SGX China A50 futures sees jump in trading volume after launch of HK-Shanghai stock connect

The futures contract saw some US$1.4b traded in average daily notional turnover.

The old adage “great things come to those who waits” proved true for investors who were eagerly awaiting the launch of the Hong Kong Shanghai Stock Connect.

According to SGX, the first trading day on 17 November started off well. By 9.30 am when the market opened for continuous trading, 50% of the RMB13 billion (US$2.1 billion) daily northbound quota was taken up and subsequently fully utilized by approximately 2 p.m. 

SGX A50 Futures traded 292,970 contracts by the close of T session at 4 p.m., an estimated notional volume of US$2.3 billion, as Nov 14 futures came down from the high of 7940 during Friday’s trading session to hit 7645 today.

During the year, as interest in the Stock Connect grew, Chinese equities saw an increase in trading. In conjunction, the SGX China A50 futures contract, as a premier hedging and access tool to Chinese equities also saw a jump in trading volume. In the last week, the futures contract saw some US$1.4b traded in average daily notional turnover and open interest climbing to reach 385,000 contracts by 14 November 2014.

Year to date, the SGX China A50 futures had a correlation of 0.94 to the underlying A50 China index. The high correlation of the futures to the underlying effectively makes it a valuable hedging tool. In addition, the high correlation of the China A50 index with the CSI 300 and SES50 indices make it possible to use the futures to track all three indices simultaneously.

Here’s more from SGX:

Asset managers, faced with the wait for pending RQFII quota could use the SGX FTSE China Index futures to track the various Chinese indices before obtaining more RQFII quotas.

In addition, investors who will or are already investing in Chinese A-shares equities could find the SGX China futures useful as an overlay tool to help them achieve a variety of asset allocation objectives.

An overlay strategy is a managed futures portfolio that is added to an existing portfolio in order to introduce new exposures to the portfolio. The strategy is called an overlay because the futures or forwards require little or no initial funding.

The SGX China A50 futures contract offer capital efficiency of up to 28 times leverage. Investors can also enjoy up to 20% margin offsets if they use the SGX China A50 in conjunction with the exchange’s Renminbi futures.
The extended trading hours of the SGX China A50 futures gives investors up to 16.5 hours to manage their A-share risk across Asian, European and partial US hours. Furthermore, the SGX China A50 futures contract is open for trading even during Hong Kong holidays, during which access to the Stock Connect is not available.