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Index futures, options to deepen capital market reform

By SHI JING in Shanghai | China Daily | Updated: 2022-07-20 09:07
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An investor checks stock prices at a brokerage in Fuyang, Anhui province. [Photo by Lu Qijian/For China Daily]

Trading in stock index futures and options based on the small-cap tracker CSI 1000 is scheduled to start on Friday, which will better meet investors' need to hedge risks, besides deepening reform of China's capital market, experts said on Tuesday.

The China Securities Regulatory Commission said in an announcement on Monday that trading in the above derivatives will commence at the China Financial Futures Exchange on Friday.

Four exchange-traded funds based on the CSI 1000 index futures and options, which are managed by industry leaders including E Fund Management and China Universal Asset Management, will open for subscription on Friday. It has been one month since the CFFEX released the draft rules and solicited public opinion on the trading of new derivatives.

The CSI 1000-based futures and options are integral to the construction of a multi-level capital market in China. They are also part of the country's continued efforts to deepen capital market reform. The stabilizing mechanism for the stock market will be thus completed, said the CSRC in the announcement.

Three stock index futures currently trade on the CFFEX. They are based on the mega-cap SSE50 Index, the blue-chip CSI300 Index and the CSI500 Index that tracks mid to small-cap A-share companies.

Wang Zhaoyu, chief analyst for quantitative strategies at CITIC Securities, said the stock index futures and options will not overlap with existing futures. The CSI 1000 Index is made up of companies excluded from the SSE50, the CSI300 and the CSI500 indexes. In other words, the newly introduced products will address the shortage of derivatives tracking A-share small-caps.

"Investors are thus provided with tools to hedge risks related to investment in small-cap companies. Market-neutral or arbitrage strategies will be better implemented," he said.

The development of the over-the-counter market for derivatives will also be advanced with the newly introduced futures and options. More innovative products can be thus anticipated, Wang said.

Luo Guoqing, an asset manager from GF Fund Management, said the top 10 heavyweights included in the CSI 1000 index take up only 4.85 percent of the portfolio. In this sense, investors will be able to better diversify risks with futures and options tracking this index.

As of June 30, the CSI 1000 index tracked 67 STAR Market companies and 243 ChiNext companies. Up to 185 CSI 1000 constituents made their stock-market debut over the past three years. The focus on hard technology and growth enterprises is quite evident on this index, Luo said.

The performance of the CSI 1000 index has attracted market mavens' attention recently. While the large-cap SSE50 Index gained 4 percent during the past two months by Tuesday, the CSI 1000 index gained 9 percent during the same period.

"Mutual fund managers have increased exposure to CSI 1000 constituents over the past four years, showing their positive outlook on the opportunities in these small-caps. With both liquidity and market expectations improving amid supportive policies, the bullish performance of small-caps is likely to continue. The introduction of the futures and options is also good news for the long-term performance of the CSI 1000 index," said Luo.

Cui Lei, a portfolio manager at China Southern Asset Management, said small-cap companies will be better facilitated by direct financing with the introduction of the derivatives. More vitality will thus be injected into the real economy, advancing the high-quality development of public companies, she said.

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