Chinese Futures Volumes Getting Big…Like, a Billion Contracts Big.

China has been all about the #Coronoavirus as of late….making it hard to think about anything else going on in the country – but some numbers from FIA’s annual report on global Futures and Options trading caught our eye last month. Particularly, the growth in China’s futures markets. To paraphrase the line from the Social Network…- a million contracts isn’t cool…. You know what’s cool……..a billion contracts (video makes it better).

Some highlights:

  • The Asia/Pacific region saw total volume growth of +42% in 2019.
  • The three main Mainland China futures/commodity exchanges saw growth of +37%, +49%, and +113% in their volumes in 2019.
  • Two of the exchanges broke into the Billion Contract club…. The other was already there.
  • The combined volume on the three Chinese exchanges was larger in 2019 than those of some more well-known names like ICE, Eurex, and the CBOE.

Now, this is particularly exciting for us at RCM, where we’ve been involved for a few years now on getting US and European quant models implemented on these exact Chinese markets for Chinese investors. The idea is that the nascent (but quickly growing) markets are like the good ‘ol days in US futures with lots of directional volatility, but a concern we often hear from Western investment firms is if there is enough volume and liquidity? Well….a billion contracts total – 100s of millions of contracts traded on individual commodities… we think it’s time to forget about those fears.

So where did all this volume increase come from?

  1. Ag
    Agriculture products (we’re talking Corn, Soybeans, etc) from Chinese exchanges are a big part of the story, with Chinese products accounting for 68% (17 out of the top 25) of the top products in terms of volume in 2019.

  2. Metals
    Metals contracts from Chinese exchanges again dominated the volume tables – with Steel, Iron Ore, Nickle, Silver, Zinc, Hot Rolled Coil Futures, Gold, Copper, and Aluminum all topping the futures and open contracts on Chinese exchanges like the Shanghai Futures Exchange, Dalian Commodity Exchange, and the Zhengzhou Commodity Exchange.

  3. Miscellaneous
    What most of us would consider somewhat odd “commodities” is where Chinese exchanges really dominate. In these “miscellaneous” non-segmented groups, the same exchanges covered 13 of the top 25 volume traded products with futures like Methanol, Soda Ash, Fibre Board, and Flat Glass  some of the higher volume producing contracts in 2019.

What will growth look like in 2020? Well, with the big caveat that we’ll need to see how the Coronavirus shakes out, the sky seems to be the limit for these markets and the exchanges. We’ve had boots on the ground in mainland China since 2017, and meet with smart people doing smart things at the brokerages, exchanges, and asset management firms utilizing these markets. The learning curves are incredibly steep, and as everyone knows – the sheer size of the numbers in terms of population, wealth, and economic production in China are staggering. In short, there’s no shortage of risk to be hedged or speculation to be had via these markets.

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