China positioning increasing in derivatives
MSCI China Index Futures Positioning grows to highest levels since August
Positioning in Eurex listed MSCI China USD NTR Index Futures has grown to its highest levels since Aug 2023 as China Equities continue to rally.
With Open Interest currently standing at US$2.3bn , Eurex holds 78% market share in the product as members take advantage of 21 Hours continuous trading and order book support from Market Makers in all three Regions.
Efficient pricing. Efficient capital
As well as attractive Block pricing available from major International Banks, Brokers, Market Makers and other flow providers on the platform, it has been Eurex's PRISMA (portfolio-based margining methodology) that has helped attract participants back into the into the product.
With PRISMA offering one of the highest portfolio-margin level offsets across equity derivatives, this margining tool has proved to be a powerful feature in boosting capital efficiency.
Stabilization
Its too early to call a return of “global money” back into Chinese Equities, but as one US Investment Bank highlighted in the FT recently, an estimated Rmb170bn has been deployed directly into China’s domestic equity market by state-run financial groups this year.? And as the state seeks to stabilize equity markets , they also seek to further enhance local capital markets by pushing the development of home-grown brokerages that can compete with the top global names by 2035. One of the measures the CSRC will likely explore is a relaxation in capital requirement for brokerages, thus enhancing both ROE and valuations. The SCMP describes the lack of top-tier brokerages as being seen as a hindrance to the evolution of China’s US$9.4 trillion stock market.? Tech self-sufficiency and domestic demand were among key priorities revealed at the National People's Congress recently.
As global banks continue to reassess and reprice China exposure, its all too clear that risks remain , with real estate, local government debt, deflation, dropping FDI/portfolio inflows and geopolitics all featuring as key risks to the 2024 local economy in a recent report by BBVA.
But there are signs of light emerging at the end of the tunnel. ?BBVA articulating that from their perspective, ?systemic financial risks do not exist at the current stage, given the prudent monetary policy and a series of precautionary financial regulation measures.
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Weak – But not that weak
In an article with CNBC last week, Shaun Rein, founder and managing director of the China Market Research Group, described the Chinese economy as “weak -but it’s not that weak.” He went on to say that “If you’re a multinational, if you’re looking to drive growth over the next three to five years, the next China is China. It’s not India — India’s only a sixth of the GDP of China — it’s not Vietnam. These are small markets.” He went on to suggest that investors should be looking long-term at China again, opining that “it’s definitely investible.”?? VP Bank seem to think so, moving Chinese equities to overweight (see research note below). ?
Another name turning constructive on China positioning is Norwegian firm, Skagen. Skagen increased the share of mainland Chinese and Hong Kong stocks to 32% of its emerging-market portfolio as of the end of February, from 28% in September and above the MSCI Emerging Markets Index’s 26%. It was only the second time in the fund’s 22-year history that it went overweight on China, according to Fredrik Bjelland, Portfolio Manager at the firm.
?Further Reading:?
?The ideas, views and opinions expressed in my LinkedIn posts and profiles represent my own and not those of any of my current or previous employer.
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