By V. Phani Kumar
The much-anticipated launch of stock-index futures took off on a
buoyant note Friday, with all four futures contracts based on the
benchmark CSI 300 index posting strong gains.
The move to launch index futures, which follows the recent
introduction of margin trading and short-selling in the equity
markets, is being seen as an incremental step to develop and deepen
the Chinese financial markets.
And although stringent requirements to qualify for futures
trading imply that only a few investors will initially be able to
use the futures contracts as a tool to hedge their risks in the
cash market, the entry barriers could be relaxed in due course as
more derivative instruments such as options, or individual stock
futures, are launched in due course, say analysts.
At the midday trading break Friday, the most actively traded CSI
300 May futures contract was up 1% at 3,433.60, after rising as
high as 3,488 earlier in the session. The June contract was up 2.2%
at 3,472, the September contract jumped 4% to 3,534.20 and the
December contract rose 5.2% to 3,576.
"I think it will increase the [market trading] turnover. ...
During the first few days, we may see some [pressure on the index]
because investors sell the [the shares in the underlying index] and
buy the futures. But in the medium term, whether the futures will
[pressure] or lift the index will depend on the fundamentals," said
Barole Shiu, an analyst at UOB Kay Hian.
China's State Council gave a green light to the introduction of
index futures late last year. The launch comes after about three
years of mock trading.
The underlying CSI 300 index, a benchmark measuring the
performance of 300 large-capital and actively traded stocks in
Shanghai as well as Shenzhen, was down 0.7% at 3,369.90.
The China Financial Futures Exchange -- a bourse jointly founded
in Sept. 2006 -- had set the base value for all four futures
contracts at 3,399.
The Shanghai Composite index, meanwhile, fell 0.8% to 3,139.38.
Among leading decliners, shares of China Merchants Bank Co. (CIHKF)
dropped 2.1% and China Minsheng Banking Corp. (CMAKY) gave up 1.8%,
with Yanzhou Coal Mining Co. (YZC) dropping 2.3%.
Elsewhere in the region, Hong Kong's Hang Seng Index fell 1.3%,
Japan's Nikkei 225 Average gave up 1.5%, South Korea's Kospi lost
1%, India's Sensex slid 0.4% and Taiwan's Taiex dropped 0.7%.
Barriers to entry
"In our view, the [CSI 300 index futures] contract has been
designed with conservative specifications and should initially
attract mostly experienced traders due to the higher barriers to
entry. The operating environment for the index futures also appears
conservative, with only 90 names available for margin," analysts at
Goldman Sachs wrote in a note to clients.
But over time, "we expect the operational environment will
become more flexible, improving the efficiency of pricing. ...
Under close monitoring by authorities, we expect a gradual increase
in liquidity, but even then we don't expect a significant direct
impact on the stock market," they said.
The initial margin requirement for futures trading has been set
at 15% for the May and June contracts, and at 18% for the farther
September and December contracts. According to information posted
on the CFFEX's Web site, individuals will be required to have at
least 500,000 yuan ($73,200) to open a futures trading account.
That level of margin requirement is higher than that required by
most regional and global peers, according to Goldman Sachs, with
Nifty futures trading on India's National Stock Exchange being an
exception, requiring 20% of the contract value as initial
margin.
UOB Kay Hian's Shiu said authorities also require that only
investors who pass qualification exams will be allowed to open
accounts, in addition to meeting the capital requirements.
"After the investors are acquainted with the dealing of the
futures, then they may use it as a hedge or use it as a
price-discovery tool," he said.
At the same time, a single futures trading account can have only
100 contracts, though the limits can be raised with approval from
the CFFEX, according to Goldman Sachs.
Even among the more sophisticated institutional investors,
domestic mutual funds can only have a long futures position of up
to 10% of its assets under management, and a short futures position
of up to 20% of its stock holdings, the brokerage said.
-V. Phani Kumar; 415-439-6400; AskNewswires@dowjones.com
