Spurred by Hong Kong competitors, FTSE Russell intends to expand the A50 index

According to the Financial Times, FTSE Russell CEO Arne Staal said the company is considering adjusting its FTSE China A50 index, including expanding the index's coverage, potentially expanding the existing 50 companies to 100.

"Markets are changing, the economy is changing, and the index also needs to be updated to reflect the transparency of the investment opportunities investors are looking for today," Staal noted. Starr said he wants the index to be as relevant as possible.

But its quest for change seems to be more than that. Just last month, the Hong Kong Stock Exchange launched its first A-share futures variety, MSCI China A50 Interconnect Index Futures. Previously, the only A-share futures index facing outside China was the SGX's FTSE A50 futures.

<h2>Threats from the new index</h2>

According to public information, the MSCI China A50 Connectivity Index is the latest product in the MSCI China Index series, which aims to track the performance of the 50 largest stocks in 11 industries including energy, materials and industrial covered by the Global Industry Classification Standard (GICS). At least two in each industry to fully reflect the state of China's economy.

It is worth mentioning that last year, MSCI and the Hong Kong Stock Exchange signed a licensing agreement to launch 37 futures and options contracts in Hong Kong that track multiple MSCI Asian and Emerging Markets Indexes, which have been in the hands of the SGX for more than 20 years.

Staal said the composition of the MSCI China A50 Connect index on which HKEx-traded futures contracts are based provides "a very different exposure to ours."

In addition, in the past year, SGX's business and share price have suffered a blow.

In the 1 year to the end of June, its equity derivatives revenue fell by 20%. Since the results were announced in August, SGX shares have fallen nearly 20 percent and profits have fallen 7 percent. SGX shares are up 7% this year, while shares on the Hong Kong Stock Exchange are up 12% over the same period.

<h2>Who is more promising? </h2>

SGX CHIEF Boon-Chye Loh called ftse China A50 futures an "ultra-liquid" contract that remains crucial for international investors as the Chinese market continues to open up.

Michael Wu, senior equity analyst at Morningstar, a rating agency, said the adjustment to the FTSE index "will help better adjust and fully reflect the Chinese economy."

Wu said,

"There are fears that the SGX will be replaced by the HKEx ... But they do have ecosystem effects." "SGX has been very innovative in derivatives."

According to data from FTSE Russell and SGX, the volume of SGX A50 index futures increased by 20% year-on-year to 9.3 million contracts.

Citi's expectations for the SGX are less optimistic. Analysts at the agency expect that new futures will have a limited boost to HKEx earnings in the short term, as trading volumes take time to match SGX contracts. However, "in the long run, the Hong Kong Stock Exchange appears to be in a better position than the SGX in terms of derivatives".

This article is from Wall Street Insights, welcome to download the APP to see more