SGX MSCI Indonesia Index Futures which was launched in June 2012, has surpassed a cleared volume of US$2 billion within a short span of 9 months. In the month of March 2013, the average daily volume for the product exceeded 1,100 contracts, more than double the volume from 6 months ago. This marks a significant level of liquidity in the relatively new contract. Open interest reached an all-time high of more than 7,000 contracts on 22 Mar 2013.
The Indonesia market is poised for the steepest annual gain in three years as the country sees strong domestic consumption leading to robust economic expansion. The MSCI Indonesia index has jumped 14 percent in the first quarter of this year. In comparison, the MSCI Emerging Markets Index fell by 1.9 percent during the same period. Based on the median economist estimates in a Bloomberg survey, Indonesia’s economic growth is expected to accelerate to 6.25 percent in 2013 from 6.23 percent last year.
This SGX product is also the only futures contract that serves as an efficient hedging and access tool for customers to access the Indonesian market. SGX MSCI Indonesia Index Futures provides extended hours of on-screen and block liquidity, as it continues to be open into U.S. and European hours even after the onshore cash market is closed. With these new equity derivatives being traded and cleared on the Exchange, it will also bring about greater price transparency and reduced counterparty risk.
For issuers of structured products, the futures contract facilitates greater reliability in derivative replication and improved risk management, leading to enhanced liquidity and pricing for customers. SGX MSCI Indonesia Index Futures is used widely by institutional clients, with approximately 25% of volumes coming through negotiated large trades (NLT). The futures contract is also a good alternative to Indonesia ETFs. In comparison to the top 3 global ETFs by size, the SGX futures contract has a 35% volumes market share and 5% open interest market share.
“We have seen good growth in the contract’s volumes and liquidity. Demand has been international, including clients from Europe. The futures have proven to be a cost efficient tool with a typical bid-ask spread of 10 to 20 basis points, as compared to onshore cash market spreads of 50 to 100bps.” said Mr. Manuel Schlabbers, Head of Index and ETF Trading, Asia, Credit Suisse.
Paul So, Head of Beta Products at Enhanced Investment Products said, “SGX MSCI Indonesia Index Futures has allowed ETF issuers and their stakeholders, such as participating dealers and market makers, to effectively hedge positions. The listed futures market also acts as an additional indicator in the pricing of certain ETFs and other products that tracks Indonesia market indices.” Enhanced Investment Products manages a XIE Shares branded ETF that tracks the broad Indonesian equity market.
The MSCI Indonesia Index Futures contract is the first of a series of ASEAN contracts that SGX plans to launch. SGX will continue to provide clients with unique and integrated access to ASEAN capital markets through the pipeline of new products including MSCI Thailand and MSCI Philippines Index Futures.
