To trade or not to trade, that’s the ultimate question for the asset management industry in China when it comes to stock futures index. There was no surprise that the Chinese government agreed to open up the floor to the qualified foreign intuitional investors during this year’s U.S and China Strategic Economic Dialogue. The spotlight on stock index futures is likely to continue in the following quarters.
As new regulation issued in May, it established a relatively friendly process for Chinese fund companies to apply for the quota. Although they were previously hesitated to join the bandwagon to trade, the dismantled legal barriers still came as a relief as red tape can be rather intimidating. The ease to apply for the quota has shown its effect already. The larger fund companie
s (measured by asset under management) such as China AMC and Harvest have finished the basics for the application. In addition, the regulation tends to dedicate the fund industry’s development as it does to other areas in China.
Compared to the lag from the fund companies, China’s private equity groups have poised to gain from it. The futures brokers in China are also vying for the private equity funds to open the trading accounts. The wide range of services has also shown an intensified competition has among the futures brokers. The industry practice is to establish a custom procedure to cater to private equity funds who are deemed as the dominant traders in China’s stock index futures.
It is a known fact that Chinese private equity funds openly embrace what stock index futures can offer. China’s biggest private equity fund company, Shanghai-based Vstone Capital is about to launch its first arbitrage fund. It acquired QDII license in late December of 2009 but it refrained from issuing any QDII products. Instead, it actively planned out the issue of arbitrage products that derived from the stock index future. Vstone Capital estimate the fund size could range from 300 to 500 million RMB. Currently, it has asset under management over10 billion RMB.
Although the current volatility in the market has the Chinese regulators to think twice to go ahead with other derivative products such as CDS, there is no denial that the stock index futures will continue to gain prominence. It is expected that the mutual fund companies will also join the club soon to use stock index futures to hedge against the index volatility for the purpose of capital preservation. With its potential to expand and deepen China’s capital market, we can expect more to come for stock index futures.
