OREANDA-NEWS. China’s surprise devaluation of the renminbi (RMB) sent ASEAN currencies into a downward spiral and prompted a sharp selloff in regional equity and currency markets.

Performance of Asian Equity Indices (11-26 August 2015)

Indices % Price Change
MSCI Philippines Index -9.42%
MSCI Indonesia Index -9.41%
MSCI Singapore Index -8.61%
MSCI Thailand Index -6.83%
MSCI Malaysia Index -4.15%

ETFS tracked by Bloomberg recorded an outflow of US\\$115 million from the five ASEAN countries during a one-week period (19 to 26 August).

While the selloff was worrying, analysts do not believe a repeat of the 1997-98 crisis is likely.

“We believe a 1997-98 scenario is unlikely – i.e., an abrupt, systemic downdraft in Asia, translating into a deep banking system crisis, with adjustment forced on the region at a rapid pace,” wrote Morgan Stanley in a note.

Nonetheless, a deteriorating global macro-environment and the monetary policies of major central banks could affect regional growth prospects.

With risks remaining elevated and volatility a permanent fixture, market participants will need reliable hedging instruments to guard against unexpected price movements.

The various futures products offered by SGX allow market participants to hedge or take positions in the ASEAN equity markets.

In addition, the quanto feature of these contracts (excluding MSCI Singapore index futures) offers downside protection against forex risks. Extended trading hours up to 2am allows market participants to react to important announcements.

The key contract specifications of the SGX ASEAN derivatives are summarised in the table below.

The key contract specifications of the SGX ASEAN derivatives are summarised below:

Contract SGX Code Contract Size Bloomberg Ticker

SGX MSCI Singapore

Index Futures

 SG S\\$200 x Futures price ? S\\$64,600 QZA

SGX MSCI Indonesia

Index Futures

 ID US\\$2 x Futures price ? US\\$10,390 IDOA

SGX MSCI Thailand

Index Futures

 TH US\\$20 x Futures price ? US\\$9,525 SSTA

SGX-PSE MSCI Philippines

Index Futures

 PH US\\$10 x Futures price ? US\\$12,240 SSPA
SGX MSCI Malaysia MY US\\$20 x Futures price ? US\\$11,015 MYIA

Source: Singapore Exchange as of 3 September 2015

Singapore Celebrates its 50th Birthday

Singapore stands out among its neighbours as an oasis of stability, yet growth has slowed as exports declined. Likewise, the Singapore dollar and stock market have suffered from the global meltdown.

In August, the Ministry of Trade and Industry slashed its GDP growth forecast for 2015 to 2-2.5%, from an earlier forecast of 2-4%. The economy grew by 1.8% on a year-on-year basis in the second quarter, sharply lower than the 2.8% growth in the preceding quarter.

Since June, there had been a resurgence of interest in the SGX MSCI Singapore Index SM Futures (SiMSCI Futures)  amidst heightened volatility.  Average daily trading volume for SiMSCI Futures rose by 33%  month-on-month to 19,599 contracts (equivalent to a notional volume of S\\$1.2 billion) in August, the highest average daily volume since 2012. The 30-day volatility peaked at 22.95% on 27 August 2015.

Indonesia Faces Weaker Rupiah

Faced with slowing economic growth and tanking commodity prices, Indonesian President Joko Widodo is ramping up spending through a cabinet reshuffle.

Indonesia’s growth continued to slip in tandem with plunging commodity prices. In the first quarter, the economy expanded 4.7% from the year-ago period, below the 4.9% consensus estimate in a Reuters poll. It was the slowest pace since 2009. The second quarter saw the country reporting growth of 4.6% year-on-year, lower than 2014's second quarter figure of 5.0%.

Since May, Indonesian equities have slumped as global appetite for commodities shrank.

The intraday price trends of the SGX MSCI Indonesian Futures indicated a shift in basis over the underlying index, which provides opportunities for traders.

Malaysia Relooks its Options 

Caught in a perfect storm of falling commodity prices and political turmoil, Malaysia’s stocks and currencies tanked. The ringgit slumped to a 17-year low of 4.2995 against the US dollar on 26 August. Of the ASEAN-five currencies, the ringgit has lost the most against the US dollar since 11 August.

Malaysia’s economy expanded 5.6% year-on-year in 1Q 2015, slightly above the consensus estimate of 5.5%. However, on a quarterly basis, real GDP grew at a slower pace of 1.2% in the first quarter versus 1.8% in 4Q 2014.

2Q 2015 GDP continued to slow after the introduction of a new consumption tax curbed private spending. Gross domestic product rose 4.9% in the three months through June from a year earlier. The median in a Bloomberg News survey was for a 4.5% increase. On a quarterly basis, the economy expanded 1.1%.

Thailand and Philippines

The Philippine economy expanded 5.6% in the second quarter on the back of robust government spending and the strong performance of industry and services sectors.

While the second-quarter growth rate is higher than the first-quarter’s 5%, it was below general Bloomberg consensus of 5.7%. Going forward, sluggish global consumption growth could cap the performance of the Philippines economy.

Jointly-developed by SGX and the Philippines Stock Exchange (PSE), the SGX-PSE MSCI Philippines Futures contract is denominated in US dollars, which enables access to Philippine equities while mitigating the risk of currency exposure.

At the end of July, Thailand's finance ministry cut its growth forecast for the third time this year on the back of shrinking exports. The ministry expects the economy to grow 3.0% this year instead of the estimate of 3.7% three months ago. A year ago and shortly after the military seized power, the ministry had predicted 5.0% growth in 2015.

Conclusion

Given the margin offsets advantage and extended trading hours of SGX ASEAN derivatives, market participants could take or hedge positions at lower cost and across US and European time-zones.