Singapore, Jan 29, 2014 – (ACN Newswire) – SGX China A50 Futures traded a record annual volume of 21.9 million contracts in 2013, up 119% from a year earlier. As the world’s only offshore SGX China A-share futures, participation in the SGX China A50 Futures is well spread across global investors like banks, hedge funds, pension funds, proprietary trading firms, asset management companies and individual investors.
– Investor activity continues to grow – the SGX China A50 Futures traded a record annual volume of 21.9 million contracts in 2013, up 119.0% from a year earlier. It is the fastest growing offshore China product in terms of notional open interest growth.
– Momentum in offshore China A-share investment products is accelerating with China equity-linked products being one of the fastest growing sectors of the global asset management industry over the past two years.
– The variability of economic reforms, announcements and results can have a day to day effect on the outlook and performance of the companies that make up the FTSE China A50 Index. This domestic orientation was evident last year with the SGX China A50 Futures averaging a very low correlation to the other major equity index futures traded across Asia.
As of the end December 2013, these global investors maintained more than US$ 2 billion in SGX China A50 open positions at the SGX clearing house.
Momentum in Offshore China A-share Investment Products Accelerates
Products linked to China’s equity market have been one of the fastest growing sectors of the asset management industry globally over the past two years. Exchange traded fund providers are lining up to participate in the liberalisation of China’s capital markets.
On 9 January 2014, Source, a London-based provider of ETFs, and CSOP Asset Management, a Hong Kong-based investment management firm, teamed up to launch Europe’s very first ETF to offer direct physical exposure to the China A-shares market. the CSOP Source FTSE China A50 UCITS ETF debuted with more than $ 230 million in assets after strong pre-IPO demand from investors. Earlier in November 2013, Deutsche Asset & Wealth Management (DeAWM) and Harvest Global Investments launched the first physical A-share ETF listed in New York, tracking the CSI300 index.
SGX China A50 futures continues to play a pivotal role in the China A-share market, as a major offshore price discovery and risk management centre. SGX China A50 Futures meets the various objectives for different market participants such as acting as an hedging instrument for product issuers, an investment tool for investors who do not have access onshore, and arbitrage tool for traders who arbitrage between related products and onshore equities.
“Despite the underperformance of the Chinese equity markets in the past year, China is clearly still an important market for investors. There are many reasons to take a view on the China index, with significant economic milestones ahead alongside a step-up in the momentum of reforms. The China index also offers a low correlation versus other Asian benchmarks. The ability to participate in China equity markets offshore via a product like SGX China A50 Futures is important as it allows traders/fund managers to adjust their position/portfolio efficiently under all market conditions”, said Dustin Kuo, Managing Director, Global Markets Equity, Deutsche Securities Asia Limited.
“Recently we have seen greater interest in the China A-share market, as can be seen in increased volumes in the SGX China A50 futures and the listing of more A-share ETFs. As an active market maker in both the ETF and futures markets, we are excited to see more flows in both markets. We are happy to be providing liquidity on such a popular product, helping other participants like the China ETF market makers and fund managers to hedge their exposure,” said a representative for Virtu Financial.
China’s Latest Challenge
For the year 2013, China’s equity market underperformed other major indices, with the onshore Shanghai Composite Index suffering an annual loss of 6.75%.
Last week, the quarterly wave of Chinese data was released, showing that China’s economic growth slowed in the fourth quarter of 2013. Gains in factory output and investment spending eased. China’s GDP rose 7.7% in the October-December period from a year earlier, compared with 7.8% in the 3rd quarter. That leaves growth in the Chinese economy at 7.7% for all of 2013, unchanged from revised levels in 2012.
Up until recently, China’s economy was seeing double-digit annual growth, lifted up by heavy investment and reliance on exports. Now China is seeking to shift away from that model to focus on an approach that is more balanced between exports and domestic demand. Party leaders had, at the Third Plenum of their 18th Party Congress held in November 2013, outlined a number of broad policy statements on reforms.
The reforms, perhaps the most significant reform package in China in decades, could potentially be a catalyst to reverse the underperformance of the Shanghai stock market in recent years. The ability of China to maintain a rapidly growing economy in the long run will depend largely on the ability of the Chinese government to implement comprehensive economic reforms. They include:
– State-owned enterprise reforms that enhance the role of public ownership with some measures to improve SOE’s vigor, control and influence, while continuing to support the non-public sector;
– Let the market play a decisive role and establish a modern market system in terms of market rules and pricing. This involves interest rate liberalisation and exchange rate formation; speed up RMB capital account convertibility and
– Reducing the economy’s reliance on debt, and reform credit markets to mitigate the risks of a financial crisis.
Of the 50 A-share constituents of the FTSE China A50 Index, 40 are listed in Shanghai and 10 are listed in Shenzhen. The index captures many of China’s largest corporations. Due to the size of the China economy and substance of reforms, the Index does not have a high degree of correlation of the indices of the region. Obvious exceptions have occurred to these relationships when an economic event or reform deemed to have regional or global consequences is released or announced. For instance while the SGX Nifty futures and SGX China A50 futures average a low correlation level of 0.233 over the past five years, 120 day correlation moved to 0.35 in July last year coinciding with higher US treasury yields in June.
About Singapore Exchange (SGX)
Singapore Exchange (SGX) is the Asian Gateway, connecting investors in search of Asian growth to corporate issuers in search of global capital. SGX represents the premier access point for managing Asian capital and investment exposure, and is Asia’s most international exchange with more than 40% of companies listed on SGX originating outside of Singapore. SGX offers its clients the world’s biggest offshore market for Asian equity index futures, centred on Asia’s three largest economies – China, India and Japan.
In addition to offering a fully integrated value chain from trading and clearing, to settlement and depository services, SGX is also Asia’s pioneering central clearing house. Headquartered in Asia’s most globalised city, and centred within the AAA strength and stability of Singapore’s island nation, SGX is a peerless Asian counterparty for the clearing of financial and commodity products. For more information, please visitwww.sgx.com.
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