It’s difficult to overstate the importance of China’s rise – the country’s transition from backwater to global powerhouse is changing the calculation for every sector, industry, investor… you name it. We’ve been watching the slow but steady expansion of managed futures into China for a while now, and anticipating the CME’s decision to roll out deliverable yuan futures, too (those are slated to start trading in less than a month, by the way).
And now another step on the path to Chinese managed futures is in place: approval for a select group of banks to begin trading futures contracts in China. Reuters reports:
China has approved five foreign banks as the first batch of international investors to trade the country’s stock-index futures, people familiar with the situation said Friday, in a widely anticipated move that for the first time offers a tool for such investors to hedge against share price fluctuations.
The five banks, which are members of China’s so-called Qualified Foreign Institutional Investors program, include Morgan Stanley, UBS AG, and BNP Paribas, said the people, who declined to be named.
The China Financial Futures Exchange, which hosts and oversees the trading of stock-index futures, confirmed that it approved the first batch of QFIIs to trade stock-index futures but declined to disclose how many or their names.
Launched in 2002, the QFII program is one of the few ways foreign investors can trade China’s domestically listed, yuan-denominated A shares as well as bonds. Licensed QFIIs must apply to the foreign-exchange regulator for investment quotas.
Despite China’s many hurdles and hoops to foreign investment, the western appetite for a slice of the country’s growing pie remains strong. With Winton already breaking the ice on the managed futures front, and now the QFII program banks getting the green light to start trading Chinese stock index futures, the stage is set for a boom in Chinese managed futures.
Will this expansion define the future of our industry? We’re not ones to discount the possibility, but there’s still plenty of reason to be cautious. There’s huge potential, but also a fair share of risk, and a very real chance that the universally-accepted wisdom of investing in China may disappoint. Remember when Japan’s economy was going to overtake the US by 2000? Sometimes the obvious story doesn’t wind up being the correct one.
But in the meantime, the trickle of managed futures opportunity in China is picking up pace.
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