SINGAPORE (Oct 28): Hong Kong and Shanghai aren’t the only exchanges with profits riding on the China bourse link.

The Singapore Exchange plans to develop more derivatives focused on the world’s biggest emerging market after volume for FTSE China A50 Index futures jumped to a record last quarter, Michael Syn, SGX’s head of derivatives, said in an interview on Oct 23.

The Hong Kong-Shanghai stock-trading program announced in April is reviving foreign investor appetite in mainland Chinese shares, Syn said.

“Trading has been driven by interest and demand for access to Chinese capital market,” said Syn.

“This will be a long-term growth driver and we’ll continue to invest to develop these products.”

Singapore, already an offshore trading centre for the yuan, is looking to China further opening up to help reverse a four-quarter slump in the exchange’s profit.

The eagerly awaited stock link faces a setback after Hong Kong Exchanges & Clearing Chief Executive Officer Charles Li said he didn’t know when regulators will allow the plan to go forward.

Brokers had been expecting an October start date.

Investors traded 10.8 million of the Chinese index futures contracts through Southeast Asia's biggest bourse in the three months ended Sept 30, with a notional value of US$75 billion, compared with 5.2 million contracts worth US$36 billion in the same period a year earlier, according to SGX.

Syn declined to give further comments when asked yesterday about the impact of the stock-link delay on trading volume.

The Shanghai Composite Index rallied 8.8% amid prospects for increased inflows since China’s Premier Li Keqiang announced in April the cross-border trading plan.

Investors opened the most accounts to trade mainland A shares in more than two years in the last week of September, according to official data.

Derivatives Driver

SGX has been offering new equity, currency and commodity futures contracts to help counter a decline in stock transactions.

That’s made derivatives the bourse’s biggest business, contributing 32% of the S$169 million revenue in the three months ended Sept 30, the company said last week.

Equities contributed 29% of the total, down from a peak of almost 60% six years ago.

The bourse started trading yuan futures last week and is looking at the possibility of developing risk-management products for Chinese companies that are increasingly venturing outside of China, Syn said.

About 1,846 contracts, with a notional value of 1.1 billion yuan, changed hands on the first day of trading of the contract on Oct 20, according to SGX.

“As capital controls ease, investors’ need to hedge their currency risk premiums is increasing,” Syn said.

“We’ve had great success in currencies like the Indian rupee and this month we had another hit with the renminbi futures. Investors injected 1 billion renminbi into our clearing house.”

Trading hub

Singapore has been competing with Hong Kong to become a trading hub for the currency as China seeks to promote the wider use of the yuan overseas.

The yuan accounted for 8.7% of global trade in October 2013, up from 1.9% in January 2012, according to data cited by Aite Group LLC in a report from September.

Yuan deposits in the Southeast Asian nation reached 254 billion yuan as of June compared with about 930 billion yuan in Hong Kong, data compiled by Bloomberg showed.

Direct trading of the yuan and the Singapore dollar are due to start this week, according to a person with direct knowledge of the matter.

Restoring confidence

SGX is heading for a 3.2% slide this month, the biggest such decline since January, after the bourse reported its fourth quarterly drop in profit amid trading volume that tumbled 28%.

Singapore is strengthening securities rules to help restore investor confidence after a penny-stock slump erased US$6.9 billion in market value of commodity companies over three days in October 2013.

“We expect securities volumes to normalize with lowering of board lot size and uptick in volatility,” Krishna Guha, an analyst at Jefferies Singapore wrote in a note on Oct 23.

“Derivatives volumes should maintain healthy growth offsetting any continued weakness in the securities business.”