Effective risk management assumed even greater importance over the last 12 months as Asian market participants sought help navigating upheaval in global markets.
During a year of unprecedented change and uncertainty, access to a trusted exchange partner for managing risk in Asia was invaluable for many clients. But as well as ‘keeping the lights on’ and refocusing their businesses, exchanges were also expected to continue to innovate in the area of product development.
The ability to adapt – along with its product leadership in enhancing investor access to Asia’s opportunities – were just two of the factors that contributed to Singapore Exchange (SGX) being recognised as GlobalCapital’s Asia Pacific Derivatives Exchange of The Year for the eighth consecutive year.
SGX works with all index partners to offer the widest range of relevant products. For example, while the exchange signed a strategic agreement with FTSE Russell in August 2020 to develop multi-asset solutions, its remains the biggest MSCI commercial partner in Asia and retained its licence for MSCI Singapore index futures and options.
“What has been particularly relevant in a zero interest rate environment is that we very quickly expanded beyond just doing equities into asset classes such as Chinese government bonds and Asian REITs,” explains Michael Syn, SGX's head of equities.“So we didn’t just expand the range of products available – we expanded across the capital structure to meet customer demand for yield.”
The obvious reason to come to Singapore is to access Asia, a complex regional market in terms of currency and capital restrictions. Each country has its own rules, so to be able to go to a single point of access for equities, commodities, REITs, currencies, and bonds is an important client proposition.
SGX is recognised globally as the one-stop, multi-asset platform to trade Chinese assets and manage risk comprehensively. The SGX FTSE China A50 Futures remains the most liquid international benchmark for the China market. It is a highly tradable and liquid futures on mainland A-shares and has gained global acceptance since its launch in 2006.
One of the major themes of the climate discussion is what southeast Asia should do and as an exchange we have really doubled down on how the financial sector can do better
FTSE Russell has just gone out with a public consultation on the expansion of the liquid basket from 50 stocks to 100 and possibly more. “We see this as the best way of capturing more of the market rather than adding exotic weights,” says Syn.
The appearance of new products suggests that Chinese regulators and policymakers want to bring more capital in, he adds. “A50 Futures is growing 20% year-on-year and we think it will do very well to support China’s internationalisation efforts if the basket expands.”
The SGX USD/CNH Futures is the world’s most widely traded RMB futures (more than 80% market share of volume and open interest), with round-the-clock liquidity. SGX has been acquiring to build an integrated one-stop FX marketplace for OTC and futures.
Syn explains that China is a major focus for the exchange, not just in terms of equities but also government bonds. The inclusion of Chinese government bonds in the FTSE World Government Bond Index (WGBI) is a $200bn opportunity and the Chinese currency is also starting to move around with more volatility.
The customer trend that has proved most surprising over the last 12 months in Asia is around environmental, social and governance issues. Pre-pandemic, interest in and demand for ESG in the region was evident and rising. Yet, over the last year, interest and demand has increased sharply.
Across all of its products, SGX customers have looked to the exchange to help them think through what it means to be a better ESG participant while still being a freight hedger or a commodity hedger or an equity investor.
“One of the major themes of the climate discussion is what southeast Asia should do and as an exchange we have really doubled down on how the financial sector can do better,” says Syn. “It is interesting that the customers and investors using SGX wanted us – a relatively small Asian exchange – to represent these interests at a major forum such as the 2021 United Nations Climate Change Conference.”
This indicates that there is recognition that Asia is part of the problem and therefore should be part of the solution.
