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

Akatsuki Financial Group / Equity Bottom-Up

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<p class="text-leading"><strong>Global economies reel from COVID-19; market turbulence drives risk management with SGX FX Futures volume rising above US$171 billion in March</strong></p>

<ul>
<li><em>Aggregate volume in March at 2.97 million contracts, up 58% y-o-y</em></li>
	<li><em>Aggregate volume in March at US$171.5 billion, up 72% y-o-y</em></li>
	<li><em>Aggregate YTD volume at 435 billion; up 50%</em></li>
	<li><em>Quarter-end open interest at US$7 billion</em></li>
</ul>
<h4 class="text-h4"><strong>Coping with a dual shock: COVID-19 and Oil</strong></h4>

<p>COVID-19 has ravaged the world with over 1 million reported cases and death toll exceeding 50,000. This includes more than 200,000 known cases in the U.S. – highest in the world – turning the country into the new epicentre for the pandemic. There are now more deaths reported in Italy and Spain than in China. With little experience in dealing with such emergencies, European nations also bracing for more pain, as economists find it difficult to estimate the true economic and social impact of this virus. In another shock to the global economic engine, crude oil prices plunged in March. Amid public disagreements on the production cuts between OPEC and Russia, Saudi Arabia announced 20% discounts on its crude prices, sending the market into freefall.</p>

<p><strong>Community transmission</strong> remains a key concern for healthcare experts and many governments have announced their efforts to flatten the curve (i.e. slowing the rate of infection) that range from enhanced border controls to complete domestic lockdown. For example, the UK and India are severely restricted the movement of people. The crisis and subsequent measures have had an impact on the stock markets as well. In February, the Dow Jones Industrial Average registered its worst weekly performance in a decade when it conceded over 10% over six sessions. March was to prove much worse as the financial markets tumbled further. There were wild swings in U.S. equity indices as they crashed and rose several times in the month – the double-digit downward moves reminiscent of Black Monday. </p>

<p>Governments across the world have been quick to recognise the need for stimulus to shore up the economy. Singapore’s central bank has eased monetary policy, Beijing is injecting billions into China’s financial system, Washington has approved US$2 trillion in stimulus while the Federal Reserve cut rates, and the European Union and the UK have also committed billions to stave off the recessionary pressure brought about by this tragedy. Canberra committed A$130 billion over the next six months amid a Bloomberg forecast of nearly 10% contraction in the Australian economic activity. Tokyo is expected to issue an additional 16 trillion yen in Japanese Government Bonds from July towards the stimulus package for coronavirus impact, on top of an earlier plan to sell nearly 129 trillion yen of JGBs in the upcoming fiscal year; the US$554 billion stimulus would be the largest in Japanese history. </p>

<p>All asset classes have felt the blow as the economic toll worsens. Crude oil prices have crashed to near 17-year lows, the Korean won dropped to levels last seen in the global financial crisis 10 years ago while the Indian rupee hit all-time lows against the U.S. dollar. The need to hedge exposures to different markets and multiple asset classes drove participants to seek venues with proven resilience. On SGX, FX futures trading increased in March as a result with multiple products registering strong growth. Futures on the renminbi, the Korean won and the Singapore dollar all had their most active months.</p>

<p>Aggregate volume of SGX FX Futures rose 58% y-o-y to 2.97 million contracts, the highest on record. In U.S. dollar terms, this was at US$171.5 billion (up 72% y-o-y). Aggregate trading volume in the first quarter of 2020 climbed to US$435 billion (up 50% y-o-y) as almost 7.8 million contracts were traded (up 45% y-o-y). Aggregate open interest at the end of March was US$7 billion (up nearly 16% y-o-y). Based on contracts outstanding, open interest was down 8% y-o-y.</p>
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      <img src='https://api2.sgx.com/sites/default/files/2020-04/202004_1E_new.PNG' alt='COVID 19 and SGX CNH Futures Growth' />
    </figure>
    <div class='content-caption'>SGXFX Futures Growth</div>
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<h3 class="text-h3"><strong>SGX USD/CNH Futures trading rises above US$125 billion in March</strong></h3>

<ul>
<li><em>Trading volume for SGX USD/CNH futures climbs above US$125 billion, up 95% y-o-y</em></li>
	<li><em>Month-end open interest at US$5.4 billion, up 54% y-o-y</em></li>
</ul>
<p>Although economists have struggled to gauge the extent of the damage caused by widespread shutdowns of factories due of COVID-19, renminbi weakness in February was an early indicator of the slowdown in China’s economic activity in the absence of major data releases. In March, the release of multiple sets of economic data that was worse than estimates confirmed the serious impact of COVID-19 on the broader economy.</p>

<p>China’s retail sales crashed more than 20% in the first two months of the year compared with the same period in 2019. Industrial output contracted 13.5% while the manufacturing PMI plummeted to a worse-than-expected 35.7 in February, from 50 in the previous month, signalling contraction. This was the weakest gauge of Chinese factory activity on record. The property market too slowed as home prices stagnated and new sales dropped.</p>

<p>Even as China recovers from the lockdown and restarts its economic engine by reopening factories, suppression in global demand for its goods is likely to continue for a while, given the devastating impact across the globe. Even within the country, where unemployment has jumped to 6.2%, the pace of recovery is likely to be slow.</p>
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<figure>
      <img src='https://api2.sgx.com/sites/default/files/2020-04/202004_2E.PNG' alt='COVID 19 and SGX CNH Futures Growth' />
    </figure>
    <div class='content-caption'>COVID_SGX_CNH</div>
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<p class="MsoNoSpacing">Both fiscal and monetary stimulus will be required to manage the impact of COVID-19. The collapse in crude oil prices may be a bonanza for the largest importer in the world and aid in its economic recovery. In addition, Chinese regulators are injecting billions into the financial system to spur growth.</p>

<p class="MsoNoSpacing">Market risks associated with COVID-19 have risen in recent months, fuelling demand to hedge renminbi exposures. The average daily volume of SGX USD/CNH Futures in March surpassed US$5.7 billion amid increased trading activity. Volume crossed US$7 billion on six days and registered US$9.1 billion on 9 March. The renminbi traded in a wider range in the month than in February and it weakened steadily after 9 March.</p>
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<figure>
      <img src='https://api2.sgx.com/sites/default/files/2020-04/202004_3E_new.PNG' alt='COVID 19 and SGX CNH Futures Growth' />
    </figure>
    <div class='content-caption'>SGX USDCNH Futures Growth</div>
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<p class="MsoNoSpacing">For the third successive quarter, trading volume of renminbi futures at SGX remained above 80% of the global volume during, as <strong>participants traded over US$125 billion (1,255,507 lots) in March, setting a record</strong>. The US$125 billion worth of trading represented a strong 95% y-o-y increase in renminbi futures at SGX.</p>

<p class="MsoNoSpacing">Open interest in SGX USD/CNH Futures has grown as market participants look to manage associated risks. Open interest in SGX USD/CNH Futures grew 54% y-o-y and ended March at US$5.4 billion (53,853 contracts). This represented nearly 67% of the open interest across all exchanges with a similar offering, underscoring SGX’s leadership.</p>

<h3 class="text-h3"><strong>India goes into lockdown to tackle COVID-19; rupee hedging drives SGX INR/USD futures to US$43 billion in March</strong></h3>

<ul>
<li><em>Trading volume of SGX INR/USD Futures rises above US$43 billion in March, up 28% y-o-y</em></li>
	<li><em>Rupee weakens to historic lows in March before staging partial recovery</em></li>
	<li><em>FPIs withdraw nearly US$16 billion in March</em></li>
</ul>
<p>Like the rest of the world, the fallout from COVID-19 was the key driver for volatility in the Indian financial markets in March, as equities crashed more than 35%. While the fall and subsequent partial recovery was in line with the drop in the other global equity indices, the rout has wiped out the gains of the past three years. Rupee bond markets also took a hit and 10-year government bond yields jumped by nearly 30 bps in March.</p>

<p class="MsoNoSpacing">The government could still draw some comfort from the sharp drop in crude oil prices, for it should potentially help reduce the import bills. However, an extended period of economic stress could continue given the potential loss of employment across different layers of the workforce. New Delhi announced a 1.76 lakh crore stimulus (approx. US$23 billion). In what appeared a coordinated effort, the Reserve Bank of India cut key rates by 75 bps and announced several measures to provide relief to financial institutions already struggling with a rise in non-performing loans. These issues had nearly threatened to take down Yes Bank and only timely infusion of capital from SBI and other banks may have saved it. </p>

<p class="MsoNoSpacing">Towards the end of the month, Prime Minister Narendra Modi addressed the nation and announced a two-week lockdown as a step to break transmission cycles. Despite repeated assurances, the lockdown imposed by the government led to panic-induced buying of essential supplies, while wage losses forced migrant workers from across the country to head home. The loss of employment and the subsequent paranoia may damage the economy further and slow down its recovery.</p>
</body></html>

<figure>
      <img src='https://api2.sgx.com/sites/default/files/2020-04/202004_4E.PNG' alt='COVID 19 and SGX INR Futures Growth' />
    </figure>
    <div class='content-caption'>SGX INR Futures</div>
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<p class="MsoNoSpacing">With global financial markets in turmoil, international investors sought refuge in safer assets and exited Indian capital markets. Investor sentiment stayed negative in March and net flow from foreign portfolio investors (FPI) to India declined sharply. During the month, FPIs withdrew US$15.9 billion from the Indian capital markets.</p>

<p class="MsoNoSpacing">The rupee weakened by 4.4 percent<strong> </strong>in March, making it one of the worst months in recent years. Trading in SGX INR/USD Futures exceeded 1.6 million contracts in March (up 37% y-o-y). In U.S. dollar terms, trading volume exceeded US$43 billion only for the second time (after August 2019) and was up 28% y-o-y.<strong> </strong>Average daily trading in March exceeded US$2 billion for a second month, surpassing US$1 billion on 19 days.</p>
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<figure>
      <img src='https://api2.sgx.com/sites/default/files/2020-04/202004_5E.PNG' alt='How to access SGX FX Futures on platforms' />
    </figure>
    <div class='content-caption'>SGX FX Futures</div>



Global economies reel from COVID-19; market turbulence drives risk management with SGX FX Futures volume rising above US$171 billion in March


Aggregate volume in March at 2.97 million contracts, up 58% y-o-y
	Aggregate volume in March at US$171.5 billion, up 72% y-o-y
	Aggregate YTD volume at 435 billion; up 50%
	Quarter-end open interest at US$7 billion

Coping with a dual shock: COVID-19 and Oil

COVID-19 has ravaged the world with over 1 million reported cases and death toll exceeding 50,000. This includes more than 200,000 known cases in the U.S. – highest in the world – turning the country into the new epicentre for the pandemic. There are now more deaths reported in Italy and Spain than in China. With little experience in dealing with such emergencies, European nations also bracing for more pain, as economists find it difficult to estimate the true economic and social impact of this virus. In another shock to the global economic engine, crude oil prices plunged in March. Amid public disagreements on the production cuts between OPEC and Russia, Saudi Arabia announced 20% discounts on its crude prices, sending the market into freefall.

Community transmission remains a key concern for healthcare experts and many governments have announced their efforts to flatten the curve (i.e. slowing the rate of infection) that range from enhanced border controls to complete domestic lockdown. For example, the UK and India are severely restricted the movement of people. The crisis and subsequent measures have had an impact on the stock markets as well. In February, the Dow Jones Industrial Average registered its worst weekly performance in a decade when it conceded over 10% over six sessions. March was to prove much worse as the financial markets tumbled further. There were wild swings in U.S. equity indices as they crashed and rose several times in the month – the double-digit downward moves reminiscent of Black Monday. 

Governments across the world have been quick to recognise the need for stimulus to shore up the economy. Singapore’s central bank has eased monetary policy, Beijing is injecting billions into China’s financial system, Washington has approved US$2 trillion in stimulus while the Federal Reserve cut rates, and the European Union and the UK have also committed billions to stave off the recessionary pressure brought about by this tragedy. Canberra committed A$130 billion over the next six months amid a Bloomberg forecast of nearly 10% contraction in the Australian economic activity. Tokyo is expected to issue an additional 16 trillion yen in Japanese Government Bonds from July towards the stimulus package for coronavirus impact, on top of an earlier plan to sell nearly 129 trillion yen of JGBs in the upcoming fiscal year; the US$554 billion stimulus would be the largest in Japanese history. 

All asset classes have felt the blow as the economic toll worsens. Crude oil prices have crashed to near 17-year lows, the Korean won dropped to levels last seen in the global financial crisis 10 years ago while the Indian rupee hit all-time lows against the U.S. dollar. The need to hedge exposures to different markets and multiple asset classes drove participants to seek venues with proven resilience. On SGX, FX futures trading increased in March as a result with multiple products registering strong growth. Futures on the renminbi, the Korean won and the Singapore dollar all had their most active months.

Aggregate volume of SGX FX Futures rose 58% y-o-y to 2.97 million contracts, the highest on record. In U.S. dollar terms, this was at US$171.5 billion (up 72% y-o-y). Aggregate trading volume in the first quarter of 2020 climbed to US$435 billion (up 50% y-o-y) as almost 7.8 million contracts were traded (up 45% y-o-y). Aggregate open interest at the end of March was US$7 billion (up nearly 16% y-o-y). Based on contracts outstanding, open interest was down 8% y-o-y.



      
    
    SGXFX Futures Growth


SGX USD/CNH Futures trading rises above US$125 billion in March


Trading volume for SGX USD/CNH futures climbs above US$125 billion, up 95% y-o-y
	Month-end open interest at US$5.4 billion, up 54% y-o-y

Although economists have struggled to gauge the extent of the damage caused by widespread shutdowns of factories due of COVID-19, renminbi weakness in February was an early indicator of the slowdown in China’s economic activity in the absence of major data releases. In March, the release of multiple sets of economic data that was worse than estimates confirmed the serious impact of COVID-19 on the broader economy.

China’s retail sales crashed more than 20% in the first two months of the year compared with the same period in 2019. Industrial output contracted 13.5% while the manufacturing PMI plummeted to a worse-than-expected 35.7 in February, from 50 in the previous month, signalling contraction. This was the weakest gauge of Chinese factory activity on record. The property market too slowed as home prices stagnated and new sales dropped.

Even as China recovers from the lockdown and restarts its economic engine by reopening factories, suppression in global demand for its goods is likely to continue for a while, given the devastating impact across the globe. Even within the country, where unemployment has jumped to 6.2%, the pace of recovery is likely to be slow.



      
    
    COVID_SGX_CNH


Both fiscal and monetary stimulus will be required to manage the impact of COVID-19. The collapse in crude oil prices may be a bonanza for the largest importer in the world and aid in its economic recovery. In addition, Chinese regulators are injecting billions into the financial system to spur growth.

Market risks associated with COVID-19 have risen in recent months, fuelling demand to hedge renminbi exposures. The average daily volume of SGX USD/CNH Futures in March surpassed US$5.7 billion amid increased trading activity. Volume crossed US$7 billion on six days and registered US$9.1 billion on 9 March. The renminbi traded in a wider range in the month than in February and it weakened steadily after 9 March.



      
    
    SGX USDCNH Futures Growth


For the third successive quarter, trading volume of renminbi futures at SGX remained above 80% of the global volume during, as participants traded over US$125 billion (1,255,507 lots) in March, setting a record. The US$125 billion worth of trading represented a strong 95% y-o-y increase in renminbi futures at SGX.

Open interest in SGX USD/CNH Futures has grown as market participants look to manage associated risks. Open interest in SGX USD/CNH Futures grew 54% y-o-y and ended March at US$5.4 billion (53,853 contracts). This represented nearly 67% of the open interest across all exchanges with a similar offering, underscoring SGX’s leadership.

India goes into lockdown to tackle COVID-19; rupee hedging drives SGX INR/USD futures to US$43 billion in March


Trading volume of SGX INR/USD Futures rises above US$43 billion in March, up 28% y-o-y
	Rupee weakens to historic lows in March before staging partial recovery
	FPIs withdraw nearly US$16 billion in March

Like the rest of the world, the fallout from COVID-19 was the key driver for volatility in the Indian financial markets in March, as equities crashed more than 35%. While the fall and subsequent partial recovery was in line with the drop in the other global equity indices, the rout has wiped out the gains of the past three years. Rupee bond markets also took a hit and 10-year government bond yields jumped by nearly 30 bps in March.

The government could still draw some comfort from the sharp drop in crude oil prices, for it should potentially help reduce the import bills. However, an extended period of economic stress could continue given the potential loss of employment across different layers of the workforce. New Delhi announced a 1.76 lakh crore stimulus (approx. US$23 billion). In what appeared a coordinated effort, the Reserve Bank of India cut key rates by 75 bps and announced several measures to provide relief to financial institutions already struggling with a rise in non-performing loans. These issues had nearly threatened to take down Yes Bank and only timely infusion of capital from SBI and other banks may have saved it. 

Towards the end of the month, Prime Minister Narendra Modi addressed the nation and announced a two-week lockdown as a step to break transmission cycles. Despite repeated assurances, the lockdown imposed by the government led to panic-induced buying of essential supplies, while wage losses forced migrant workers from across the country to head home. The loss of employment and the subsequent paranoia may damage the economy further and slow down its recovery.



      
    
    SGX INR Futures


With global financial markets in turmoil, international investors sought refuge in safer assets and exited Indian capital markets. Investor sentiment stayed negative in March and net flow from foreign portfolio investors (FPI) to India declined sharply. During the month, FPIs withdrew US$15.9 billion from the Indian capital markets.

The rupee weakened by 4.4 percent in March, making it one of the worst months in recent years. Trading in SGX INR/USD Futures exceeded 1.6 million contracts in March (up 37% y-o-y). In U.S. dollar terms, trading volume exceeded US$43 billion only for the second time (after August 2019) and was up 28% y-o-y. Average daily trading in March exceeded US$2 billion for a second month, surpassing US$1 billion on 19 days.



      
    
    SGX FX Futures

Global economies reel from COVID-19; market turbulence drives risk management with SGX FX Futures volume rising above US$171 billion in March

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Global economies reel from COVID-19; market turbulence drives risk management with SGX FX Futures volume rising above US$171 billion in March

Global economies reel from COVID-19; market turbulence drives risk management with SGX FX Futures volume rising above US$171 billion in...

Singapore Exchange Ltd (SGX)

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