SGX: Global Economies Reel from COVID-19; Market Turbulence Drives Heightened Risk Management Needs with SGX FX Futures Volume Going Above US$ 171 Billion in March

-Aggregate Volume in March at 2.97 million contracts; up 58% y-o-y.
-Aggregate Volume in March at US$ 171.5 billion; up 72% y-o-y.
-Aggregate YTD volume at 435 billion; up 50%
-Quarter-end Open Interest at US$7 billion

Coping with a dual shock – COVID-19 and Oil.

COVID-19 has ravaged the world with nearly 1 million reported cases and death toll close to 50,000. This includes more than 200,000 known cases in US – highest in the world - turning US into the new epicentre for the pandemic. There are now more deaths reported in Italy and Spain than in China. In another shock to the global economic engine, crude oil prices plunged in March. There have been public disagreements on the production cuts between OPEC and Russia and Saudi Arabia announced a 20% discounts on crude oil, the prices were in free-fall.

All asset classes have felt the blow as the economic costs continue to rise. E.g. Crude oil prices have crashed to near 17-year lows, Korean Won dropped to levels last seen in the financial crisis 10 years ago while Rupee hit all-time lows against the dollar. The need to hedge exposures to different markets and multiple asset classes drove participants to look for venues with proven resilience. The trading in SGX FX Futures went up sharply in March as a result with multiple products registering strong growth. Currency Futures on Renminbi, Korean Won and Singapore Dollar all had their best months.

Aggregate volume for SGX FX Futures were up 58% y-o-y at a new record high of 2.97 million contracts. In US$ terms, this was at US$ 171.5 billion (up 72% y-o-y). The aggregate trading volume in the first quarter of 2020 reached US$ 435 billion (up 50% y-o-y) as almost 7.8 million contracts were traded in the first quarter (up 45% y-o-y). Aggregate open interest at the end of March was US$ 7 billion, (up nearly 16% y-o-y). However, the Open Interest shrank 8% y-o-y when measured on basis of contracts outstanding.

Chart 1: COVID-19 fuels increased risk management demand for SGX FX Futures

Data source: SGX, Bloomberg

SGX USD/CNH Futures trading crosses US$ 125 billion in March; as traders rush to manage risk from COVID-19 fallout

-Trading volume for SGX USD/CNH futures above US$ 125 billion; up 95% y-o-y
-Month-end Open interest at US$ 5.4 billion; up 54% y-o-y

Although economists have struggled to gauge the exact extent of the damage caused by widespread shutdowns of factories due of COVID-19, Renminbi weakness in February had been an early indicator of the weakness in Chinese economic activity in the absence of major data releases. In March, release of multiple economic data that was worse than the estimates confirmed the serious impact of COVID-19 on the broader economy.

Market risks associated with COVID-19 has risen in recent months as economic impact continues to rise. The average daily volume of SGX USD/CNH Futures in March rose past US$ 5.7 billion as the strong need to hedge renminbi exposures drove higher trading. The volume crossed US$ 7 billion on 6 days and registered US$ 9.1 billion on 9th March. Renminbi traded in a wider range in the month than in February and it weakened steadily after 9th March.

Chart 3: –Volume for SGX USD/CNH Futures in 2020-Q1

Data source: SGX, Bloomberg

For the third successive quarter, trading volume of renminbi futures at SGX remained above 80% of the global volume during, as participants traded over US$ 125 billion (1,255,507 lots) in the March, setting a new record. Trading worth US$ 125 billion represents a strong y-o-y increase of 95% in the Renminbi futures at SGX.

The open interest for SGX USD/CNH Futures has grown as market looks to manage associated risk. The open interest for SGX USD/CNH Futures grew 54% y-o-y and ended March at US$ 5.4 billion (53,853 contracts). This represents nearly 67% of the open interest across all exchanges with similar offerings.

India goes into lockdown to tackle COVID-19; rupee hedging drives SGX INR/USD futures to US$ 43 billion in March

-Trading volume for SGX INR/USD Futures above US$ 43 billion in March; up 28% y-o-y
-Rupee weakens to historic lows in March before staging partial recovery
-FPIs withdraw nearly US$16 billion in month

Like the rest of the world, fallout from the COVID-19 virus was the key driver for volatility in the Indian financial markets in March. Indian equities crashed more than 35%. The rout has wiped out the gains of last 3 years. Rupee bond markets also took a hit and the 10-year government bond yields jumped by nearly 30 bps in March.

The government could still draw some comfort from the sharp drop in crude oil prices, for it should potentially help reduce the import bills. The central government announced a 1.76 lakh crore stimulus (approx. US$ 23 billion). In what appeared a coordinated effort, RBI cut key rates by 75 bps and announced several measures to provide relief to the financial institutions already struggling with the rise in the non-performing loans.

Chart 4: Rupee hits all-time low in March; risk management demand fuels
SGX INR/USD Futures trading

Data source: SGX, Bloomberg

With global financial markets in a turmoil, international investors sought refuge in safer assets and exited Indian capital markets. Investor sentiment continued to stay negative in March and the net flow foreign portfolio investors (FPI) to India went down sharply. FPI withdrew US$ 15.9 billion in the month from the Indian capital markets.

Rupee weakened by about 4.4 percent in March making it one of the worst months in recent years. Trading exceeded 1.6 million contracts in March (up 37% y-o-y). In US$ terms, the trading volume exceeded US$ 43 billion only for the second time (after August 2019) and was up 28% y-o-y. The average daily trading in March again exceeded US$ 2 billion (after February) as trading volume exceeded US$ 1 billion on 19 days.

How to access information on SGX FX Futures contracts:

Customised Expiry. Bilateral price discovery. Off-exchange execution. Negotiated Large Trades.

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