantage allows investors to react swiftly to breaking news events or significant earnings releases that occur after the US market closes.

Source: Société Générale

(Investors can watch this illustrative video in full on the Société Générale website)

US Stock DLCs can also be used as an effective hedging tool to enter positions that mitigate potential downside risk in a portfolio even when the US markets are closed too.

For example, if an investor is concerned about a potential decline in the price of a particular Magnificent 7 stock that he holds, he can use a short position in the corresponding US Stock DLC to offset potential losses.

Tied to this, investors can also take short positions easily without the hassle of margin requirements or risk of margin call as required for other trading instruments such as options and futures.

Potential Risks When Trading US Stock DLCs Listed On SGX

Before trading US Stock DLCs on the SGX, it is important to understand some product features such as the Compounding Effect and Airbag Mechanism.

When you hold US Stock DLCs for more than a day, their actual performance might not exactly match the 3x leverage factor. This is because the daily returns are locked in, and the next day’s returns are calculated based on the previous day’s closing price.

This process, known as compounding, can lead to a difference in the overall performance, especially in volatile or sideways markets, Because of this, DLCs are not suitable as a long-term investment.

DLCs also have an “airbag” mechanism designed to limit investors exposure in the event of extreme adverse price movements.

The airbag mechanism will only be triggered when the movements of the underlying stock go against the direction of the DLC. For the 3x US Stock DLCs, the trigger level is set at 20% intraday price movement on the underlying stock

Do note that the airbag mechanism for US Stock DLCs may only be triggered overnight (during U.S. trading hours when SGX is closed). This gives rise to a risk where investors can incur a significant or total loss of their capital overnight and will not be able to exit their investments in the DLC at that time.

Again, investors have to be comfortable with the fact that they can only trade the US Stock DLCs during SGX market hours and cannot manage their positions overnight when US market is open for trading.

This brings home the important point that it’s crucial to carefully consider the various features and associated risks of leveraged products such as DLCs

As the issuer of US Stock DLCs, you can visit Société Générale’s website to learn more about this innovative and exciting new  product and how it can benefit your US Stock trading.

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