How HKEX's A-share futures launch will shake up Singapore’s monopoly in China

SGX shares already slumped 4% when HK announced the futures’ launch on 23 August.

The competition has arrived. Hong Kong launched today, 18 October, its first A-share index futures contract which is expected to shake up Singapore’s monopoly in China’s stock futures.

The Hong Kong Exchange’s (HKEX) new product will “ultimately provide formidable competition to the offering available from Singapore Exchange (SGX),” Bloomberg said.

SGX already felt the impact of the launch when it saw a slump of more than 4% on 23 August, the day Hong Kong announced its new product.

HKEX shares, on the other hand, soared to almost 6% on that day. 

Quoting Goldman Sachs Group analysts, Bloomberg said HKEX’s MSCI index-based futures “will become the biggest offshore traded A-share equity futures product over the medium term.”

This was supported by a note from Citigroup analysts saying the Hong Kong bourse “looks better positioned in A-share derivatives in the longer term.”

Analysts however noted that HK’s derivatives product could take “several years to gain traction.”

Prior to the launch of HK’s futures contract, Singapore's A50 futures product had no direct competition in China's derivatives market since 2006.

Citing a Citigroup research, Bloomberg reported that Singapore’s A50 futures product accounted for about 10 % of SGX's total revenues and 29% of derivatives revenue in the 2021 fiscal year ended June.

Comparing the two bourses, Bloomberg said Singapore “provides investors better liquidity, fewer holidays, and a mature offshore derivatives ecosystem,” whilst Hong Kong has “more balanced sector weightings.”
 
As for trading costs, Analyst Brian Freitas said the MSCI China A 50 Connect Index, which HK’s futures contracts will be based on, has a “big drawback" of higher index turnover, which “could result in higher trading costs.”

On the other hand, FTSE index-based futures like SGX’s “includes the largest onshore shares weighted by market cap.”

Michael Syn, SGX's head of equities, said Singapore's bourse doesn't "shut down when a typhoon hits" and the design of the underlying index for the contracts is efficient and leads to low fees.

HGX, for its part, said its futures contract “offers a much more cost-effective alternative to existing China A-share hedging solutions, such as swaps and other listed A-share index derivatives.”