MSCI Singapore Index at 18M High with Participation Records

The MSCI Singapore Index (“SiMSCI Index”) ended yesterday at 358.3, which is a 18 month high and a 27% recovery from its February 2016 low. The SIMSCI Index has delivered a 14% YTD total return and been amongst the leading performers amongst key Asian indices.
Half of the SiMSCI Index constituents have recently reported 1Q17 earnings. In addition, a slew of dividend distributions last week have seen the discount of the May SiMSCI Futures to the underlying SiMSCI Index narrow by 2.0 points.
SGX SiMSCI Futures set new records in April.Average daily volume surged 15% month-on-month to 42,702 lots while open interest grew 7.2% to a notional volume of S$6.4 billion.

The MSCI Singapore Index (“SiMSCI Index”) is made up of 27 stocks, of which 26 are mutual constituents of the Straits Times Index (“STI”), with the remaining SiMSCI Index constituent, Suntec REIT, on the STI Reserve list.

STI stocks that are not a part of the SiMSCI Index are Jardine Matheson Holdings, Hongkong Land, Thai Beverage PCL and SIA Engineering. Nevertheless, the SiMSCI Index currently maintains a significantly high 98% correlation to the STI, which is important for portfolio hedging as the SiMSCI Index is the underlying index for the SGX MSCI Singapore Index Futures (“SiMSCI Futures”).

Cost of Carry

As the SiMSCI Index closed Monday at 358.3, the SiMSCI Futures were trading at 357.95, a discount of 0.35 points. This discount has narrow significantly over the past week as one-third of the SiMSCI constituents went ex-dividend. On 28 April 2017, May SiMSCI Futures opened at 346.95 and were trading at 347.1 as the underlying SIMSCI Index opened at 349.78, which meant that the Futures were trading at a 2.68 point discount to the underlying SIMSCI Index. This discount narrowed significantly last week due to a reduction in the cost of carrying SiMSCI Futures.

MSCI Singapore Futures Discount to SIMSCI Index (28 April 2017 – 5 May 2017)

Source: SGX, Bloomberg & SGX StockFacts (data as of 5 May 2017)

While SiMSCI Futures are based on the underlying SiMSCI Index, the SiMSCI Futures price must takes into account interest rates and dividends. The higher the dividends, the greater the discount of the SiMSCI Futures to the underlying SiMSCI Index. This is simply because the underlying SiMSCI stocks pay dividends, whilst the SiMSCI Futures do not distribute dividends. Hence, fair and efficient pricing means that an investor making a decision between futures and stocks should be paying less for the futures if the stocks carry the benefit of dividend returns.

SiMSCI Index stocks that went ex-dividend last week are tabled below. Taking into consideration indicative SiMSCI Index weights (which are update daily here) the ex-dividend amounts associated with the nine constituents, accounted for as much as 2.0 points of the discount of SiMSCI Futures to the underlying SiMSCI Index.

Name	SGX Code	Close Price 27 April $	Close Price 5 May $	Div. Currency	Div. Particulars (Total)	Ex-Div. Date	MSCI Singapore Weight %	Index Impact (Points)
Ascendas REIT	A17U	2.60	2.57	SGD	0.01959	2-May-17	2.5	0.07
CapitaLand	C31	3.76	3.64	SGD	0.1	2-May-17	3.8	0.37
Singapore Press Hldgs	T39	3.48	3.39	SGD	0.06	2-May-17	2.2	0.14
ComfortDelGro Corp	C52	2.75	2.73	SGD	0.0605	3-May-17	2.4	0.19
UOL Group	U14	7.23	7.10	SGD	0.15	3-May-17	1.4	0.11
DBS Group Hldgs	D05	19.21	20.45	SGD	0.3	4-May-17	14.8	0.78
Genting Singapore	G13	1.13	1.085	SGD	0.015	4-May-17	2.7	0.13
Wilmar Intl	F34	3.53	3.47	SGD	0.04	4-May-17	2.7	0.11
Suntec REIT	T82U	1.77	1.76	SGD	0.02425	5-May-17	1.7	0.08
Total								1.98

Source: SGX, Bloomberg & SGX StockFacts (data as of 5 May 2017)

As the ex-dividend dates and distributions have passed, the SiMSCI Futures 2.0 point discount no longer applies. However as tabled below, there are more ex-dividends ahead in the month of May. As tabled below, there is still ex-dividends equivalent to 1.1 points to be distributed in May.

Name	SGX Code	Close Price 27 April $	Close Price 5 May $	Div. Currency	Div. Particulars (Total)	Ex-Div. Date	MSCI Singapore Weight %	Index Impact (Points)
StarHub	CC3	2.79	2.78	SGD	0.04	9-May-17	0.7	0.04
Jardine Cycle & Carriage	C07	48.11	46.85	USD	0.56	15-May-17	1.9	0.08
Yangzijiang Shipbuilding Hldgs	BS6	1.16	1.23	SGD	0.04	18-May-17	1.0	0.12
Oversea-Chinese Banking Corp	O39	9.74	10.16	SGD	0.18	22-May-17	13.1	0.83
Total								1.06

Source: SGX, Bloomberg & SGX StockFacts (data as of 5 May 2017)

On the other side of the cost of carrying in futures, futures are leveraged. This means full funds are not required to maintain futures positions, which is a monetary benefit of holding futures positions instead of the underlying stocks. With 12M SGD Interest Rates are currently at 1.38%, the interest rate impact is a 0.1% premium to the May SiMSCI Futures over the underlying SiMSCI Index over the 21 or so days until the May contract expires. As the dividend impact is greater than the interest rate impact, the futures will be theoretically priced at a discount.

Participation Records For SIMSCI Futures

Recent participation records show the SiMSCI Futures has maintained strong interest among global investors. The quarterly earnings announcement season gave a further boost for increased trading and arbitrage opportunities in determining the fair value of the futures after pricing in the dividend distribution.

SiMSCI Futures average daily volume surged by 15% month-on-month to a new monthly record of 42,702 contracts in April 2017. Similarly, open interest rose steadily by 7.2% to 182,017 contracts (equivalent to notional volume of S$6.4 billion), eclipsing the previous record of 175,472 contracts attained in February 2017. Both volume and open interest also achieved new single day records of 237,052 contracts and 217,901 contracts respectively on 25 April 2017.

SiMSCI Futures Participation (Open Interest & Volume)

Liquidity of SiMSCI Futures has also improved as volume picked up in the first quarter of 2017. The average bid-ask spread for the front-month SiMSCI Futures contract has narrowed from 2.19 basis points(bps) in Dec 2016 to 1.76 bps in March 2017.

SiMSCI Futures Day Session Bid/Offer Spread & Volume (March 2017)

With over 18 hours of trading across major time zones, global investors are able to make use of both the regular T session which runs from 8.30am to 5.15pm (Singapore time), and the T+1 session which runs from 5.40pm to 4.45am (Singapore time) to hedge against volatility during Asian, European and US time zones.

The underlying SiMSCI Index ended yesterday at 358.3, which is a 18 month high and a 27% recovery from its February 2016 low. The Index has also delivered a 14% YTD total return and been amongst the leading performers amongst key Asian indices.

For more information about SiMSCI Futures, please click here.

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