Singapore Exchange Ltd. has begun trading the world’s first index futures based on stocks listed in mainland China, ahead of the planned introduction of such derivatives in Shanghai. Futures contracts for Sept. 28 settlement opened at 5128 points at 10:50 a.m. in Singapore, compared with the spot price of 5135.44 for the underlying FTSE Xinhua China A50 Index, which tracks the A shares of the 50 biggest mainland-listed companies, with a total capitalization of 158.6 billion yuan ($20 billion) as of June 30.
The Singapore Exchange is trying to become the center of futures and derivative trading in Asia, preceding Japan in trading index futures based on the Nikkei-225 Stock Average in 1986. Asian bourses have resisted, with the Shanghai Stock Exchange suing to prevent its data being used for the Singapore futures contract. “Our ability to produce this index futures was never in doubt,” says Thomas Tey, senior vice president of the Singapore Exchange. “We’re extremely bullish and we expect to have a very good growth rate.” FTSE Group, owned by Pearson Plc and the London Stock Exchange Group Plc, said yesterday its venture, FTSE/Xinhua Index Ltd. has the right to issue licenses for derivatives on its indices and there’s “no basis” to sue.
The SGX FTSE Xinhua China A50 Index Futures will allow “any investor to participate in China’s growth story,” says the Singapore Exchange. China’s economic growth accelerated to a decade-high 11.3 percent in the second quarter, more than triple the pace of expansion in the U.S.
China has so far given only 45 qualified foreign institutional investors access to local shares and bonds, with a combined quota of $7.5 billion, or 1.6 percent of the nation’s total market capitalization. “Foreign investors will be the main participants in Singapore’s index futures market as domestic investors cannot easily invest overseas,” says Liu Chunyan, head of derivatives research at Tongji University in Shanghai. “China may lose some of its power to price its own assets to foreigners.” China’s tight control on capital inflows and its lack of risk-hedging tools for investors have prompted the development of derivative products elsewhere to mirror Chinese markets and attract foreigners eager to share growth of the world’s fastest- growing major economy. Stock exchanges also woo investors with these products for higher trading income.
“At the start, Singapore’s index futures will have a limited impact on the domestic market,” says Yuan Xiaoli, an analyst at China Securities Research Co. in Beijing. “However, as China deregulates its capital markets, there will be more direct competition.”