2. Accumulator
Its just a financial product, but it is being termed
as “I kill you later”
It’s a financial product that allows you to Buy
Low, Sell Lower!
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3. Too Good To Be True?
• Accumulator enables an investor to "accumulate" stocks
at a pre-agreed price (“Accumulator Price”), which is
usually 10% -20% below the market price at the point of
time when the contract was entered.
• E.g. If you were to purchase an Accumulator today on
ABC Share, it would mean that you would start to
purchase ABC Share at about a 25%* discount to its
trading price for the next 12 months.
• Buying shares at a discount! That’s too good to be true !
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* The numbers are for illustrative purpose
4. What’s the Catch?
• Accumulator is not a one-off transaction. It generally
lasts 12 months and you have to commit at least US$1
million, with which you accumulate the stock regularly.
• Once you enter the Accumulator, the price you pay for
the stock is fixed.
• As such, even if the stock price comes down, investors
are still committed to continue to buy the stock at the
pre-determined price until the accumulator contract
ends! Thus buying the stock at a higher price!!!
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5. The Unfair Advantage?
• If the stock price rises to above a certain level (normally
just a few percent above the spot price), the Accumulator
is knock out! The bank returns money back to the
investor.
• The knock out price is usually 2%-5% above the market
price at the point of time when the contract was entered.
• Investor take the risk of any fall in the stock price,
unlimited risk!
• The bank’s risk however are capped at just a few
percentage point above the spot price.
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6. How it works?
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Source: The Wall Street Journal Asia, Sept 1, 2009
7. Scenario Analysis
Stock Price Movements Returns of Accumulator
Increases Returns are capped up to
“knock out level”.
Decreases Unlimited losses.
Flat Best case scenario, but
what are the odds of a stock
price staying flat for 12
months?
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8. Increase the Pain!
• If the market price falls below the Accumulator Price,
investors are still committed to purchase the shares.
• In some contracts, if the market price falls below the
Accumulator Price then the number of shares that
investors is obligated to purchase would also increase,
("Step Up" feature).
• The typically Step Up is between two times to five times.
• As such, investors need to fork out more money to
purchase the stocks at a higher price as compared to the
market price !
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9. Accumulating other asset classes
• While, Accumulators started with equities as
the underlyings, but there are also
Accumulators where their underlyings are
currencies and commodities.
• But the risks and rewards remain the same.
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10. Wealth Destroyer?
“The Hong Kong securities regulator has estimated that
US$23 billion worth of these contracts were sold, The
Economist reported. Because the contracts are private,
it’s hard to tell the exact amount of money lost, but Hong
Kong tycoons who reportedly suffered losses included
Robert Kuok, head of Kerry Holdings, Joseph Lau,
chairman of Chinese Estates Holdings, Lee Shau-kee,
who controls Henderson Land, and Wu Man-san,
chairman of Hopewell Holdings, according to Next
magazine.”
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11. Conclusion
Accumulators will not be buried just yet,
and maybe with some re-packaging, they
could also resurface again.
Updated, 5 June 2010
Contact me @
ngkaichong@yahoo.com
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