Societe Generale has predicted that more investors would invest in callable bull or bear contracts than in warrants this year.
The volume of investments in these contracts could reach HK$5 trillion, accounting for 25 percent in the local market's trading volume.
It said the implied volatility in warrants is high and it would be difficult for investors to make reasonable yields.
Societe Generale vice president Horace Chow said investors should use callable bull or bear contracts while employing short-term speculation strategies to make decent gains.
He recommends investments this year in various sectors, notably industrials, health care, consumer goods, and financials as their price to equity ratios are low after they have been subjected to corrections.
He said companies worth investing in include Construction Bank (0939), Industrial and Commercial Bank of China (1398), Ping An Insurance (2318), Maanshan Iron and Steel (0323), Nine Dragons Paper (2689), China National Building Material (3323) and CSPC Pharmaceutical (1093).
Chow said caution should be exercised when investing in second to third-tier as well as technology stocks as they could be subjected in the coming months to significant corrections.
He also said investors should not take long positions in warrants as the market could become volatile amid the continuing US-China trade war and Brexit.
Societe Generale vice president Eva Tsoi said the volume of trade in warrants and callable bull or bear contracts rose by 29 percent to HK$3.87 trillion and 55 percent to HK$1.84 trillion, respectively, in 2018.
Tencent's (0700) warrants account for 35 percent of the local market, while Hang Seng Index warrants account for 15 percent.