Stocks News
- Cooling plans may lift futures brokers
Date: 13-Nov-2007 Sources: (Shenzhen Daily)
WITH the introduction of stock-index futures - derivatives products that may cool down the broader Chinese stock market - looking ever more imminent, there are several companies in one sector whose fortunes could be helped: futures brokerages.
Such trading houses, whose main business has been limited to handling local trading of futures on physical commodities like soybeans and copper, stand to see a boost in revenue from the resulting trading activity that stock-index futures would bring. By at least one prediction, the futures industry could take in more than 3 billion yuan, or about US$405 million, in commissions annually within three years.
Regulators have been promising the advent of stock-index futures for about a year, but the plan has been delayed as officials hash out details and work through concerns. Now, analysts say there are signs the indexes may be introduced to China's market as early as next month.
Stock-index futures are contracts that investors can buy or sell based on where they think an index will be trading at a given point in the future - say, a bet on a decline in the Shanghai Composite Index, which has nearly quintupled in value over the past two years to 5315.54 Friday. Because they let investors bet an index will fall - an ability domestic investors currently lack because direct short-selling and similar moves are forbidden - the futures product is expected to be popular and could weigh on stock prices generally.
Yet some analysts and industry executives are focusing on how the expected activity might lift the fortunes of futures brokerages - and their parents - by helping them to diversify their trading scope beyond commodities.
'What's coming is a good and new product, which will certainly bring benefits for brokerages,'said Chang Qing, a chief adviser to China Futures Association.
China already has one of the world's most-active stock markets by volume of shares traded, and stock-index futures trading could comprise about a third of the value of listed shares in the first year - a figure that today would amount to turnover of about 7 trillion yuan - then grow to around half of the stock market capitalization in two years, according to Meng Zhuoqun, a financial-derivatives analyst at Orient Securities in Shanghai. She predicted that if volumes grow according to her expectations, the futures industry would earn commissions up to 3.5 billion yuan annually within three years.
'Hedging is the basic purpose of futures market,'said Meng. 'Therefore, many investors here in the cash market are likely to trade futures sooner or later.'
There is hardly a direct way for domestic investors to invest in futures brokerages, because most companies have been unable to meet the profitability requirements of going public on China's stock exchanges. Yet, a number of listed companies own futures-brokerage subsidiaries, and analysts say those offer investment opportunities.
Meng said her top picks include Zhejiang Zhongda Group, a trading and real-estate company that owns Zhongda Futures, Jiangsu Holly, a vendor of light industrial products that owns Jiangsu Holly Futures Brokerages, and Jielee Industry, a logistics company that bought 90 percent of Liaoning CIFCO Futures this year.
Meng predicted that the stock-index futures business would contribute an average of 20 percent of the profits at each of the three listed companies. All of those companies list only A shares.
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