Performance and Key Highlights of Bursa Malaysia Derivatives (BMD) Products in Q3 2021

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Prepared By : Kenanga Futures Sdn Bhd

Q3 2021 Market Review

Global Highlights

1) Federal Reserve Held Interest Rates near zero

  • Federal Reserve (Fed) in their latest meeting in September 2021 had maintain the target interest rate in a range of 0% to 0.25% amid the COVID-19 pandemic situation.
  • However, the fed had mentioned its monthly bond purchases might be reduced as soon as November and signalled interest rate increases might be followed afterwards
  • In response to inflation, the central bank expects the interest rate to run at 4.2% this year.

2) The Resignation of Japanese Prime Minster

  • Japan, which is still grappling with its worst ever COVID-19 infections, was hit with a shocking news when Prime Minister Yoshihide Suga announced his intention to resign without contesting the Liberal Democratic Party (LDP) leadership election.
  • This came after months of sliding approval ratings and he will stay on until his replacement is elected on 29 September 2021.
  • Many analyst foresee that the sudden change in the premiership is unlikely to change in the direction of monetary or fiscal policy of Japan moving forward.
  • In early October, Fumio Kishida took over the office as Japan’s new Prime Minister.

3) Chinese Property Giant Evergrande Crisis

  • In September 2021, news of enormous mountain of debt of the China’s largest real estate developers, Evergrande, caught the global market attention.
  • It was reported that the company had accumulated more than $300 billion in debt, which had made many analysts and investors feared it could even turn into an event similar to Lehman Brothers’ collapse in 2008.
  • The news had caused Chinese markets to slump, up to a near trillion-dollar slide in Chinese equities, a 70% slump in Evergrande shares and a 14% bashing for anyone invested in high-yield Chinese corporate debt.

Source : Bloomberg, Reuters, BBC News The Edge Market and The Star

Domestic Highlights

1) Malaysia Achieved 80% Fully Vaccination Rate Among its Adult Population

  • Despite the continuous rising cases in Malaysia this year, Malaysians can now at least have some hope when Ministry of Health (MOH) reported 80% of Malaysia’s adult population is now fully vaccinated against COVID-19.
  • With this achievement, Malaysia has now achieved herd immunity for adults against COVID-19 infections, allowing more economic sectors to reopen.
  • As at 30 September 2021, data from MOH had revealed at around 40 million doses of vaccines have been administered since the National COVID-19 Immunisation Programme kicked off in February this year, and Malaysia had started to vaccinate teenagers aged between 12 and 17, aiming to cover 3.2 million people nationwide.

2) Local Political Instability leads to Appointment of New Prime Minister

  • The local political scene continued to show instability following the resignation of former Prime Minister Tan Sri Muhyiddin Yassin after losing majority support in parliament.
  • Following the resignation, Malaysia King, Sultan Abdullah has named Dato Sri Ismail Sabri Yaakob from United Malays National Organisation (UMNO), as the country’s new Prime Minister after he secured majority support with the backing of 114 of parliament’s 222 members.

3) Malaysia Launched its 12th Malaysia Plan

  • On 27 September 2021, the new Prime Minister of Dato’ Sri Ismail Sabri Yaakob launched a medium-to-long economic development plan known as 12th Malaysia Plan for the next five years until 2025.
  • With three main themes to resetting economy, strengthening well-being, security and inclusivity, and advancing sustainability, Malaysia is targeting to achieve average gross domestic product (GDP) growth of 4.5 % to 5.5% per annum in the next 5 years.

Source : Bloomberg, Reuters, The Edge Market and The Star

Overall BMD Performance Q3 2021

No of Trading Days

Q3 2021 : 62

Q2 2021 : 60

Q3 2020 : 62

QoQ Performance

  • Overall, BMD products declined in their performance of ADV and quarter-end open interest from QoQ comparison.
  • The ADV of overall BMD products dropped 11.52% from 79,784 contracts in Q2 2021 to 70,596 contracts in Q3 2021.
  • Meanwhile, the quarter end open interest declined by 1.18% from 253,526 contracts in Q2 2021 to 250,535 contracts in Q3 2021.

YoY Performance

  • However, overall ADV and quarter-end open interest improved from YoY perspective.
  • Both ADV and quarter end open interest grew by 1.73% and 3.42% respectively in third quarter of this year.

Source : Bursa Malaysia Website

Overall BMD Market Demography Q3 2021

Review:

  • BMD market continued to be dominated by foreign institution, where they consistently made up more than 45% of the market share of BMD in third quarter of the year.
  • Like Q2 2021, domestic retail remained to be the second largest participants of BMD market where they constituted around 30% in the third three months of the year.
  • Behind domestic retail are domestic institution and local participants which claimed third and fourth largest of BMD market participants.

Source : Bursa Malaysia Website

FCPO Performance Q3 2021

No of Trading Days

Q3 2021 : 62

Q2 2021 : 60

Q3 2020 : 62

QoQ Performance

  • Just like overall BMD products, FCPO had also shown weakness in their ADV and quarter end open interest when QoQ comparison is made.
  • In terms of ADV, the contracts traded dropped by 12.44% from 67,980 contracts in Q2 2021 to 59,525 contracts in Q3 2021.
  • Meanwhile, the quarter end open interest decreased by 1.49% from 193,863 contracts in Q2 2021 to 190,968 contracts in Q3 2021.

YoY Performance

  • From YoY perspective, the ADV of FCPO contracts grew by 7.46% to 59,525 contracts in third quarter of this year, compared to that of 55,392 contracts in the same period last year.
  • However, the quarter end open interest declined by 3.63% to 190,968 contracts, compared to that of 198,151 contracts in Q3 2020.

Source : Bursa Malaysia website

FCPO Q3 2021 Price Performance

Snapshot of FCPO Performance

Price as at 30/09/2021 (Last trading day): 4,595

Quarter High: 4,595 (30/09/2021)

Quarter Low: 3,769 (08/07/2021)

Q3 2021 Performance (% Change): +23.85

Period

Remarks

A

1 Jul 21 to 6 Jul 21 (+3.80%)

FCPO commenced Q3 2021 strong, driven by the supportive move from Indian government on 30 June to cut its palm oil taxes from 32.5% to 27.5%.

B

8 Jul 21 to 15 Jul 21 (+10.72%)

FCPO’s prices remained strong amid the stronger palm oil exports for the first 10 days of the month, while palm oil stock is expected to remain low.

C

22 Jul 21 to 27 Jul 21 (+7.30%)

FCPO continued to rise driven by strong demand from India and a cut in domestic export tax reference price.

D

9 Aug 21 to 13 Aug 21 (+7.40%)

FCPO climbed more than 7% boosted by bigger-than-expected drop in July stockpile and tightening production from MPOB data.

E

25 Aug 21 to 1 Sep 21 (-4.92%)

FCPO was dragged down by the cheaper rival vegetable oils and stronger Malaysian ringgit.

F

20 Sep 21 to 30 Sep 21 (10.11%)

FCPO rebounded higher supported by strong performance in crude oil prices that reached USD80/ barrel, while strong palm oil export figures also drove the prices.

Source : Bloomberg and The Edge Market

FCPO Market Demography Q3 2021

Review:

  • The same narrative from BMD market was recorded in the FCPO market when foreign institution and domestic retails maintained their position as the largest and the second largest of FCPO market’s participants in Q3 2021.
  • The domination of foreign institution can be seen when they managed to continue to make up more than 40% of the market share in Q3 2021,while domestic retails were able to consistently constitute above 30% of the market share.
  • However, unlike the overall BMD market, local participants are the third largest participants in FCPO market as they consistently made up 15% of market share every month in the third quarter of the year.
  • Meanwhile, domestic institutions were the fourth largest participants of FCPO market in Q3 2021.

Source : Bursa Malaysia Website

FKLI Performance Q3 2021

No of Trading Days

Q3 2021 : 62

Q2 2021 : 60

Q3 2020 : 62

QoQ Performance

  • Unlike FCPO, the ADV of FKLI dropped by 5.86% on QoQ basis, where the number of contracts traded declined from 11,263 contracts in Q2 2021 to 10,603 contracts in Q3 2021.
  • However, the quarter end open interest improved by 10.62% to 35,221 contracts in Q3 2021 from 31,840 contracts in Q2 2021.

YoY Performance

  • Different narrative was observed when YoY comparison is made as the ADV of FKLI contracts dropped massively by 22.85% in third quarter of this year.
  • However, the quarter end open interest jumped higher by 43.05% to 35,221 contracts in Q3 2021, compared to only 24,619 contracts in Q3 2020.

Source : Bursa Malaysia Website

FKLI Q3 2021 Price Performance

Snapshot of FKLI Performance

Price as at 30/06/2021 (Last trading day): 1,536.5

Quarter High: 1,601.5 (30/08/2021)

Quarter Low: 1,534.50 (06/08/2021)

Q3 2021 Performance (% Change): +0.49

Period

Remarks

A

6 Jul 21 to 8 Jul 21 (-1.89%)

The local bourse was affected with high number of new COVID-19 cases in Malaysia and local political instability.

B

23 Jul 21 to 6 Aug 21 (-2.62%)

FKLI continued to trend downward as traders remain cautious on rising number of COVID-19 cases in Malaysia, while the domestic political scene continued to show sign of instability.

C

9 Aug 21 to 18 Aug 21 (-+2.14%)

FKLI reversed the previous days session of losses to trend higher in tandem with regional peers after US lawmakers agreed to pass their stimulus packages, while Malaysian economic data show sign of recovery with Industrial Production Index (IPI) rose 1.4% y-o-y in June.

D

19 Aug 21 to 31 Aug 21 (+5.99%)

FKLI continued to jump higher as traders cheered the local political development following the appointment of new Prime Minister and the lineup of new cabinet.

E

8 Sep 21 to 20 Sep 21 (-4.18%)

Market turned negative due to several factors that include :

i)
Profit taking activities.

ii)
Potential implementation of windfall taxes among corporates in Malaysia.

iii)
Uncertainty surrounding China’s property developer Evergrande.

F

21 Sep 21 to 30 Sep 21 (+1.12%)

Market recovered with the announcement of new 12th Malaysia Plan.

Source : Bloomberg and The Edge Market

FKLI Market Demography Q3 2021

Review:

  • The composition of the FKLI market demographic in Q3 2021 is similar to that of Q2 2021, where foreign institution continued to capture 70% of the market share.
  • Similar to overall BMD market, domestic retails remained to be the second largest FKLI market’s participant with more than 20% of participation rate in Q3 2021.
  • Meanwhile, both locals and domestic institutions maintained their third and fourth largest participants, respectively.

Source : Bursa Malaysia Website

Bursa Malaysia Derivatives Q3 2021 Highlights

1

FCPO Recorded an All-Time High Prices in September

  • On 30 September 2021, the benchmark Crude Palm Oil futures (FCPO) contract reached a new all-time high prices of RM 4,579/mt.
  • According to analysts, the surge in price was driven by the news of production concerns due to pandemic-led border closures which restricted the intake of foreign labour in plantation estates in Malaysia.
  • On top of that, the hike in prices was also supported by the restocking activities from China ahead of their week-long Golden Week national holiday.

2

Bursa Malaysia Derivatives (BMD) Launched the First Nationwide Derivatives Virtual Trading Challenge 2021

  • In attracting interest among younger generations is Malaysia toward derivatives trading, BMD had launched its first nationwide Derivatives Virtual Trading Challenge on September 2021.
  • The challenge, which will be held from 15 November until 14 December 2021, will be organised via BursaMKTPLC Derivatives Trading Simulator to replicate the live futures markets.
  • According to statement by BMD, each participants in the challenge will be given an account of RM 100,000 virtual capital to trade in four existing derivatives product in BMD which are FCPO, FKLI, FM70 and FMG5 contracts.

Source : The Edge Market

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