Giving foreign investors the green light to invest in China’s onshore futures and options market will help increase liquidity in the domestic derivatives market and make more asset allocation tools available to foreign investors. [Photo/VCG]
According to experts, a green light given to foreign investors to invest in China’s onshore futures and options market will help increase liquidity in the domestic derivatives market and provide more asset allocation tools for foreign investors.
All five of China’s major futures exchanges — the Shanghai Futures Exchange, the Zhengzhou Commodity Exchange, the Dalian Commodity Exchange, the China Financial Futures Exchange and the Shanghai International Energy Exchange — announced late Friday that qualified foreign institutional investors and renminbi QFIIs would be allowed to trade in 23 specified commodity futures contracts, 16 option contracts and stock option contracts in China.
The announcement came after Fang Xinghai, vice chairman of China’s securities regulator, at Friday morning’s forum on further opening up of the country’s futures markets. More internationalized commodity and financial futures products should be introduced, he said.
Luo Xufeng, chairman of Nanhua Futures, said the much-anticipated opening of the futures market has created legal channels for foreign capital to participate in China’s derivatives market. With such a deeper opening, China will gain leverage in terms of commodity prices. It will also accelerate the internationalization of the renminbi, Luo said.
The entry of QFIIs and RQFIIs will bring additional capital into the China derivatives market. Under such circumstances, domestic futures companies might be able to explore new business, facilitating companies’ internationalization, Luo added.
The CSRC, China’s top securities regulator, published rules for QFII and RQFII trading in the onshore derivatives market in mid-October. While these foreign investors are permitted to trade commodity futures and options and stock option contracts, trading in the latter should focus on hedging only.
Commodity futures and options open to the QFII and RQFII as part of Friday’s announcement include nonferrous metals, agricultural products and chemicals.
Orient Futures analysts wrote in a report that copper, aluminum and zinc futures and options now accessible to QFIIs are all listed globally and have high market participation, large scale and frequent trading in physical commodities.
During the recent 19th Futures Market Forum in Shanghai, CSRC’s Fang announced that foreign investors will be allowed to participate in oil and oilseed futures trading in China. According to Friday’s announcement, QFIIs and RQFIIs are now allowed to trade oil and oilseed futures and options.
It will increase liquidity in oil and oilseed futures while better connecting the domestic market with international markets, analysts at Orient Futures said.
However, they also warned domestic investors against higher market volatility due to the inflow of foreign capital. The different ideas and trading logics can lead to price deviations from traditional trends in the short term. Therefore, risk management should be carried out, the analysts added.
Efforts have continued to speed up the opening up of China’s derivatives market. So far, seven international futures products have been made available to investors around the world, including futures on palm oil, copper and low-sulphur heating oil. Yuan-denominated crude oil futures were unveiled in 2018 as the country’s first such international product.
Publicly available data showed that foreign investors invested nearly 21.3 billion yuan ($3.1 billion) in the above seven international futures products.
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