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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<h3 class="text-h3"><strong>Trading volume in SGX FX Futures exceeded US$137 billion in February as Covid-19 fears drive volatility in financial markets</strong></h3>

<ul>
<li><em>Aggregate Volume in February at 2.44 million contracts; up 52% y-o-y</em></li>
	<li><em>Aggregate Volume in February above US$137 billion; up 60% y-o-y</em></li>
	<li><em>Month-end Open Interest at US$8.9 billion; up nearly 66% y-o-y</em></li>
</ul>
<p class="MsoNoSpacing"><strong>Covid-19 had a significant impact on global financial markets in February </strong>as the anxieties of a global pandemic drove financial markets down. The virus has continued to spread across continents, with countries like South Korea, Japan, U.S., Canada, France, Italy, Germany, Iran, Nigeria and Brazil all reporting cases.</p>

<p>China has some of the busiest container ports in the world and disruption to global supply chain is severe. Manufacturing in Chinese factories as well as consumption from Chinese customers has also been impacted. The reduction in trade, tourism and general supply chain disruption is likely to affect global economic growth at multiple levels. Economists are already warning that global growth rates could decline to its lowest since the financial crisis a decade ago. International businesses like Nike have highlighted revenue risks due to store closures; Tesla has also announced that it would struggle to deliver on its cars with the impact on its manufacturing units based out of China. With stock prices tanking further in the second half of the month, more companies across multiple sectors like Microsoft, HSBC, Standard Chartered have also issued revenue/profit warnings.</p>

<p class="MsoNormal">With no available cure yet and cases involving community transmission on a rise, fears continue to grip the financial markets. All asset classes are seeing the effects of this contagion. Equities endured a hammering in February, with key equity indices registering sharp downward moves. Dow registered its worst weekly performance in a decade, dropping over 10% in just six sessions, including its worst daily drop of over 4%, while VIX shot up; implied volatilities in currency markets were up; crude oil prices suffered while spreads widened for emerging market bonds.  </p>

<p>In February, Donald Trump made his first official visit to India as the U.S. President. The visit concluded with an announcement of a US$3 billion defence deal that involved India purchasing military helicopters and some other equipment. However, violent protests that erupted hours before Trump’s arrival marred the visit.</p>

<p class="MsoNoSpacing">SGX FX Futures registered strong trading activity in the month with trading rising sharply in the second half of the month, in line with the financial markets meltdown. While trading volume in the first two weeks were approximately US$61 billion, the next two weeks saw trading jump to about US$76 billion.</p>

<p class="MsoNoSpacing"><strong>Aggregate volume for SGX FX Futures were up 52% y-o-y at 2.44 million contracts. In US$ terms, this was above US$137 billion (up 60% y-o-y). The aggregate trading volume has continued to increase each month after a drop in October last year. Aggregate open interest at the end of February was US$8.91 billion, up nearly 66% y-o-y. </strong></p>
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      <img src='https://api2.sgx.com/sites/default/files/2020-03/202003_1E.PNG' alt='SGX FX Futures Growth' />
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    <div class='content-caption'>SGX_FX_Growth</div>
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<h3 class="text-h3"><strong>SGX USD/CNH Futures volume in February above US$96 billion; Renminbi remains steadfast against a basket of trading partner currencies despite the ravages from Covid-19 </strong></h3>

<ul>
<li><em>Trading volume for SGX USD/CNH futures above US$96 billion; up 70% y-o-y </em></li>
	<li><em>Month-end Open Interest at US$6.3 billion; up 53% y-o-y </em></li>
</ul>
<p class="MsoNoSpacing">Covid-19 was the top theme in the month with its huge impact across the Chinese economy. Bloomberg reported that Chinese banks are starting to delay recognizing bad loans, given the current situation. However, any extended period of low economic activity is bound to put China’s banking system under further pressure. S&amp;P recently came out suggesting that the non-performing loan ratios in China could triple to over 6% in such a scenario. While the upcoming economic data releases will shed proper light on the actual impact of Covid-19 virus on the Chinese economy, the early signs were the weakening of the renminbi in February that fell by about 1.7 % m-o-m.</p>

<p class="MsoNoSpacing">Renminbi value had seen a sharp fall in its value in August. Its appreciation had been slow and it had remained above 7. However, Renminbi had strengthened post-Christmas and continued to stay under 7 against the greenback all through January. The market holidays at the end of January had also dampened the market activity and somewhat assisted in controlling the impact of any bad news. However, Renminbi had started to weaken prior to the holiday and February started much in the same vein as Renminbi weakened by 1.3% in the first week, a relatively small drop in value, given the severity of the issue. The daily currency fixing as determined by PBOC moved in a narrow range in the second week before breaking past 7 on 19 February, the first time since Christmas last year. Despite the slight depreciation against the US Dollar, the Renminbi strengthened against a basket of currencies in the last trading week of February (as CFETS RMB index showed).</p>

<p class="MsoNoSpacing">There was an immediate impact of Renminbi movement on the trading for SGX USD/CNH Futures. Trading volume on 20 February was almost US$6.3 billion (the highest in 2020 until then) and the upswing in trading activity continued until the end of month. Participants traded in excess of US$7.6 billion on 28 February, making the day with the second highest volume ever recorded for Renminbi futures at SGX.</p>
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      <img src='https://api2.sgx.com/sites/default/files/2020-03/202003_2E.PNG' alt='CNH' />
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    <div class='content-caption'>CNH</div>
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<p class="MsoNoSpacing"><strong>The average daily volume of SGX USD/CNH Futures in February rose to US$4.81 billion</strong> as trading remained robust and exceeded US$2 billion on all days in the month, extending the run of such days to 45 continuous days.</p>

<p class="MsoNoSpacing">The trading volume at SGX remained above 80% of the global volume during February, as <strong>participants traded over US$96 billion (962,032 lots) in the month</strong>. This represents a strong y-o-y increase of 70% in Renminbi futures at SGX. With the emergence of Covid-19 adding to the concerns around the Chinese economy and Renminbi, the open interest has grown as market looks to manage associated risks. <strong>The open interest for SGX USD/CNH Futures grew 53% y-o-y and ended February at US$6.3 billion (62,956 contracts). This represents nearly 68% of the open interest across all exchanges with similar offerings. </strong></p>

<h3 class="text-h3"><strong>SGX INR/USD futures above US$39 billion in February; civil protests continue </strong></h3>

<ul>
<li><em>Trading volume for SGX INR/USD Futures above US$39 billion in February; up 41% y-o-y</em></li>
	<li><em>Rupee weakens in February despite strong FPI flows </em></li>
</ul>
<p class="MsoNoSpacing">At the start of the year, the Indian government had already been behind the fiscal deficit target for the fiscal year, raising questions on its ability to present a growth-centric budget and deal with the economic slowdown. While the government did not surprise watchers and offered little towards employment or economic revival, it did focus on reforming the tax regime. There were several proposals such as raising allocations to education and railways and change in income tax slabs or development of up to a hundred new airports in the next five years. However, the finance minister offered few details towards concrete plans to finance these schemes.</p>

<p class="MsoNoSpacing">The Indian government has proposed to abolish dividend distribution tax by transferring the burden from the company to the individual investor who will now be required to pay tax at their applicable individual tax bracket – a move unlikely to find support from smaller individual investors who do not pay any tax currently on such income. There were some other interesting proposals such as listing LIC on a public bourse. As a government-owned life insurance company with a big balance sheet, LIC has often been relied upon by the government to support financial markets in times of need. An IPO therefore potentially disrupts its unofficial function by reducing government control even if it allows government to raise additional funds through divestment of its stake. Market continues to speculate on a possible sovereign bond issuance by the Indian government, as a way to attract foreign capital. The government has also offered 100% tax concessions to Sovereign Wealth Funds investing in infrastructure projects, hoping to revive investment flow.</p>

<p>In February, the Citizenship Amendment Act remains a key theme and continues to polarize people and views. Protest rallies, both against and in support of the Act resulted in violence in places including Delhi, where BJP just lost the elections for the local assembly despite an aggressive and at times vitriolic campaign. Destruction of public property and deaths in sectarian violence marked a grim month on the subject.</p>
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      <img src='https://api2.sgx.com/sites/default/files/2020-03/202003_3E.PNG' alt='INR' />
    </figure>
    <div class='content-caption'>INR</div>
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<p class="MsoNoSpacing">Notwithstanding the recent negative headlines, investor sentiment and flow of money from foreign portfolio investors (FPI) to India seemed to get better early in the month. By mid-February, the FPI had already invested about US$3.5 billion in 2020. Despite significant withdrawals of nearly US$2 billion in the last week of the month, net inflows to India from the FPI exceeded US$1.4 billion in February. As Covid-19 took its toll on global financial markets in the second half of the month, the meltdown in global equities also hit Indian markets hard and the local indices crashed in tandem. FPI withdrew more than US$1.2 billion in the last week from Indian equities. Rupee weakened by about <strong>95 </strong>basis points in February (bulk of it on 28 February), despite the net inflow of funds. Several critical sectors such as automotive remain exposed to the supply chain disruption from their Chinese suppliers and the true impact of Covid-19 on Indian economy will probably show up in the results of these firms and other economic data releases.</p>

<p class="MsoNoSpacing">A couple of holidays in the second half of February failed to halt momentum in the trading for SGX INR/USD Futures. Trading exceeded 1.4 million contracts in February and was up 44% y-o-y. On a notional basis, trading volume exceeded US$39.6 billion and was up 41% y-o-y.<strong> </strong>Bolstered by the US$4.2 billion traded on the last day of the month, the average daily trading exceeded US$2 billion in February and trading volume exceeded US$1 billion on all days.</p>

<h3 class="text-h3"><strong>SGX to list New Taiwan Dollar Futures (TWD) contract</strong></h3>

<p>SGX will list a new, cash-settled Taiwan Dollar Futures contract for clients to manage their exposure to the currency. The notional contract size will be close to US$100,000, making it more efficient to trade and clear, enabling participants to mitigate the cost pressures that will increase as the next phase of Uncleared Margin Rules (UMR) looms.</p>

<p>The key specifications are as listed below:</p>
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<figure>
      <img src='https://api2.sgx.com/sites/default/files/2020-03/202003_4E.PNG' alt='new TWD spec' />
    </figure>
    <div class='content-caption'>new twd</div>
<figure>
      <img src='https://api2.sgx.com/sites/default/files/2020-03/202003_5E.PNG' alt='contract codes' />
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    <div class='content-caption'>FX_contracts</div>



Trading volume in SGX FX Futures exceeded US$137 billion in February as Covid-19 fears drive volatility in financial markets


Aggregate Volume in February at 2.44 million contracts; up 52% y-o-y
	Aggregate Volume in February above US$137 billion; up 60% y-o-y
	Month-end Open Interest at US$8.9 billion; up nearly 66% y-o-y

Covid-19 had a significant impact on global financial markets in February as the anxieties of a global pandemic drove financial markets down. The virus has continued to spread across continents, with countries like South Korea, Japan, U.S., Canada, France, Italy, Germany, Iran, Nigeria and Brazil all reporting cases.

China has some of the busiest container ports in the world and disruption to global supply chain is severe. Manufacturing in Chinese factories as well as consumption from Chinese customers has also been impacted. The reduction in trade, tourism and general supply chain disruption is likely to affect global economic growth at multiple levels. Economists are already warning that global growth rates could decline to its lowest since the financial crisis a decade ago. International businesses like Nike have highlighted revenue risks due to store closures; Tesla has also announced that it would struggle to deliver on its cars with the impact on its manufacturing units based out of China. With stock prices tanking further in the second half of the month, more companies across multiple sectors like Microsoft, HSBC, Standard Chartered have also issued revenue/profit warnings.

With no available cure yet and cases involving community transmission on a rise, fears continue to grip the financial markets. All asset classes are seeing the effects of this contagion. Equities endured a hammering in February, with key equity indices registering sharp downward moves. Dow registered its worst weekly performance in a decade, dropping over 10% in just six sessions, including its worst daily drop of over 4%, while VIX shot up; implied volatilities in currency markets were up; crude oil prices suffered while spreads widened for emerging market bonds.  

In February, Donald Trump made his first official visit to India as the U.S. President. The visit concluded with an announcement of a US$3 billion defence deal that involved India purchasing military helicopters and some other equipment. However, violent protests that erupted hours before Trump’s arrival marred the visit.

SGX FX Futures registered strong trading activity in the month with trading rising sharply in the second half of the month, in line with the financial markets meltdown. While trading volume in the first two weeks were approximately US$61 billion, the next two weeks saw trading jump to about US$76 billion.

Aggregate volume for SGX FX Futures were up 52% y-o-y at 2.44 million contracts. In US$ terms, this was above US$137 billion (up 60% y-o-y). The aggregate trading volume has continued to increase each month after a drop in October last year. Aggregate open interest at the end of February was US$8.91 billion, up nearly 66% y-o-y. 



      
    
    SGX_FX_Growth


SGX USD/CNH Futures volume in February above US$96 billion; Renminbi remains steadfast against a basket of trading partner currencies despite the ravages from Covid-19 


Trading volume for SGX USD/CNH futures above US$96 billion; up 70% y-o-y 
	Month-end Open Interest at US$6.3 billion; up 53% y-o-y 

Covid-19 was the top theme in the month with its huge impact across the Chinese economy. Bloomberg reported that Chinese banks are starting to delay recognizing bad loans, given the current situation. However, any extended period of low economic activity is bound to put China’s banking system under further pressure. S&amp;P recently came out suggesting that the non-performing loan ratios in China could triple to over 6% in such a scenario. While the upcoming economic data releases will shed proper light on the actual impact of Covid-19 virus on the Chinese economy, the early signs were the weakening of the renminbi in February that fell by about 1.7 % m-o-m.

Renminbi value had seen a sharp fall in its value in August. Its appreciation had been slow and it had remained above 7. However, Renminbi had strengthened post-Christmas and continued to stay under 7 against the greenback all through January. The market holidays at the end of January had also dampened the market activity and somewhat assisted in controlling the impact of any bad news. However, Renminbi had started to weaken prior to the holiday and February started much in the same vein as Renminbi weakened by 1.3% in the first week, a relatively small drop in value, given the severity of the issue. The daily currency fixing as determined by PBOC moved in a narrow range in the second week before breaking past 7 on 19 February, the first time since Christmas last year. Despite the slight depreciation against the US Dollar, the Renminbi strengthened against a basket of currencies in the last trading week of February (as CFETS RMB index showed).

There was an immediate impact of Renminbi movement on the trading for SGX USD/CNH Futures. Trading volume on 20 February was almost US$6.3 billion (the highest in 2020 until then) and the upswing in trading activity continued until the end of month. Participants traded in excess of US$7.6 billion on 28 February, making the day with the second highest volume ever recorded for Renminbi futures at SGX.



      
    
    CNH


The average daily volume of SGX USD/CNH Futures in February rose to US$4.81 billion as trading remained robust and exceeded US$2 billion on all days in the month, extending the run of such days to 45 continuous days.

The trading volume at SGX remained above 80% of the global volume during February, as participants traded over US$96 billion (962,032 lots) in the month. This represents a strong y-o-y increase of 70% in Renminbi futures at SGX. With the emergence of Covid-19 adding to the concerns around the Chinese economy and Renminbi, the open interest has grown as market looks to manage associated risks. The open interest for SGX USD/CNH Futures grew 53% y-o-y and ended February at US$6.3 billion (62,956 contracts). This represents nearly 68% of the open interest across all exchanges with similar offerings. 

SGX INR/USD futures above US$39 billion in February; civil protests continue 


Trading volume for SGX INR/USD Futures above US$39 billion in February; up 41% y-o-y
	Rupee weakens in February despite strong FPI flows 

At the start of the year, the Indian government had already been behind the fiscal deficit target for the fiscal year, raising questions on its ability to present a growth-centric budget and deal with the economic slowdown. While the government did not surprise watchers and offered little towards employment or economic revival, it did focus on reforming the tax regime. There were several proposals such as raising allocations to education and railways and change in income tax slabs or development of up to a hundred new airports in the next five years. However, the finance minister offered few details towards concrete plans to finance these schemes.

The Indian government has proposed to abolish dividend distribution tax by transferring the burden from the company to the individual investor who will now be required to pay tax at their applicable individual tax bracket – a move unlikely to find support from smaller individual investors who do not pay any tax currently on such income. There were some other interesting proposals such as listing LIC on a public bourse. As a government-owned life insurance company with a big balance sheet, LIC has often been relied upon by the government to support financial markets in times of need. An IPO therefore potentially disrupts its unofficial function by reducing government control even if it allows government to raise additional funds through divestment of its stake. Market continues to speculate on a possible sovereign bond issuance by the Indian government, as a way to attract foreign capital. The government has also offered 100% tax concessions to Sovereign Wealth Funds investing in infrastructure projects, hoping to revive investment flow.

In February, the Citizenship Amendment Act remains a key theme and continues to polarize people and views. Protest rallies, both against and in support of the Act resulted in violence in places including Delhi, where BJP just lost the elections for the local assembly despite an aggressive and at times vitriolic campaign. Destruction of public property and deaths in sectarian violence marked a grim month on the subject.



      
    
    INR


Notwithstanding the recent negative headlines, investor sentiment and flow of money from foreign portfolio investors (FPI) to India seemed to get better early in the month. By mid-February, the FPI had already invested about US$3.5 billion in 2020. Despite significant withdrawals of nearly US$2 billion in the last week of the month, net inflows to India from the FPI exceeded US$1.4 billion in February. As Covid-19 took its toll on global financial markets in the second half of the month, the meltdown in global equities also hit Indian markets hard and the local indices crashed in tandem. FPI withdrew more than US$1.2 billion in the last week from Indian equities. Rupee weakened by about 95 basis points in February (bulk of it on 28 February), despite the net inflow of funds. Several critical sectors such as automotive remain exposed to the supply chain disruption from their Chinese suppliers and the true impact of Covid-19 on Indian economy will probably show up in the results of these firms and other economic data releases.

A couple of holidays in the second half of February failed to halt momentum in the trading for SGX INR/USD Futures. Trading exceeded 1.4 million contracts in February and was up 44% y-o-y. On a notional basis, trading volume exceeded US$39.6 billion and was up 41% y-o-y. Bolstered by the US$4.2 billion traded on the last day of the month, the average daily trading exceeded US$2 billion in February and trading volume exceeded US$1 billion on all days.

SGX to list New Taiwan Dollar Futures (TWD) contract

SGX will list a new, cash-settled Taiwan Dollar Futures contract for clients to manage their exposure to the currency. The notional contract size will be close to US$100,000, making it more efficient to trade and clear, enabling participants to mitigate the cost pressures that will increase as the next phase of Uncleared Margin Rules (UMR) looms.

The key specifications are as listed below:



      
    
    new twd

      
    
    FX_contracts

Trading volume in SGX FX Futures exceeded US$137 billion in February as Covid-19 fears drive volatility in financial markets

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Trading volume in SGX FX Futures exceeded US$137 billion in February as Covid-19 fears drive volatility in financial markets

Trading volume in SGX FX Futures exceeded US$137 billion in February as Covid-19 fears drive volatility in financial markets Aggregate Volume...

Singapore Exchange Ltd (SGX)

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