After Cautious Start, China Futures Market Grabs Investors’ Attention

Even seasoned market professionals have been surprised by the enthusiasm with which local investors have embraced stock index futures — China’s first financial futures since the mid-1990s — since their launch two weeks ago, the Financial Times reported on Thursday.

“The volumes have exceeded everyone’s expectations,” said Dean Owen, Shanghai-based chief representative for Newedge, the French futures brokerage, which has a joint venture with Citic Group in China.

China’s index futures — or agreements to buy or sell an index at a given value on an agreed date — are based on the CSI 300 index, which tracks the Shanghai and Shenzhen markets.

Each contract is worth 300 yuan ($44) multiplied by the value of the index at the time of trade. For example, a contract for May costs about 960,000 yuan, the FT explained. That is 300 yuan multiplied by the 3,200 level of the main index.

The London-based paper said: “The surge in trading volumes is all the more remarkable because Beijing has imposed a raft of restrictions to keep inexperienced investors out of the market. Investors must pass an examination and meet tough criteria for educational background, credit history, monthly salary and liquid assets.”

But the trade is not the type that China’s regulators had expected. Rather than being a place where institutional investors can hedge their stock portfolios, the market is at present “a playground” for rich speculators.

“The market is dominated by retail investors at the moment, something the regulators and exchange want to avoid,” Owen told the FT. “It is clear that retail investors are not using the futures as a hedging tool against their stock portfolios.”

The newspaper said the short-term, speculative nature of the market was “illustrated by the fact that more than 90 percent of trades are opened and closed on the same day. This kind of rapid-fire trading for quick profits is known as ‘scalping.’ ”

To go along with Shanghai’s rediscovered reputation as a hot trading town, it commissioned a new landmark to be unveiled during the World Expo opening today that captures the city’s rising global ambitions: a beefed-up replica of Wall Street’s “Charging Bull.”

The red-tinted sculpture on the historic Bund riverfront is intended to have a more vibrant look than its US counterpart and will face skyward — a symbol of the city’s dreams of becoming a world financial center.

The central government has declared it aimed to build the city, which has long been China’s business heart, into an international financial hub by 2020.

“Shanghai will make major breakthroughs this year in building a world financial center,” Mayor Han Zheng said.

Shanghai’s stock market has also seen radical changes in the weeks before Expo as China moves past the financial crisis.

In addition to stock index futures, short-selling and margin trading have been introduced, giving investors more sophisticated options. The Shanghai Stock Exchange is expected to see its first foreign listing this year.

“Since the crisis has subsided, the logjam has been unblocked. There’s lots of signs of research by regulators on how to move things forward,” Standard Chartered China economist Stephen Green said.

“The market is under development, therefore the people making the development decisions are very important, and they’re all in Beijing. It’s hard to see significant regulatory control being turned over to Shanghai, which creates another challenge.”

Back at the index futures exchange, the new kid on the block seems to have gotten off to a great start, going by the early responses from investors.

For Yao Shanliang, a 63-year-old retired metal trader, the opportunity to trade in stock index futures was something he did not want to miss. Yao drove two hours from his home in Zhangjia­gang, Jiangsu province, to Shanghai to be one of the first investors to register for trading in index futures, China Daily reported.

“I started to invest in commodity futures in 1998. During the first few years, I lost a lot of money due to wrong bets. But I think that’s the price investors have to pay before making money,” Yao told the Beijing daily.

AFP, JG