FTSE Russell considers revamping China index after launch of Hong Kong rival

FTSE Russell is contemplating main adjustments to the index underpinning a extensively used China futures contract in Singapore, together with doubtlessly doubling the benchmark’s constituents, after Hong Kong’s inventory trade broke its rival’s monopoly on the extremely common commerce.

Arne Staal, chief government of FTSE Russell, stated the corporate might tweak its FTSE China A50 index — a vital device for worldwide merchants searching for to hedge their publicity to Chinese language shares — in response to investor suggestions.

Traded volumes on the Singapore Trade’s (SGX’s) A50 index futures have risen 20 per cent year-on-year to 9.3m contracts, in response to FTSE Russell and SGX.

Latest disruptions to China’s financial system from coal shortages and a liquidity crunch for property builders have compounded volatility in Chinese language shares, underscoring the rising want for hedging instruments amongst world traders who’ve poured tens of billions of {dollars} into the nation’s fairness markets this yr.

The FTSE Russell index presents protection of the 50 largest corporations listed in Shanghai and Shenzhen together with Kweichow Moutai, the world’s most beneficial liquor group, and Ping An Insurance coverage, China’s largest personal insurer.

Staal stated session with traders had lately ended and that adjustments into account included broadening the index, by doubtlessly increasing it to 100 corporations.

Buyers had been additionally requested whether or not they had been snug with the index’s market capitalisation-based method to weighting shares, and which channels they most well-liked to make use of for accessing corporations listed in Shanghai and Shenzhen.

“Markets change, economies change, and indices have to be up to date to mirror the transparency of the funding alternative that traders are in search of as we speak,” Staal stated, including he wished the index to stay as “related as doable”.

The potential adjustments to the index, which serves as the idea for SGX’s common futures contract, comes after the Hong Kong inventory trade broke the Singaporean bourse’s monopoly by launching its personal product for mainland Chinese language shares final month.

HKEX additionally snatched a key derivatives licensing settlement held by SGX for greater than twenty years in Could final yr, permitting it to supply futures and choices contracts based mostly on 37 of index supplier MSCI’s equities indices, principally in Asia.

Staal stated the composition of the MSCI China A50 Join index, upon which the Hong Kong exchange-traded futures contracts had been based mostly, provided “very completely different publicity than ours”.

Boon-Chye Loh, chief government of SGX, added that FTSE China A50 futures had been a “hyper liquid” contract that may stay very important for worldwide traders as China’s market continued to open up.

SGX and FTSE Russell had secured greater than 90 per cent of SGX’s index futures buying and selling volumes from migrating to HKEX with the brand new MSCI merchandise, they stated.

Even so, SGX’s derivatives enterprise has taken successful up to now yr. Derivatives income for its equities enterprise declined 20 per cent to S$288.4m (US$213m) through the 12 months to the tip of June.

SGX’s share value has plunged virtually 20 per cent since its August outcomes, when it revealed internet revenue had fallen 7 per cent to S$447m. Shares are up about 7 per cent this yr, whereas HKEX’s inventory value has risen 12 per cent over the identical interval.

Line chart of Share price change (indexed to 100) showing Asian bourses battle it out

Michael Wu, senior fairness analyst at Morningstar, stated changes to the FTSE index “would assist with higher alignment and total reflection of the Chinese language financial system”.

“There are issues in regards to the substitution or alternative of SGX [by HKEX] . . . however they do have the ecosystem impact”, he added, referring to the deep liquidity of the China A50 futures market and robust demand from present traders. “SGX has been very modern on derivatives typically.”

Others had been much less sanguine in regards to the Singapore trade’s prospects. Analysts at Citi stated they anticipated a restricted increase to earnings at HKEX from the brand new futures within the close to time period, as buying and selling volumes would take time to match these of the SGX contract. However they added that “long run, HKEX seems to be higher positioned than SGX in [Chinese onshore equity] derivatives”.


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