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Malaysia webinar 06.19.2012

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Matt Simon, senior analyst at TABB Group, and Azila Abdul Aziz, executive director of dealing from Kenanga Deutsche Futures, present the foundation for better understanding of trading into Malaysia.

Matt Simon, senior analyst at TABB Group, and Azila Abdul Aziz, executive director of dealing from Kenanga Deutsche Futures, present the foundation for better understanding of trading into Malaysia.

Published in: Travel, Sports

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  • 1. Malaysia Derivatives:Stepping onto the World Stage Presented by: Matt Simon, Senior Analyst TABB Group Webinar
  • 2. Some background information on Malaysia can help to set the stage:Characteristic Description Southeast Asia. Geographically, the nation is split between East and WestMarket Location Malaysia. Bursa Malaysia is located in Kuala Lumpur on the Malay Peninsula north of Singapore and south of Thailand. Emerging. Member of ASEAN (Association of Southeast Asian Nations) countries along with 9 other Asian nations:MSCI Country Classification Brunei, Cambodia, Indonesia, Laos, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. July 2012 est. = 29.1 million. 50% ethnic Malay, 25% Chinese descent, 7%Population Indian descent, and 18% foreign workers. Many workers are fluent in English and other local languages. Ringgit, usually referred by MYR. Other abbreviation is RM. As of April 10, 1Currency MYR=.32 USD or .25 EUR Bursa Malaysia. Bursa Malaysia Derivatives (BMD) is a subsidiary of BursaExchange(s) Malaysia . This is the only equity/derivative exchange in Malaysia. Chicago Mercantile Exchange (CME) owns a 25% stake. Securities Commission Malaysia (SC). SC oversees all capital marketsRegulatory authority. Published “Capital Market Masterplan 2”. Bank Negara Malaysia. Produces statistics on economic activity and marketCentral Bank growth trends.Primary Equity Index FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI) 2
  • 3. The derivatives market is expected to grow larger as overall economics of the country improve FutureMarket Factor 2010 2011 Estimate Expected to reachGDP (PPP)1 $424.8 $447.0 $1,500.0 by 2020 ~ 8-11% per yearGDP (growth rate) 7.2% 5.2% between 2012-2020 $171 billion $213 billion $1.4 trillion (RM 4.2Derivatives Notional Value (RM 512 (RM 652 trillion) by 2020Traded2 billion) billion $12 million $16.7 million $49 million (RMTrading Revenue (RM 37.6 (RM 51.2 150.0 million) in 2012 million) million) 17 million 18 million 20-25 million metricPalm Oil Exports3 metric tons metric tons tons in 2012 3
  • 4. Meanwhile equity investors remain interested in anemerging market like Malaysia for performance Sri Lanka 147.4% Indonesia 127.2% Thailand 109.5% Colombia 105.3% Malaysia 78.3% Chile 76.4% Korea 70.3% Peru 64.8% Philippines 62.3% South Africa 56.5% Sweden 54.6% Singapore Taiwan 50.6% 50.3% Index returns India 48.3% Hong Kong China 48.1% 42.3% 9/30/2008 to Australia New Zealand 34.2% 33.6% 12/31/2011 Mexico 32.3% Brazil 31.0% Argentina 29.6% Russia 26.0% Developed Markets Switzerland 23.6% Denmark 23.5% Emerging Markets Turkey 20.8% Canada 19.1% Norway 17.7% US 11.7% Germany 9.0% United Kingdom 9.0% Israel 7.6% Japan 4.9% Netherlands 4.1% Pakistan 2.5% Source: TABB Group
  • 5. There have been major milestones that have made it easier for international (US) investors to access Malaysia Global Traders Hubs Clearing Broker Asia Based CME iLink Hub CME Globex (Chicago) Malaysian Broker US Based Matching Engine UK BasedSource: TABB Group 5
  • 6. Since the CME partnership, BMD activity has been increasing; growth should continue in 2012/2013 BMD Futures Total Contracts versus Open Interest 14,000 12,400 12,000 +47% 10,400 Sept’2010: All Products 10,000 Migrated onto CME Globex Thousands 8,463 8,000 +37% 6,203 6,120 6,138 6,155 6,000 4,161 4,000 2,460 2,000 85 159 125 156 123 132 152 190 248 - 2005 2006 2007 2008 2009 2010 2011 2012e 2013e Number of Contracts Open InterestSource: TABB Group, BMD 6
  • 7. Again, one of the most noticeable changes has been the increased activity by “foreign institutions” % Turnover by Market Participant Crude Palm Oil (FCPO) 2% 1% 1% 14% 17% 15% 13% 25% 22% 25% Foreign Retail 28% 27% 38% 24% Domestic Institutions 34% 28% Domestic Retail 19% 24% 16% 20% Foreign Institutions 19% Locals 33% 36% 34% 34% 24% 27% 2006 2007 2008 2009 2010 2011Source: TABB Group, BMD 7
  • 8. Trading participants (TPs) list of execution and clearingbrokers for BMD is fairly limited# Company # Company1 AmFutures 11 JPMorgan Securities (Malaysia)2 CIMB Futures 12 Kenanga Deutsche Futures3 ECM Libra Investment Bank 13 LT International Futures (M)4 Fedrums 14 Okachi (M)5 HDM Futures 15 Oriental Pacific Futures6 Hong Leong Investment Bank 16 OSK Investment Bank7 IF Derivatives 17 Phillip Futures8 Innosabah Options Futures 18 RHB Investment Bank9 Inter-Pacific Securities 19 Sunny Futures10 JF Apex Securities 20 TA Futures 8
  • 9. Other reasons to keep Malaysia on the radar screen include major initiatives to grow investor participationTopic Initiative Options on Crude Palm Oil Futures (OCPO), Rubber Futures,New Derivatives Product Launches USD Palm Olein Futures, Single Stock OptionsRe-Introduction of Past Products Options on KLCI Index Futures (OKLI), 5-year Malaysian Government Bond FuturesRevitalization of Existing Products 3-month short-term interest rate futures (FKB3) Single Stock Futures, Miniature contract types, ExchangeDerivatives Innovation Traded Funds (ETFs) High-frequency traders already exist in the derivatives market but this move should make it easier for hedging and arbitrage opportunities. No official timetable set, but HFT expected inGrowth of HFT / automated market- equity market by end of 2012.making According to interviews, HFT accounts for about 6% of derivatives trades on the Bursa’s derivatives platform.Conversion of OTC Swap Positions Facility in development to bridge the OTC market with theinto Futures Contracts exchange
  • 10. Q&A with Azila Abdul Aziz Executive Director of Dealing Kenanga Deutsche Futures TABB Group Webinar