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SGX Taiwan Begins 2017 on a Positive Note

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Market Updates

 

Taiwan Begins 2017 on a Positive Note

 

  • Foreign institutional investors have become net buyers of Taiwan’s stocks for eight straight trading sessions since the start of the year - a reversal in trend of funds outflow which commenced since mid-December 2016.
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  • Taiwan stocks rose to their highest in more than 18 months, tracking gains in overseas markets. Gains were also boosted by Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world’s largest contract chipmaker, which climbed 1.4% ahead of its fourth-quarter results.
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  • SGX MSCI Taiwan Index Futures have seen a 25% increase in month-end open interest year-on-year. The open interest was 212,288 contracts, or approximately US$7.5 billion in notional value, as of 12 January 2017.

The Taiwanese equity market welcome the new year on a positive note. Foreign institutional investors have become net buyers of Taiwan’s stocks for eight straight trading sessions, a reversal in trend of funds outflow since mid-December 2016.

 

Net purchases from foreign institutional investors reached a high of NT$10.4 billion (US$329 million) as of 12 January 2017, according to the Taiwan Stock Exchange. The Industrials and Information Technology sectors outperformed, with YTD gains of 2% and 1.5% respectively, while the Energy and Healthcare sectors have underperformed.

 

 

Since the results of the US presidential elections, the MSCI Taiwan IndexSM has increased 4% to 351 index points, where among others, the Electronics sector outperformed, with YTD gains of 8.6%. In tandem, the TWSE index was up 0.8% at 9417 as of 12 January, rising to its highest since late June 2015. According to Sinopac’s research report, they foresee that two factors – strengthening exports and robust year-on-year corporate earnings – will lift the index to 9,500 to 10,000 index points in the first half of 2017. 

 

Tapping Opportunities in the Emerging Markets Equities Space

 

Emerging markets rallied and has outperformed the S&P Index up until mid-November 2016, where markets paused to react to the implications of a Trump presidency. Emerging market portfolios registered the lowest total inflows since 2008 as interest in developing economies waned. In December 2016, portfolio outflows totaled US$3.4 billion, resulting in 2016 having the weakest level of inflows for emerging markets since 2008., according to the Institute of International Finance (IIF).
 
Notwithstanding, the US President-elect has also promised more infrastructure spending and lower taxes. This, coupled with the December rate hike and impending rate hikes this year, the US dollar is expected to strengthen further, which may potentially lead to less attractive carry trades, outflows from emerging markets fixed income markets and weaker emerging markets currencies. The weaker emerging markets currencies might also in turn might boost exports of such economies which tend to be export-oriented in nature. This could present an interesting entry point for emerging markets equities as historically, emerging markets equities tend to outperform in times of strong US growth.

 

MSCI Emerging Markets (MXEF) Returns , US Federal Funds Rate (Fed Funds Rate), US Dollar Index (DXY)

 


SGX MSCI Taiwan Index Derivatives

 

One way to gain access into the emerging markets equities space is by investing in SGX MSCI Taiwan Index futures and options contracts. With 88 constituents, the MSCI TW IndexSM is a free-float adjusted market capitalisation weighted index designed to track the equity market performance of Taiwanese securities listed on the Taiwan Stock Exchange and GreTai Securities Market. 

 

SGX MSCI Taiwan Index futures hit a high of 351 index points as of 12 January 2017, rising 4% since the results of the US presidential elections. The strengthening US dollar has further promoted the use of US dollar-denominated Quanto products such as SGX MSCI Taiwan Index futures and options. A Quanto product provides the returns of an underlying paid out in a hard currency such as the US dollar, without the currency translation, thereby offering direct exposure to equity risk premium. 

 

SGX MSCI Taiwan Index Futures have seen a significant 25% year-on-year increase in month-end open interest. As of 12 January 2017, our open interest has reached 212,288 contracts, or approximately US$7.5 billion in notional value. The extended trading or T+1 session, which has been extended to 4:45am since 14 November 2016, allows market participants to take advantage of or hedge against price movements during European and US hours.

 

SGX MSCI Taiwan Index Futures  Open Interest (Notional, in millions)

 

 

Contract Specifications

 

SGX MSCI Taiwan Index Futures

Contract Size

US$100 x SGX MSCI Taiwan Index Futures Price

Ticker Symbol

TW

Contract Months

2 nearest serial months and 12 nearest quarterly months

Tick Value

0.1 index point (US$10)

Trading Hours (Singapore Time)

T Session:  8:45am to 1:45pm

T+1 Session: 2:15pm to 4:45am

Last Trading Day (LTD)

Second-last business day of the contract month

Daily Price Limits

(a) Whenever the Initial Price Limits are reached, i.e. the price moves by 10% in either direction from the previous day’s Daily Settlement Price (“DSP”), a Cooling Off Period is triggered where trading within the Initial Price Limits shall continue for a period of ten minutes.

(b) After the Cooling Off Period is over, the Final Price Limits, i.e. the price moves by 15% in either direction from the previous day’s DSP, come into effect and shall apply for the rest of the trading day. No trades are allowed to take place at prices beyond the Final Price Limits.

There shall be no price limits on the Last Trading Day for the expiring contract.

With regards to the T+1 session, the Daily Settlement Price (DSP) derived in the T session that just ended will be the reference price to determine price limits.

Position Limits

A person shall not own or control more than 10,000 contracts net long or net short in all Contract Months combined, unless otherwise separately approved by the Exchange.

Final Settlement Price

The Final Settlement Price shall be the average of the MSCI Taiwan IndexSM values on the Last Trading Day taken at one-minute intervals during the last twenty-five (25) minutes of trading on the MSCI Taiwan IndexSM preceding the commencement of the closing auction session, and the closing index value. The Final Settlement Price shall be rounded to two decimal places.

Settlement Basis

Cash settled (USD)

Margins Offset

Yes

Negotiated Large Trade

Minimum 50 lots

Price Information

(Vendor: Ticker)

Thomson Reuters: STW: <F3>

Bloomberg: TWA <INDEX> CT

 
 

SGX MSCI Taiwan Index Options

Contract Size

One SGX MSCI Taiwan Futures contract

Contract Months

2 nearest serial months and 12 quarterly months

Tick Value

0.01 index point (US$1.00)

Trading Hours (Singapore Time)

T Session: 8:45am to 1:50pm

T+1 Session : 2:15pm to 4:45am

Last Trading Day (LTD)

Second-last business day of the contract month

Strike Prices

Five index point intervals


The Exchange will list At-the-Money (ATM) strike put and call options and the next eight strikes above and below the ATM strike.

Position Limits

A person shall not own or control options and underlying MSCI Taiwan Index Futures contracts that exceed 10,000 futures-equivalent contracts net on the same side of the market in all contract months combined. Note: Clearing Members may apply to the Exchange for higher position limits on behalf of their customers. Approval is based on the financial standing of the Member and their customer on a case by case basis.

Option Exercise

European Style

Settlement Basis

Cash settled (USD)

Margins Offset

Yes

Negotiated Large Trade

Minimum 25 lots

Price Information

(Vendor: Ticker)

Thomson Reuters: STWs: <F3>

Bloomberg: TWA <INDEX> OMON

 
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