OREANDA-NEWS. The MSCI Singapore IndexSM (SiMSCI Index) is an investable benchmark index based on the performance of stocks listed on the Singapore Exchange (SGX). Comprising 28 constituents, the index covers approximately 85% of the free float-adjusted market capitalisation of the Singapore equity universe. During the month of October, the SiMSCI Index outperformed other developed markets’ indices with returns of over 9.4%. 

Table: % Price Change of Indices in US Dollar Terms

Indices

% Price Return

SiMSCI Index

9.4%

S&P 500 Index

8.3%

Nikkei 225 Index

6.4%

FTSE 100 Index

7.1%

CAC40 Index

8.3%

The robust performance in October came after a volatile period in August and September. 10-day volatility rose to September to 33.42% on 3 September, the highest level achieved since 2011. The moves coincided with hedging activity to provide downside protection. At the back of heightened volatility, the SiMSCI Futures contract traded 372,378 lots and 315,764 lots in August and September respectively.

Following a recent review on the Straits Times Index (STI), the SiMSCI Index started to exhibits a closer correlation to the former.  With an increase of two additional common constituents, correlation between these two indices has increased from 0.95 (3 September 2014 to 3 September 2015) to 0.98 (3 September 2015 to 30 October 2015), which allows for tighter arbitraging between the equity gauges.  

Table: Top Ten Constituents of the SiMSCI Index

Top Ten Constituents of SiMSCI Index (Weightage) % Weightage % Return Month-to-Date (30 October) 10 Day Volatility
Singapore Telecommunications 13.93 10.56 21.30
DBS Group Holdings 13.32 6.54 15.29
Oversea-Chinese Banking Corporation 11.87 2.73 12.73
United Overseas Bank 11.53 9.60 14.93
Keppel Corporation 4.52 4.42 9.87
Capitaland 3.49 15.67 23.99
Global Logistic Properties 3.09 9.80 18.46
ComfortDelgro Corporation 2.86 5.92 17.53
Singapore Press Holdings 2.80 3.91 12.24
Wilmar International 2.64 21.79 52.91

Source: Bloomberg as of 30 October 2015

Enhanced SIMSCI Futures with a smaller contract value and tick size

From 2 November, the contract multiplier for SiMSCI Futures contract will be reduced to S$100.  Based on the price of 344.8, the notional value of one SiMSCI Futures contract will be halved to S$34,480. Due to a smaller notional size, initial and maintenance margins are reduced to S$1,540 and S$1,400 respectively.

Market participants with a portfolio of relevant Singapore stocks can hedge their directional exposure through the SiMSCI Futures contracts. Unlike equities, a future contract permits the use of higher leverage and shorting. A trader only needs an initial margin of S$1,400 to gain an exposure to S$34,480 of Singapore equities assuming a futures price of 344.8.

A finer tick size of 0.05 index points will better reflect the underlying SIMSCI index movement.  Based on the price movement between Jan-Sept 2015, had the SIMSCI tick size been implemented, we would have seen an increase of futures price movement by about 2 times.  This would allow more trading and arbitraging activities between the underlying index and futures.

A smaller tick size would also mean lower roll cost for hedgers.

Contract Specifications for MSCI Singapore IndexSM Futures (Effective 2 November 2015)

SiMSCI Futures (Ticker code: SGP)
Underlying Stock  Index MSCI Singapore Free IndexSM
Contract Size

S$100 x SGX MSCI Singapore Index Futures Price ? S$ 34,480

(Assuming futures price of 344.8)
Contract Months 2 nearest serial months and Mar, Jun, Sep and Dec months on 1-year cycle
Minimum Price Fluctuation 0.05 index point (S$5)

Trading Hours

(Singapore Time)

 T session: 8.30 am - 5.15 pm*
T+1 session: 6.15 pm - 2.00 am (next day)
Last Trading Day Second last business day of the expiring contract month
Settlement Basis Cash settlement
Final Settlement Price Value of the MSCI Singapore Free Index computed based on the Special Quotation methodology applied on each component stock of the index on the last day following the Last Trading Day

*includes 4 minutes of Pre-closing and 1 minute of Non-Cancel Period at the end of the session