The moves by Hong Kong’s stock exchange to start trading derivatives contracts based on Chinese-listed shares pose a new competitive threat to rival Singapore Exchange Limited.
Tuesday 12, March 2019
(Bloomberg) --The Stock Exchange of Hong Kong Limited (HKEX) announced it signed an agreement with index provider MSCI to start trading Chinese equity futures, laying the groundwork for another avenue through which global investors can hedge exposure to China’s $7 trillion stock market.
When trading starts, it will end SGX’s effective monopoly on offshore derivatives based on Chinese A shares which it has held since trading in its FTSE China A50 contract started in 2006.
Robert Kong, Citigroup Analyst, said that the move will be a challenge for a derivatives contract which has been an important driver of SGX’s growth in recent years, Citigroup analysts downgraded SGX shares to a sell from neutral.
In a statement, SGX welcomed steps to support China’s internationalisation and increasing investor access to Asia’s most important emerging market, adding that SGX market participants will benefit from an even larger liquidity pool for our suite of China equity derivatives, as the interaction of different trading venues will create more flows.
Though the timing of HKEX’s product launch has yet to be determined, as regulators in Hong Kong and China review the application, trading is expected to start within months rather than years, the Citigroup analysts said.
HKEX’s move could lead to a 15 per cent decline in China A50 volumes over the next two years, according to Credit Suisse Group AG analysts, who said they do not expect trading in Hong Kong to start until after November.
The HKEX plans are subject to regulatory approval.
HKEX’s plans add to a series of challenges faced by the Singapore exchange, including a dearth of new listings and a dispute with the National Stock Exchange of India over the licencing of Nifty 50 Index futures and options contracts.
The FTSE A50 contract generated about 40 per cent of SGX’s total derivatives volume in the last quarter. The futures have a daily turnover of $5 billion and notional open interest of $12 billion. An estimated $8 billion in exchange-traded funds are benchmarked to the index.