SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

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SGX lists five China-focused ETFs that seek to replicate the total returns of major equity market indices in China. They are: Xtrackers CSI 300 Swap UCITS ETF, United SSE 50 China ETF, Xtrackers MSCI China UCITS ETF, Lyxor China Enterprise (HSCEI) UCITS ETF and Xtrackers FTSE China 50 UCITS ETF. 
	 </li>
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Over the 2019 calendar year, these five ETFs have averaged a total return of 25.1%, ranging from 41.9% to 15.5%. This brings their 1Y and 3Y annualised total returns to 4.1% and 6.1% respectively. 
	 </li>
	<li>Among the five ETFs, the three best performers over 2019 were: Xtrackers CSI300 Swap UCITS ETF, United SSE 50 China ETF and Xtrackers MSCI China UCITS ETF. The trio generated total returns of 41.9%, 31.1% and 23.5% respectively in USD over the period.</li>
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SGX lists five China-focused ETFs that seek to replicate the total returns of major equity market indices in China. They are: Xtrackers CSI 300 Swap UCITS ETF, United SSE 50 China ETF, Xtrackers MSCI China UCITS ETF, Lyxor China Enterprise (HSCEI) UCITS ETF and Xtrackers FTSE China 50 UCITS ETF.

Over the 2019 calendar year, these five ETFs have averaged a total return of 25.1%, ranging from 41.9% to 15.5%. This brings their one-year and three-year annualised total returns to 4.1% and 6.1% respectively. Management fees for these ETFs range between 0.45% to 0.65%, offering investors a low-cost option to partake in China’s growth and development.

Among the five ETFs, the three best performers over the last calendar year were: Xtrackers CSI300 Swap UCITS ETF, United SSE 50 China ETF and Xtrackers MSCI China UCITS ETF. The trio has generated total returns of 41.9%, 31.1% and 23.5% respectively in USD over the period.

However, since the start of 2020, the five ETFs have chalked up negative total returns on the back of slower growth forecasts for China and the global outbreak of the 2019 novel coronavirus.

The table below details the five China-focused ETFs listed on SGX, sorted by 2019  total return. 
 

<table class="table table-striped"><tbody>
<tr>
<td>
			<a>Name</a>
			</td>
			<td>
			SGX Code
			</td>
			<td>
			Total Return 2019 (%)
			</td>
			<td>
			Total Return YTD (%)
			</td>
			<td>
			Total Return 1Y Annualised (%)
			</td>
			<td>
			Total Return 3Y Annualised (%)
			</td>
			<td>
			Trading Currency
			</td>
		</tr>
<tr>
<td>
			Xtrackers CSI300 Swap UCITS ETF
			</td>
			<td>
			KT4
			</td>
			<td>
			41.9
			</td>
			<td>
			-9.9
			</td>
			<td>
			15.6
			</td>
			<td>
			8.6
			</td>
			<td>
			USD
			</td>
		</tr>
<tr>
<td>
			United SSE 50 China ETF
			</td>
			<td>
			JK8
			</td>
			<td>
			31.1
			</td>
			<td>
			-9.7
			</td>
			<td>
			7.5
			</td>
			<td>
			0.8
			</td>
			<td>
			SGD
			</td>
		</tr>
<tr>
<td rowspan="2">
			Xtrackers MSCI China UCITS ETF*
			</td>
			<td>
			LG9
			</td>
			<td rowspan="2">
			23.5
			</td>
			<td rowspan="2">
			-5.7
			</td>
			<td rowspan="2">
			4.9
			</td>
			<td rowspan="2">
			10.7
			</td>
			<td>
			USD
			</td>
		</tr>
<tr>
<td>
			TID
			</td>
			<td>
			SGD
			</td>
		</tr>
<tr>
<td>
			Lyxor China Enterprise (HSCEI) UCITS ETF
			</td>
			<td>
			P58
			</td>
			<td>
			13.3
			</td>
			<td>
			-7.8
			</td>
			<td>
			-4.2
			</td>
			<td>
			4.2
			</td>
			<td>
			USD
			</td>
		</tr>
<tr>
<td>
			Xtrackers FTSE China 50 UCITS ETF
			</td>
			<td>
			HD8
			</td>
			<td>
			15.5
			</td>
			<td>
			-8.2
			</td>
			<td>
			-3.3
			</td>
			<td>
			6.0
			</td>
			<td>
			USD
			</td>
		</tr>
<tr>
<td>
			Average
			</td>
			<td>
			 
			</td>
			<td>
			25.1
			</td>
			<td>
			-8.3
			</td>
			<td>
			4.1
			</td>
			<td>
			6.1
			</td>
			<td>
			 
			</td>
		</tr>
</tbody></table>
 Source: Bloomberg (data as of 4 Feb 20)

*Dual trading counters available; total return based on USD counter

The table below details the five China-focused ETFs on SGX, their underlying stock indexes and ETF constituents.

<table class="table table-striped"><tbody>
<tr>
<td>
			Name
			</td>
			<td>
			Underlying Equity Index
			</td>
			<td>
			ETF Constituents
			</td>
		</tr>
<tr>
<td>
			Xtrackers CSI300 Swap UCITS ETF
			</td>
			<td>
			CSI 300 Index TRN Index
			</td>
			<td>
			Top 300 companies listed on Shanghai and Shenzhen Stock Exchanges (China A shares)
			</td>
		</tr>
<tr>
<td>
			United SSE 50 China ETF
			</td>
			<td>
			SSE 50 Index
			</td>
			<td>
			50 largest stocks of good liquidity listed on the Shanghai Stock Exchange ("SSE").
			</td>
		</tr>
<tr>
<td>
			Xtrackers MSCI China UCITS ETF
			</td>
			<td>
			MSCI China TRN Index
			</td>
			<td>
			Large- and mid-cap Chinese companies (includes H shares, B shares, Red Chips, P Chips and foreign listings)
			</td>
		</tr>
<tr>
<td>
			Lyxor China Enterprise (HSCEI) UCITS ETF
			</td>
			<td>
			Hang Seng China Enterprises Index Net TRN Index
			</td>
			<td>
			H-Shares listed on the Hong Kong Stock Exchange and included in the Hang Seng Mainland Composite Index.
			</td>
		</tr>
<tr>
<td>
			Xtrackers FTSE China 50 UCITS ETF
			</td>
			<td>
			FTSE China 50 TRN Index
			</td>
			<td>
			Top 50 Chinese companies listed on Hong Kong Stock Exchange
			</td>
		</tr>
</tbody></table>
 Source: StockFacts &amp; SGX

Note: Red chips refer to companies that are based in Mainland China but incorporated internationally and listed on HKEx; P chips refer to Chinese companies listed on HKEx that are incorporated in the Cayman Islands, Bermuda and the British Virgin Islands with operations in Mainland China, run by private sector Chinese businessmen.

China’s Growth Outlook

Even before the coronavirus outbreak, China’s economy was already slowing on the back of weak domestic demand and the fallout from the US-Sino trade war. GDP expanded 6.1% last year, the slowest in almost three decades, and just within the range targeted by President Xi Jinping’s administration.

As of this week, the global death toll from the virus outbreak has breached the 1,000-mark, surpassing that of the 2003 SARS epidemic, with majority of fatalities coming from China. The People’s Bank of China has announced stimulus plans to counter the impact, including providing special re-lending funds.

Last month, US and China sealed the first phase of a trade agreement that is supposed to take effect in mid-February. It has a clause that states the nations will consult “in the event that a natural disaster or other unforeseeable event” delays either from complying with the accord.

The Economist Intelligence Unit (EIU) said it plans to revise its economic growth forecasts for China on the assumption that the country’s public health emergency will come under control by end-March – a scenario with 50% probability of materialising, its <a href="http://country.eiu.com/China">report</a> released last week showed.

Under this core scenario, it provisionally plans to cut China's real GDP growth projection in 2020 to 5.4% from 5.9%. Stimulus policies will cushion some of the economic disruption caused by the virus outbreak, and the second half of 2020 should see a recovery in activity. Nonetheless, there’s a possibility the virus will take longer to be brought under control, or will even prove uncontainable, and such eventualities would have a long-term economic impact, it added.

The scale of the impact from the coronavirus outbreak on China’s economic growth this year remains uncertain, Fitch Ratings said in a <a href="https://www.fitchratings.com/site/pr/10109959">report</a> released last week.

While the SARS outbreak provides a useful benchmark, there are significant differences between the two epidemics. Notably, the novel coronavirus (2019-nCoV) has spread faster than SARS, and official travel and workplace activity restrictions have been more aggressive. “These factors suggest the impact of the current outbreak on economic activity on a daily basis may be more intense than SARS, but impact on GDP will also depend on the length of time taken to contain the virus,” the report added.
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 <div class='content-caption'>China Growth Scenarios</div>
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Investing in ETFs

ETFs are investment funds listed and traded intraday on a stock exchange. The majority aim to track the performance of an index and provide access to a wide variety of markets and asset classes, including local stocks, international securities, bonds, commodities or money markets.

Each ETF gives investors access to the performance of the asset that comprises the underlying index. Investing in the ETF is also less costly if one was to build a similar portfolio by buying the individual stocks. It also provides exposure to international markets and asset classes that may be inaccessible to individual investors.

Investors can also invest in the STI ETFs using a Regular Shares Saving Plan (RSS). Click here to find out more. To find out more about ETFs, visit <a href="www.sgx.com/etf">www.sgx.com/etf</a>.
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SGX lists five China-focused ETFs that seek to replicate the total returns of major equity market indices in China. They are: Xtrackers CSI 300 Swap UCITS ETF, United SSE 50 China ETF, Xtrackers MSCI China UCITS ETF, Lyxor China Enterprise (HSCEI) UCITS ETF and Xtrackers FTSE China 50 UCITS ETF. 
	 
	
Over the 2019 calendar year, these five ETFs have averaged a total return of 25.1%, ranging from 41.9% to 15.5%. This brings their 1Y and 3Y annualised total returns to 4.1% and 6.1% respectively.  
	 
	Among the five ETFs, the three best performers over 2019 were: Xtrackers CSI300 Swap UCITS ETF, United SSE 50 China ETF and Xtrackers MSCI China UCITS ETF. The trio generated total returns of 41.9%, 31.1% and 23.5% respectively in USD over the period.

 

SGX lists five China-focused ETFs that seek to replicate the total returns of major equity market indices in China. They are: Xtrackers CSI 300 Swap UCITS ETF, United SSE 50 China ETF, Xtrackers MSCI China UCITS ETF, Lyxor China Enterprise (HSCEI) UCITS ETF and Xtrackers FTSE China 50 UCITS ETF.

Over the 2019 calendar year, these five ETFs have averaged a total return of 25.1%, ranging from 41.9% to 15.5%. This brings their one-year and three-year annualised total returns to 4.1% and 6.1% respectively. Management fees for these ETFs range between 0.45% to 0.65%, offering investors a low-cost option to partake in China’s growth and development.

Among the five ETFs, the three best performers over the last calendar year were: Xtrackers CSI300 Swap UCITS ETF, United SSE 50 China ETF and Xtrackers MSCI China UCITS ETF. The trio has generated total returns of 41.9%, 31.1% and 23.5% respectively in USD over the period.

However, since the start of 2020, the five ETFs have chalked up negative total returns on the back of slower growth forecasts for China and the global outbreak of the 2019 novel coronavirus.

The table below details the five China-focused ETFs listed on SGX, sorted by 2019  total return. 
 




			Name
			
			
			SGX Code
			
			
			Total Return 2019 (%)
			
			
			Total Return YTD (%)
			
			
			Total Return 1Y Annualised (%)
			
			
			Total Return 3Y Annualised (%)
			
			
			Trading Currency
			
		


			Xtrackers CSI300 Swap UCITS ETF
			
			
			KT4
			
			
			41.9
			
			
			-9.9
			
			
			15.6
			
			
			8.6
			
			
			USD
			
		


			United SSE 50 China ETF
			
			
			JK8
			
			
			31.1
			
			
			-9.7
			
			
			7.5
			
			
			0.8
			
			
			SGD
			
		


			Xtrackers MSCI China UCITS ETF*
			
			
			LG9
			
			
			23.5
			
			
			-5.7
			
			
			4.9
			
			
			10.7
			
			
			USD
			
		


			TID
			
			
			SGD
			
		


			Lyxor China Enterprise (HSCEI) UCITS ETF
			
			
			P58
			
			
			13.3
			
			
			-7.8
			
			
			-4.2
			
			
			4.2
			
			
			USD
			
		


			Xtrackers FTSE China 50 UCITS ETF
			
			
			HD8
			
			
			15.5
			
			
			-8.2
			
			
			-3.3
			
			
			6.0
			
			
			USD
			
		


			Average
			
			
			 
			
			
			25.1
			
			
			-8.3
			
			
			4.1
			
			
			6.1
			
			
			 
			
		

 Source: Bloomberg (data as of 4 Feb 20)

*Dual trading counters available; total return based on USD counter

The table below details the five China-focused ETFs on SGX, their underlying stock indexes and ETF constituents.




			Name
			
			
			Underlying Equity Index
			
			
			ETF Constituents
			
		


			Xtrackers CSI300 Swap UCITS ETF
			
			
			CSI 300 Index TRN Index
			
			
			Top 300 companies listed on Shanghai and Shenzhen Stock Exchanges (China A shares)
			
		


			United SSE 50 China ETF
			
			
			SSE 50 Index
			
			
			50 largest stocks of good liquidity listed on the Shanghai Stock Exchange ("SSE").
			
		


			Xtrackers MSCI China UCITS ETF
			
			
			MSCI China TRN Index
			
			
			Large- and mid-cap Chinese companies (includes H shares, B shares, Red Chips, P Chips and foreign listings)
			
		


			Lyxor China Enterprise (HSCEI) UCITS ETF
			
			
			Hang Seng China Enterprises Index Net TRN Index
			
			
			H-Shares listed on the Hong Kong Stock Exchange and included in the Hang Seng Mainland Composite Index.
			
		


			Xtrackers FTSE China 50 UCITS ETF
			
			
			FTSE China 50 TRN Index
			
			
			Top 50 Chinese companies listed on Hong Kong Stock Exchange
			
		

 Source: StockFacts &amp; SGX

Note: Red chips refer to companies that are based in Mainland China but incorporated internationally and listed on HKEx; P chips refer to Chinese companies listed on HKEx that are incorporated in the Cayman Islands, Bermuda and the British Virgin Islands with operations in Mainland China, run by private sector Chinese businessmen.

China’s Growth Outlook

Even before the coronavirus outbreak, China’s economy was already slowing on the back of weak domestic demand and the fallout from the US-Sino trade war. GDP expanded 6.1% last year, the slowest in almost three decades, and just within the range targeted by President Xi Jinping’s administration.

As of this week, the global death toll from the virus outbreak has breached the 1,000-mark, surpassing that of the 2003 SARS epidemic, with majority of fatalities coming from China. The People’s Bank of China has announced stimulus plans to counter the impact, including providing special re-lending funds.

Last month, US and China sealed the first phase of a trade agreement that is supposed to take effect in mid-February. It has a clause that states the nations will consult “in the event that a natural disaster or other unforeseeable event” delays either from complying with the accord.

The Economist Intelligence Unit (EIU) said it plans to revise its economic growth forecasts for China on the assumption that the country’s public health emergency will come under control by end-March – a scenario with 50% probability of materialising, its report released last week showed.

Under this core scenario, it provisionally plans to cut China's real GDP growth projection in 2020 to 5.4% from 5.9%. Stimulus policies will cushion some of the economic disruption caused by the virus outbreak, and the second half of 2020 should see a recovery in activity. Nonetheless, there’s a possibility the virus will take longer to be brought under control, or will even prove uncontainable, and such eventualities would have a long-term economic impact, it added.

The scale of the impact from the coronavirus outbreak on China’s economic growth this year remains uncertain, Fitch Ratings said in a report released last week.

While the SARS outbreak provides a useful benchmark, there are significant differences between the two epidemics. Notably, the novel coronavirus (2019-nCoV) has spread faster than SARS, and official travel and workplace activity restrictions have been more aggressive. “These factors suggest the impact of the current outbreak on economic activity on a daily basis may be more intense than SARS, but impact on GDP will also depend on the length of time taken to contain the virus,” the report added.



      
    
    China Growth Scenarios


Investing in ETFs

ETFs are investment funds listed and traded intraday on a stock exchange. The majority aim to track the performance of an index and provide access to a wide variety of markets and asset classes, including local stocks, international securities, bonds, commodities or money markets.

Each ETF gives investors access to the performance of the asset that comprises the underlying index. Investing in the ETF is also less costly if one was to build a similar portfolio by buying the individual stocks. It also provides exposure to international markets and asset classes that may be inaccessible to individual investors.

Investors can also invest in the STI ETFs using a Regular Shares Saving Plan (RSS). Click here to find out more. To find out more about ETFs, visit www.sgx.com/etf.



SGX’s Five China-Focused ETFs Average 25% Total Return in 2019

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<ul>
<li>Aggregate FX volume at US$1.3 trillion in 2019, up 44% from US$914 billion in 2018</li>
	<li>Trading volume at 23.5 million contracts in 2019, up 28% from 18.4 million in 2018</li>
	<li>Year-end aggregate open interest at US$7.89 billion, up 90% y-o-y</li>
	<li>For December, volume exceeded US$114 billion, with over 2 million contracts traded</li>
</ul>
 

U.S.-China trade war: top macro driver in 2019

For global markets, the U.S.-China trade war dominated the news cycle in 2019 and left an imprint across asset classes. News of any positive developments continue to drive markets higher while subsequent failures to reach any settlement have induced downbeat sentiments. Whatever the outcome of this trade war, the extensive use of tariffs as a negotiation tool is likely to impact the global trade framework, given Washington’s threats to leave the World Trade Organization and instead negotiate bilateral trade agreements.

Over the past 18 months, the escalation in this conflict has shaped global trade in many ways. On the one hand, the world’s technology supply chain has been disrupted – an issue that has manifested in a weakening South Korean economy – while on the other hand, the continued strength in the U.S. dollar has exerted pressure on interest rates and currencies across Emerging Markets (EM). With the Federal Reserve coming under intense pressure from the White House for not doing enough (despite having cut benchmark rates several times), central bank independence may be another point of conflict going into 2020.

The increasing willingness of policymakers in Washington to apply political pressure on countries to comply with U.S. sanctions has had the effect of weaponising the U.S. dollar network. It has forced European governments to seek alternatives to ensure they, along with their companies, can remain in business with entities including those in Iran, unconstrained by American politics. Any move away from the dollar as the lynchpin of the global financial system is unlikely to be swift (if it happens at all), but even nascent steps point towards increasing polarisation of views and economic interests between the traditional NATO allies.

 

Brexit in 2020: definitely, may be?

In July 2019, Theresa May resigned as British prime minister after three years in a role likely to be remembered for failing to get a Brexit deal over the line. Her successor, Boris Johnson, after has managed to drag the country into a snap poll, leading to a landmark result and a mandate to get the job done. Johnson is expected to negotiate terms of a divorce deal and take the UK out of the European Union by 31 January. Given the confusion around Brexit, the British pound was volatile through the year but the Johnson’s electoral victory should now help assuage the market. Already, UK equities have started rallying in hope of clear outcome.

 

Mixed year for India: politics and economics joust for priority

With the incumbent BJP party winning by a landslide margin in parliamentary elections, stability in India’s political arena was established early in 2019. The margin of victory provided enough room for the government to ram through several significant changes to the existing social order. Despite widespread condemnation by the opposition, the government’s actions on the abrogation of Article 370 had provided it further political capital amongst its base. On the economic front, India continues to face significant headwinds amid a major slowdown, prompted Moody’s to cut its rating outlook. However, the economic needs of the country and social agenda of the government seem to be at loggerheads as the two joust for priority. Perhaps no other issue exemplifies this more than the citizenship amendment act that was passed by parliament in December 2019.

Given the double whammy of a rising cost of living and a weakening economic condition (with slowing demand and weak exports), regaining ground on economy should be New Delhi’s focus. However, the government has seemingly been in denial and instead chosen to push ahead with the controversial citizenship bill. This has ignited widespread civil unrest and protests across the country and the situation has been tense especially in states near India’s northeastern border, where the indigenous identity of locals has been a known concern in past. These developments are likely to make a significant impact on India’s social fabric. Social issues have, in some ways, distracted the public from an economy that deteriorated in 2019.

 

U.S. domestic politics in focus as election year approaches

In Washington, the report from the Muller investigation into Russian interference in the 2016 presidential elections, was largely withheld from the public and as a result, failed to provide closure on the subject. However, this was not to be the end of troubles for Donald Trump, as allegations of abuse of power and obstruction of Congress were levelled at the U.S. president. The subsequent investigations and the impeachment proceedings played out as a public spectacle and eventually made Trump only the third American president to be impeached. A Senate trial is expected in 2020, an election year for an administration seeking a second term.

Under normal circumstances, a combination of a robust economy, strong dollar, global economic weakness as well as risks posed by major global events such as Brexit or the impeachment of a sitting U.S. president should fuel volatility in most assets. That was not quite the case in 2019, as volatility has only been observed periodically and selectively. Swings in EM currencies fell sharply during the year and even for G7 currencies, the default status quo was one of low volatility.

Despite extended periods of calm, SGX’s FX derivatives registered strong growth for the year, underscoring market demand for the exchange’s risk-management tools. Aggregate FX futures volume surpassed US$1.3 trillion in 2019, a solid 44% jump year-on-year (y-o-y). More than 23.5 million contracts changed hands (including 2.07 million in December alone) – a surge of 28% y-o-y. Aggregate open interest for all SGX FX Futures was US$7.89 billion (144,063 contracts) at the end of the year, rising 90% y-o-y on a U.S. dollar notional basis (103% increase y-o-y based on contract volume).
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SGX USD/CNH Futures volume rises to US$907 billion in 2019 as trade war drives trading interest

<ul>
<li>SGX USD/CNH Futures trading volume at US$78.6 billion in December</li>
	<li>Trading volume up almost 70% for 2019; year-end open interest up 76% at US$5.3 billion</li>
</ul>
Given its sizeable international trade relationships, China’s rising economic and political clout has made it a strategic competitor to the U.S. As a result, global markets have focused on the outcome of the trade war between the countries throughout 2019 as the long-running feud continues to bring significant disruptive implications.

At the start of the year, financial markets braced for guidance from wide-ranging U.S.-China discussions, with the renminbi as a centrepiece of their talks. However, the stalemate continued through the first half of 2019 as a G-20 summit in Osaka ended with yet another false dawn of a truce. Delegates from both countries got together again during the second half to find a way forward, with the technology and agriculture sectors as a focus. While China reportedly agreed to ramp up its imports of U.S. agricultural products, American concessions on Huawei and technology remained sticking points.

Without any real progress on the negotiations, additional tariffs on China were introduced in August and with that, any semblance of a truce disappeared. In response, China placed a stop to agriculture imports from the U.S. and was immediately labelled as a currency manipulator. Renminbi volatility shot up as the currency breached the closely watched level of 7 against the dollar. The penal nature of U.S. tariffs also took a toll on the Chinese economy: with economic indicators pointed towards declines in exports, the People’s Bank of China was forced to lend support with an interest rate cut.

The stakes were raised again with Washington blacklisting several Chinese technology companies over investor protection requirements. Even as mid-level trade delegates periodically returned to the negotiating table, the climate for talks worsened amid speculation of restricted U.S. portfolio flows into China. The year ended with reports of in-principle agreements over a so-called Phase 1 trade deal. However, details remain elusive heading into 2020.

The U.S.-China trade relationship is front and centre of EM risk and will be a key determinant of renminbi trading. In 2019, SGX USD/CNH Futures broke multiple record-highs as market participants sought an effective tool to manage their risk. With rising volatility in early August (and subsequently subsiding with the renminbi bound to a narrow range), daily trading crossed US$10 billion on 5 August for the first time. Over the second half of 2019, total transactions in SGX USD/CNH Futures reached US$481 billion – another record – as the trading interest remained closely tied to the trade talks.
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<html><body>For the year, the average daily volume of SGX USD/CNH Futures was US$3.67 billion, up from US$2.17 billion in 2018. With increased trading interest, liquidity was strong throughout the period and daily trading exceeded US$4 billion on 64 days (against just eight such days in 2018). SGX’s global market share for the Chinese currency stayed close to 80% through 2019, gaining in the second half of the year, strongly underscoring liquidity as well as the exchange’s role as a premier risk-management centre.</body></html>

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Trading volumes for SGX USD/CNH Futures topped US$907 billion in 2019, up over 70% compared with US$514 billion the previous year. Year-end open interest grew 76% y-o-y to US$5.3 billion (53,288 contracts) – representing almost 68% of outstanding positions across all exchanges with similar offerings.

 

SGX INR/USD Futures volume rises to US$395 billion in 2019 amid contrasting fortunes for Indian rupee

<ul>
<li>Rupee appreciates in 1H before weakening despite strong FPI inflows</li>
	<li>Volatility drifted lower though the year</li>
	<li>Real estate sector drags down economy, hurting both banks and non-bank financial services </li>
	<li>India in midst of economic slowdown, with both demand and exports weakening</li>
</ul>
Indian economy’s growth story lost some of its sheen in 2019 as it seemed to lurch from one problem to another. While the electoral win for the BJP would have cheered the markets, the subsequent prioritisation of a social agenda over the country’s economic needs has led to an entanglement in policymaking. If the introduction of a goods and services tax was considered a landmark in government’s previous term, flawed execution since the announcement has cost the framework almost all of its efficacy, as both businesses and state governments have struggled with implementation and rollbacks of the rules.

Demonetisation, announced three years ago, sucked liquidity out of a system where cash transactions lubricate the economy and have historically provided buffer against economic swings. The subsequent struggles of the informal sector are now visible in the economic condition. While much of the initial economic boom seen in the early years post liberalisation had been driven by exports and services, Indian exports are now stagnating. When coupled with the demand slowdown brought about by increased unemployment and the suppression of wage growth, these have kept a tight leash on economic expansion. A shadow banking crisis has also received much coverage over the past year. The failure of previously well-known institutions such as IL&amp;FS and DHFL, along with multiple frauds in banks (e.g. PMC, PNB etc.) that have come to light over the year, have also highlighted corporate governance issues. However, India’s economic slowdown is spread wider than just non-bank financial services.

Real estate is in the midst of a meltdown with excessive inventory, while the telecommunications sector has lost companies and cut jobs. The nation’s auto sector has struggled with factories being shut amid weak demand. These industries have traditionally been significant jobs creators and the slowdown has hit the economy particularly hard. The Reserve Bank of India took note and reduced interest rates by 135 basis points in phases over the year. It left room open for more rate cuts that could be announced later as part of a coordinated response with the government, depending on the state of the economy.

The weakness has already caused concerns on the government’s ability to meet its fiscal-deficit targets. With several months before the end of the financial year, New Delhi has already exceeded its annual fiscal deficit target. In response, Moody’s cut its rating outlook to negative from stable in November, while S&amp;P placed India on a watch soon after.
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Despite the negative headlines, the flow of money from foreign portfolio investors (FPI) remained strong in 2019. Net inflows from FPI exceeded US$19 billion and Indian equities were the main beneficiaries, pushing key stock indices to new highs. However, the inflows failed to stop a slide in the rupee, which weakened by 2% in 2019, most of it in the second half. Buoyed by the outcome of the general elections and supported by sustained FPI flows, the rupee had strengthened by almost 2% until mid-July. Thereafter, the travails of the economy showed up dramatically.

Trading in SGX INR/USD Futures reflected the activity in the underlying rupee market. For most of 2019, rupee volatility remained low and was observed in the futures market. Whenever volatility rose, as seen in the sharp gain in March or the steep drop in August, trading activity corresponded. Broader EM weakness induced by a stronger U.S. dollar contributed to the rupee declining by almost 10 paisa on 18 December. SGX INR/USD Futures trading kicked into higher gear, with volume surging past 146,000 contracts on the day to set a new record for single-day trading of over US$4.1 billion. Open interest also ended the day at a new high, with US$3.2 billion (114,024 contracts).

Overall, total trading volume for SGX INR/USD Futures in 2019 climbed to US$395 billion (13.93 million contracts), representing y-o-y growth of about 5.7% (U.S. dollar notional basis) or 8.7% (contracts traded). Open interest at the end of 2019 was 86,150 contracts – up 187% from 2018.

 

SGX KRW/USD Futures trading volume grows amid heightened risks

<ul>
<li>SGX KRW/USD Futures trading volume exceeds US$9.16 billion in 2019, up 189% y-o-y</li>
</ul>
While geopolitics in the form of the Trump-Kim talks in Hanoi dominated news headlines early in 2019, the meeting failed to live up to its billing as a step towards lasting peace on the Korean Peninsula. On the economic front, concerns over the technology sector lingered. With the White House placing restrictions on U.S. tech giants from supplying to Chinese companies, as well as considered limiting access to American markets for Chinese companies through listings and/or M&amp;As, supply chains were impacted. Should tensions worsen, technology-focused Korean companies may bear the brunt.

Earlier in the year, South Korean President Moon Jae-in had highlighted trade protectionism as a key factor adding to pressure on the global economy. The impact of the slowdown and a correlation with the renminbi weakened the won past the 1,200 level during the year before it staging a minor recovery. To keep the economic slowdown at bay, the Korean central bank also cut key rates several times.

These risks and the ensuing market volatility spurred trading in SGX KRW/USD Futures. Trading activity grew by almost two times on a y-o-y notional basis, with volume at US$9.16 billion in 2019. Based on contracts traded, volume tripled with 428,903 contracts changing hands.
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Aggregate FX volume at US$1.3 trillion in 2019, up 44% from US$914 billion in 2018
	Trading volume at 23.5 million contracts in 2019, up 28% from 18.4 million in 2018
	Year-end aggregate open interest at US$7.89 billion, up 90% y-o-y
	For December, volume exceeded US$114 billion, with over 2 million contracts traded

 

U.S.-China trade war: top macro driver in 2019

For global markets, the U.S.-China trade war dominated the news cycle in 2019 and left an imprint across asset classes. News of any positive developments continue to drive markets higher while subsequent failures to reach any settlement have induced downbeat sentiments. Whatever the outcome of this trade war, the extensive use of tariffs as a negotiation tool is likely to impact the global trade framework, given Washington’s threats to leave the World Trade Organization and instead negotiate bilateral trade agreements.

Over the past 18 months, the escalation in this conflict has shaped global trade in many ways. On the one hand, the world’s technology supply chain has been disrupted – an issue that has manifested in a weakening South Korean economy – while on the other hand, the continued strength in the U.S. dollar has exerted pressure on interest rates and currencies across Emerging Markets (EM). With the Federal Reserve coming under intense pressure from the White House for not doing enough (despite having cut benchmark rates several times), central bank independence may be another point of conflict going into 2020.

The increasing willingness of policymakers in Washington to apply political pressure on countries to comply with U.S. sanctions has had the effect of weaponising the U.S. dollar network. It has forced European governments to seek alternatives to ensure they, along with their companies, can remain in business with entities including those in Iran, unconstrained by American politics. Any move away from the dollar as the lynchpin of the global financial system is unlikely to be swift (if it happens at all), but even nascent steps point towards increasing polarisation of views and economic interests between the traditional NATO allies.

 

Brexit in 2020: definitely, may be?

In July 2019, Theresa May resigned as British prime minister after three years in a role likely to be remembered for failing to get a Brexit deal over the line. Her successor, Boris Johnson, after has managed to drag the country into a snap poll, leading to a landmark result and a mandate to get the job done. Johnson is expected to negotiate terms of a divorce deal and take the UK out of the European Union by 31 January. Given the confusion around Brexit, the British pound was volatile through the year but the Johnson’s electoral victory should now help assuage the market. Already, UK equities have started rallying in hope of clear outcome.

 

Mixed year for India: politics and economics joust for priority

With the incumbent BJP party winning by a landslide margin in parliamentary elections, stability in India’s political arena was established early in 2019. The margin of victory provided enough room for the government to ram through several significant changes to the existing social order. Despite widespread condemnation by the opposition, the government’s actions on the abrogation of Article 370 had provided it further political capital amongst its base. On the economic front, India continues to face significant headwinds amid a major slowdown, prompted Moody’s to cut its rating outlook. However, the economic needs of the country and social agenda of the government seem to be at loggerheads as the two joust for priority. Perhaps no other issue exemplifies this more than the citizenship amendment act that was passed by parliament in December 2019.

Given the double whammy of a rising cost of living and a weakening economic condition (with slowing demand and weak exports), regaining ground on economy should be New Delhi’s focus. However, the government has seemingly been in denial and instead chosen to push ahead with the controversial citizenship bill. This has ignited widespread civil unrest and protests across the country and the situation has been tense especially in states near India’s northeastern border, where the indigenous identity of locals has been a known concern in past. These developments are likely to make a significant impact on India’s social fabric. Social issues have, in some ways, distracted the public from an economy that deteriorated in 2019.

 

U.S. domestic politics in focus as election year approaches

In Washington, the report from the Muller investigation into Russian interference in the 2016 presidential elections, was largely withheld from the public and as a result, failed to provide closure on the subject. However, this was not to be the end of troubles for Donald Trump, as allegations of abuse of power and obstruction of Congress were levelled at the U.S. president. The subsequent investigations and the impeachment proceedings played out as a public spectacle and eventually made Trump only the third American president to be impeached. A Senate trial is expected in 2020, an election year for an administration seeking a second term.

Under normal circumstances, a combination of a robust economy, strong dollar, global economic weakness as well as risks posed by major global events such as Brexit or the impeachment of a sitting U.S. president should fuel volatility in most assets. That was not quite the case in 2019, as volatility has only been observed periodically and selectively. Swings in EM currencies fell sharply during the year and even for G7 currencies, the default status quo was one of low volatility.

Despite extended periods of calm, SGX’s FX derivatives registered strong growth for the year, underscoring market demand for the exchange’s risk-management tools. Aggregate FX futures volume surpassed US$1.3 trillion in 2019, a solid 44% jump year-on-year (y-o-y). More than 23.5 million contracts changed hands (including 2.07 million in December alone) – a surge of 28% y-o-y. Aggregate open interest for all SGX FX Futures was US$7.89 billion (144,063 contracts) at the end of the year, rising 90% y-o-y on a U.S. dollar notional basis (103% increase y-o-y based on contract volume).



      
    
    202001_1E


SGX USD/CNH Futures volume rises to US$907 billion in 2019 as trade war drives trading interest


SGX USD/CNH Futures trading volume at US$78.6 billion in December
	Trading volume up almost 70% for 2019; year-end open interest up 76% at US$5.3 billion

Given its sizeable international trade relationships, China’s rising economic and political clout has made it a strategic competitor to the U.S. As a result, global markets have focused on the outcome of the trade war between the countries throughout 2019 as the long-running feud continues to bring significant disruptive implications.

At the start of the year, financial markets braced for guidance from wide-ranging U.S.-China discussions, with the renminbi as a centrepiece of their talks. However, the stalemate continued through the first half of 2019 as a G-20 summit in Osaka ended with yet another false dawn of a truce. Delegates from both countries got together again during the second half to find a way forward, with the technology and agriculture sectors as a focus. While China reportedly agreed to ramp up its imports of U.S. agricultural products, American concessions on Huawei and technology remained sticking points.

Without any real progress on the negotiations, additional tariffs on China were introduced in August and with that, any semblance of a truce disappeared. In response, China placed a stop to agriculture imports from the U.S. and was immediately labelled as a currency manipulator. Renminbi volatility shot up as the currency breached the closely watched level of 7 against the dollar. The penal nature of U.S. tariffs also took a toll on the Chinese economy: with economic indicators pointed towards declines in exports, the People’s Bank of China was forced to lend support with an interest rate cut.

The stakes were raised again with Washington blacklisting several Chinese technology companies over investor protection requirements. Even as mid-level trade delegates periodically returned to the negotiating table, the climate for talks worsened amid speculation of restricted U.S. portfolio flows into China. The year ended with reports of in-principle agreements over a so-called Phase 1 trade deal. However, details remain elusive heading into 2020.

The U.S.-China trade relationship is front and centre of EM risk and will be a key determinant of renminbi trading. In 2019, SGX USD/CNH Futures broke multiple record-highs as market participants sought an effective tool to manage their risk. With rising volatility in early August (and subsequently subsiding with the renminbi bound to a narrow range), daily trading crossed US$10 billion on 5 August for the first time. Over the second half of 2019, total transactions in SGX USD/CNH Futures reached US$481 billion – another record – as the trading interest remained closely tied to the trade talks.



      
    
    202001_2E

For the year, the average daily volume of SGX USD/CNH Futures was US$3.67 billion, up from US$2.17 billion in 2018. With increased trading interest, liquidity was strong throughout the period and daily trading exceeded US$4 billion on 64 days (against just eight such days in 2018). SGX’s global market share for the Chinese currency stayed close to 80% through 2019, gaining in the second half of the year, strongly underscoring liquidity as well as the exchange’s role as a premier risk-management centre.


      
    
    202001_3E


Trading volumes for SGX USD/CNH Futures topped US$907 billion in 2019, up over 70% compared with US$514 billion the previous year. Year-end open interest grew 76% y-o-y to US$5.3 billion (53,288 contracts) – representing almost 68% of outstanding positions across all exchanges with similar offerings.

 

SGX INR/USD Futures volume rises to US$395 billion in 2019 amid contrasting fortunes for Indian rupee


Rupee appreciates in 1H before weakening despite strong FPI inflows
	Volatility drifted lower though the year
	Real estate sector drags down economy, hurting both banks and non-bank financial services 
	India in midst of economic slowdown, with both demand and exports weakening

Indian economy’s growth story lost some of its sheen in 2019 as it seemed to lurch from one problem to another. While the electoral win for the BJP would have cheered the markets, the subsequent prioritisation of a social agenda over the country’s economic needs has led to an entanglement in policymaking. If the introduction of a goods and services tax was considered a landmark in government’s previous term, flawed execution since the announcement has cost the framework almost all of its efficacy, as both businesses and state governments have struggled with implementation and rollbacks of the rules.

Demonetisation, announced three years ago, sucked liquidity out of a system where cash transactions lubricate the economy and have historically provided buffer against economic swings. The subsequent struggles of the informal sector are now visible in the economic condition. While much of the initial economic boom seen in the early years post liberalisation had been driven by exports and services, Indian exports are now stagnating. When coupled with the demand slowdown brought about by increased unemployment and the suppression of wage growth, these have kept a tight leash on economic expansion. A shadow banking crisis has also received much coverage over the past year. The failure of previously well-known institutions such as IL&amp;FS and DHFL, along with multiple frauds in banks (e.g. PMC, PNB etc.) that have come to light over the year, have also highlighted corporate governance issues. However, India’s economic slowdown is spread wider than just non-bank financial services.

Real estate is in the midst of a meltdown with excessive inventory, while the telecommunications sector has lost companies and cut jobs. The nation’s auto sector has struggled with factories being shut amid weak demand. These industries have traditionally been significant jobs creators and the slowdown has hit the economy particularly hard. The Reserve Bank of India took note and reduced interest rates by 135 basis points in phases over the year. It left room open for more rate cuts that could be announced later as part of a coordinated response with the government, depending on the state of the economy.

The weakness has already caused concerns on the government’s ability to meet its fiscal-deficit targets. With several months before the end of the financial year, New Delhi has already exceeded its annual fiscal deficit target. In response, Moody’s cut its rating outlook to negative from stable in November, while S&amp;P placed India on a watch soon after.



      
    
    202001_4E


Despite the negative headlines, the flow of money from foreign portfolio investors (FPI) remained strong in 2019. Net inflows from FPI exceeded US$19 billion and Indian equities were the main beneficiaries, pushing key stock indices to new highs. However, the inflows failed to stop a slide in the rupee, which weakened by 2% in 2019, most of it in the second half. Buoyed by the outcome of the general elections and supported by sustained FPI flows, the rupee had strengthened by almost 2% until mid-July. Thereafter, the travails of the economy showed up dramatically.

Trading in SGX INR/USD Futures reflected the activity in the underlying rupee market. For most of 2019, rupee volatility remained low and was observed in the futures market. Whenever volatility rose, as seen in the sharp gain in March or the steep drop in August, trading activity corresponded. Broader EM weakness induced by a stronger U.S. dollar contributed to the rupee declining by almost 10 paisa on 18 December. SGX INR/USD Futures trading kicked into higher gear, with volume surging past 146,000 contracts on the day to set a new record for single-day trading of over US$4.1 billion. Open interest also ended the day at a new high, with US$3.2 billion (114,024 contracts).

Overall, total trading volume for SGX INR/USD Futures in 2019 climbed to US$395 billion (13.93 million contracts), representing y-o-y growth of about 5.7% (U.S. dollar notional basis) or 8.7% (contracts traded). Open interest at the end of 2019 was 86,150 contracts – up 187% from 2018.

 

SGX KRW/USD Futures trading volume grows amid heightened risks


SGX KRW/USD Futures trading volume exceeds US$9.16 billion in 2019, up 189% y-o-y

While geopolitics in the form of the Trump-Kim talks in Hanoi dominated news headlines early in 2019, the meeting failed to live up to its billing as a step towards lasting peace on the Korean Peninsula. On the economic front, concerns over the technology sector lingered. With the White House placing restrictions on U.S. tech giants from supplying to Chinese companies, as well as considered limiting access to American markets for Chinese companies through listings and/or M&amp;As, supply chains were impacted. Should tensions worsen, technology-focused Korean companies may bear the brunt.

Earlier in the year, South Korean President Moon Jae-in had highlighted trade protectionism as a key factor adding to pressure on the global economy. The impact of the slowdown and a correlation with the renminbi weakened the won past the 1,200 level during the year before it staging a minor recovery. To keep the economic slowdown at bay, the Korean central bank also cut key rates several times.

These risks and the ensuing market volatility spurred trading in SGX KRW/USD Futures. Trading activity grew by almost two times on a y-o-y notional basis, with volume at US$9.16 billion in 2019. Based on contracts traded, volume tripled with 428,903 contracts changing hands.



      
    
    202001_5E

      
    
    202001_6E

SGX FX futures post record 2019 growth as geopolitical, economic uncertainties spur demand for risk management

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SGX FX futures post record 2019 growth as geopolitical, economic uncertainties spur demand for risk management

Aggregate FX volume at US$1.3 trillion in 2019, up 44% from US$914 billion in 2018 Trading volume at 23.5 million contracts in 2019, up 28%...

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