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SGX FTSE China A50 futures open interest reaches US$9 billion



12 December 2017



Market Updates



SGX FTSE China A50 futures open interest reaches US$9 billion


  • In November, the average daily turnover of SGX FTSE China A50 futures increased 58% over the previous month to US$4.4 billion. Open interest maintained its strong growth momentum, to achieve a 7% month-on-month jump to US$9 billion as of end November.
  • The benchmark FTSE China A50 Index rallied to a 2.5 year high of 13,866 index points on 22 November as China unveiled extensive market liberalisation efforts. The Index’s 10-day historical volatility soared to 24% from a low of 6% earlier in November.
  • With the most complete multi-asset suite of Chinese derivatives, SGX offer investors the access to trade Chinese assets across equities, currencies and commodities. Currently, the SGX FTSE China A50 Futures is the only A-share futures available offshore for investors to manage their risk.

After consolidating for the most part of October, the Chinese equity market saw increased volatility in November. China announced the largest liberalization effort in China’s financial services industry since 2007 when foreign banks were allowed to set up locally incorporated operations in China. Foreign firms will be allowed to hold a majority stake in joint ventures with mainland Chinese securities companies and life insurance joint ventures.

The FTSE China A50 index rallied to as high on 22 November of 13992 index points, before the market corrected close to 6% in the remaining days of November. Tracking the top 50 blue-chip companies by market capitalization in Chinese A-share market, the index has rallied 31% this year so far.

SGX FTSE China A50 futures’ average daily turnover grew 58% month-on-month to hit a 20 month high of US$4.4 billion (332,381 contracts) in November 2017. Open interest grew 7% month-on-month to approximately US$9 billion (698,683 contracts), bucking the overall trend of declining AUMs in offshore listed A-share assets. RQFII ETFs recorded estimated net outflows of Rmb 1.6 billion in November.



China opening up its capital market

In November, China’s deputy finance minister Zhu Guangyao announced that limits on foreign ownership of joint ventures in China’s financial services sector will be relaxed over the next five years. The changes, which take effect immediately, include raising the limit on foreign ownership in joint-venture firms involved in the futures, securities and fund markets to 51%, from 49%. The move gives overseas firms a long- awaited chance to grab a bigger slice of the country's multitrillion-dollar financial service market.

In addition, notwithstanding a drop in net purchases in October and November, there has been on average a 54% increase in net purchases of Shanghai and Shenzhen stocks since December 2016. With the successful launch of the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect, regulators are now turning their eyes to another project: the London-Shanghai Stock Connect.


Following a brief respite due to Brexit, talk of a Shanghai-London Stock Connect resurfaced recently with senior leaders of the CSRC calling for the active promotion of the linkage. The Shanghai-London Stock Connect project epitomises the internationalisation of China’s capital market and China’s willingness to participate in the international financial market.

While China opens up, risks and challenges remain

An almost two-year long study of the Chinese financial system by the IMF found 3 major tensions that could derail the world's second-largest economy.

These are attributed to the rapid build-up in risky credit that, according to the IMF, was partly due to the pressure felt by banks to keep non-viable companies open. The second tension identified by the IMF is the proliferation of the shadow banking sector, which has added another layer of complexity to the financial system. The third tension is the rampant amount of “moral hazard” and “excessive risk taking” due to the mindset that the government will bail out troubled state-owned enterprises and local government financing vehicles. An example is the "implicit guarantees" that financial institutions offer when selling products to retail investors. This is applicable in situations where financial products sold are not guaranteed, but banks almost always compensate investors for principal losses by dipping into their own capital.

These tensions reflect the burden on a financial system that has doubled in size in 10 years, while China evolves from an export-oriented economy to one based on services and consumption. IMF has recommended among others, that China Banks should increase their capital to cushion against a sudden cyclical economic downturn and hold more assets to cushion against a sudden cyclical economic downturn.

SGX FTSE China A50 Futures – Most Liquid Offshore Listed China A-share Product

During the party congress in October, President Xi Jinping highlighted financial stability as a top government priority and has, among other initaitives, set up a "super financial regulator" to coordinate the oversight of the banking, securities and insurance sectors. China's efforts have paid off, with the international investing community now recognising the country's lower systemic risks. With sentiments towards China turning somewhat positive, we saw a 58% increase in average daily turnover of SGX FTSE China A50 Futures grew to US$4.4 billion in November 2017, the highest since February 2016.



SGX is the only international exchange that offers a single, multi-asset platform for investors to trade Chinese assets across equities, currencies and commodities. Currently, the SGX FTSE China A50 Futures is the only A-share risk management tool available offshore.

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