Performance and Key Highlights of Bursa Malaysia Derivatives (BMD) Products in Q4 2020

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Prepared By : Kenanga Futures Sdn Bhd

Q4 2020 Market Review

Global Highlights

1) COVID-19 Vaccine Development

  • While COVID-19 cases kept rising globally, the world has at least gained some hope when several pharmaceutical companies announced their vaccine development progress.
  • On November 2020, the US pharmaceutical firm Moderna Inc revealed that its COVID-19 vaccine is 94.5% effective, while another pharmeceutical companies Pfizer, BioNTech SE and Fosun Pharma have also announced a 95% effectiveness rate in their vaccines.
  • Following the news, several countries had also announced their approval in the use of the vaccine with UK became the first country in the world to approve Pfizer-BioNTech vaccine, while US government said it will purchase an additional 100 million doses of Moderna Inc’s vaccine.

2) US Presidential Election 2020

  • The most awaited event of the year finally happened on November 2020 which saw incumbent President and Republican candidate, Donald Trump and Democratic candidate, Joe Biden, battled to be the President of United States of America.
  • The election, which was the 59th quadrennial election, produced the largest total turnout in US history at 66.9%
  • The outcome finally favoured Joe Biden after the Democratic candidate won 306 electoral votes to 232, which made Joe Biden the 46th president of the United States.

3) Brexit Trade Deal Agreement Finally Sealed

  • The last day of 2020 marked a new beginning in United Kingdom’s (UK) history as a post-Brexit trade deal was finally sealed after 11 months of transition period of UK divorce from European Union (EU).
  • The agreement, which came into effect on 1 January 2021, lays out the terms of bilateral trade between the two parties such as the new terms for trading goods across the border and also discuss on other matters like aviation, energy climate and security.

Domestic Highlights

1) Third Wave of COVID-19 Infections

  • Despite the positive news on economic development, Malaysia entered the last quarter of 2020 with worrying situation as COVID-19 cases recorded above 1,000 cases nationwide since early October.
  • The rising cases marked the third wave of infections in Malaysia which has forced the government to introduce the Conditional Movement Control Order (CMCO) in nine of Malaysia’s 13 states.
  • Under the CMCO, all mass gatherings such as sport events and religious gatherings, were banned, while cross state borders are disallowed in early October before it was re-allowed in December.

2) The Passing of Malaysia’s Budget 2021

  • On top of the several fiscal stimuli introduced earlier, Malaysia’s government presented its Budget themed “Resilient as One, Together We Triumph” on 6 November 2020.
  • The budget, amounted to RM 322.5 billion which is equivalent to USD79 billion, was the largest budget ever tabled in Malaysia.
  • The budget, which was finally passed on 15 December 2020, consists several highlights which includes the cash and repayment assistance via Bantuan Prihatin Rakyat, tax relief incentives, extension of wage subsidies and allocation on public health services.

3) Malaysia’s Economy Slowly Recovered in Third Quarter

  • Malaysia recorded a smaller decline of 2.7% in GDP on q-o-q basis in the third quarter of 2020 which officially signalled the country’s entrance into a recession.
  • Previously, the country’s economy shrunk by a record low of 17.1% on q-o-q basis in the Q2 2020 due to economic shutdown amid COVID-19 pandemic, making it the worst GDP decline since 1998.
  • Despite the negative readings, the milder contraction in the third quarter showed an improved performance in response to the reopening of economies.
  • Bank Negara Malaysia (BNM) had also expected the GDP growth rate for the entire year of 2020 to be between -2.0% and 0.5% before rebounding in 2021 with a projection between 5.5% to 8.0%.

4) Overnight Policy Rate (OPR) Sustained at 1.75%

  • Bank Negara Malaysia (BNM) has decided to maintain the OPR at 1.75%, citing the optimism on economic recovery as economic activity continued to resume.
  • For the entire year of 2020, BNM has reduced the OPR for a cumulative 125 basis point to combat the impact of economic severity brought upon by pandemic.
  • BNM was also optimistic that the growth for the year of 2020 will be within the earlier projected range.

5) Fitch Ratings Downgrades Malaysia to BBB+

  • In December 2020, Fitch Ratings downgraded Malaysia’s Long Term Foreign-Currency Issuer Default Rating (IDR) from A- to BBB+.
  • In their statement, the rating agency mentioned that the reason behind the decision is Malaysia’s current fiscal burden amid the implementation of several fiscal stimuli.
  • However, Malaysia’s finance minister, Dato’ Seri Tengku Zafrul, had expressed his confidence in the country’s economic capabilities despite the agency’s decision, citing the signs of economic recovery.

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

Overall BMD Performance Q4 2020

No of Trading Days

Q4 2020 : 64

Q3 2020 : 62

Q4 2019 : 64

QoQ Performance

  • In terms of ADV, overall BMD products recorded a marginal growth of 2.28% in Q4 2020 to 70,980 contracts from 69,395 contracts in Q3 2020.
  • However, the quarterly end open interest dropped 14.62% from 242,250 contracts in Q3 2020 to 206,837 contracts in Q4 2020.

YoY Performance

  • The number of contracts improved by 12.59% year-on-year as ADV grew from 63,044 contracts in Q4 2019 to 70,980 contracts in Q4 2020.
  • Meanwhile, for the quarterly end open interest, the number of contracts registered a decline of 26.92% from 283,014 contracts in Q4 2019 to 206,837 contracts in Q4 2020.

Overall BMD Market Demography Q3 2020

Review:

  • BMD market continued to be dominated by foreign institution in the final quarter of 2020, as the institutions made up around 44% to 46% of the total participation rate.
  • Following foreign institutions are domestic retail participants who are able to retain their market share in BMD market with participation rate lingering around 30% to 32%.
  • Meanwhile, local participants continued to be the third largest participants in BMD market with market share of 12% to 14%, while domestic institution constituted around 10% to 12% of the overall BMD market share.

Source : Bursa Malaysia Website

FCPO Performance Q4 2020

No of Trading Days

Q4 2020 : 64

Q3 2020 : 62

Q4 2019 : 64

QoQ Performance

  • BMD’s flagship product, FCPO, continued to attract more interest as ADV grew by 4.80% in Q4 2020 to 58,048 contracts, compared to 55,392 contracts in Q3 2020.
  • However, the quarterly end open interest contracted by 16.43% to 165,594 contracts in Q4 2020 from 198,151 contracts in Q3 2020.

YoY Performance

  • Similarly, the contract showed an improvement of 14.87% in ADV y-o-y comparison to 58,048 contracts in Q4 2020, compared to 50,535 contracts registered in the same period of 2019.
  • Mirroring the q-o-q performance, the quarterly end open interest dropped by 27.69% in terms of y-o-y growth from 228,997 contracts in Q4 2019 to 165,594 contracts in Q4 2020.

Source : Bursa Malaysia website

FCPO Q4 2020 Price Performance

Snapshot of FCPO Performance

Price as at 31/12/2020 (Last trading day): 3,600

Quarter High: 3,600 (31/12/2020)

Quarter Low: 2,708 (02/10/2020)

Q4 2020 Performance (% Change): +29.08

Period

Remarks

A

2 Oct 2020 – 13 Oct 2020 (+10.89)

FCPO kick-offed the last quarter of 2020 in a positive note driven by expectation of tighter inventories in September 2020, while the La Nina weather patterns had also brought a significant impact to the prices as it led to short term disruptions in harvesting.

B

19 Oct 2020 – 29 Oct 2020 (+9.91%)

FCPO elevated for the last week of October supported by strong October export figures amid the pickup demand from India and China, and tracking the bullish price forecasts for 2020 by Fitch Solutions, CGS-CIMB and MPOB.

C

2 Nov 2020 – 13 Nov 2020 (+13.61%)

Market continued to punch higher amid expectations of lower October stockpiles.

D

17 Nov 2020 – 3 Dec 2020 (+1.62%)

Market traded sideways as the export figures for the first 25 days of November dropped by double digit on monthly basis.

E

9 Dec 2020 – 31 Dec 2020 (+7.21%)

FCPO ended the year of 2020 in a positive mark as data from MPOB showed that the November end inventories fell to a more than three-year low.

Source : Bloomberg and The Edge Market

FCPO Market Demography Q3 2020

Review:

  • Participation in FCPO mirrored the overall BMD market as foreign institution dominated the FCPO market share with participation rate above 40% in the last three months of 2020.
  • Meanwhile, domestic retail participants retained their second spot with market share between 30% to 32%.
  • Local participants and domestic institutions maintained their third and fourth position in terms of market share in FCPO market respectively, with locals making up 14% to 15% of the market, while domestic institution constituted around 12% to 14% of the participation rate.

Source : Bursa Malaysia Website

FKLI Performance Q4 2020

No of Trading Days

Q4 2020 : 64

Q3 2020 : 62

Q4 2019 : 64

QoQ Performance

  • Unlike FCPO, FKLI showed a different growth pattern in both of its ADV and quarterly end open interest when q-o-q comparison is made.
  • ADV dropped by 7.89% from 13,744 contracts in Q3 2020 to 12,659 contracts in Q4 2020.
  • Meanwhile, the contract grew by 7.61% in its quarterly end open interest to 26,493 contracts in last quarter of 2020 from 24,619 contracts in third quarter of 2020.

YoY Performance

  • However, a different narrative was recorded when y-o-y comparison is made.
  • In terms of ADV, the figure improved significantly by 25.03% to 12,659 contracts in last quarter of 2020, compared to 10,125 contracts in the last quarter of 2019.
  • However, the quarterly end open interest declined by 7.97% from 28,786 contracts in Q4 2019 to 26,493 contracts in Q4 2020.

Source : Bursa Malaysia Website

FKLI Q4 2020 Price Performance

Snapshot of FKLI Performance

Price as at 31/12/2020 (Last trading day): 1,631.50

Quarter High: 1,684.50 (11/12/2020)

Quarter Low: 1,459.50 (03/11/2020)

Q4 2020 Performance (% Change): +9.20

Period

Remarks

A

01 Oct 2020 – 19 Oct 2020 (+1.77%)

FKLI market traded in a sideway movement for the first 20 days of October, as fears of second national lockdown amid the rising of COVID-19 cases nationwide outstripped the upside momentum brought by a rally in healthcare and glove stocks.

B

20 Oct 2020 – 03 Nov 2020 (-3.66%)

Market dropped in the last days of October due to speculation of national health emergency which could lead to suspension of Parliament and snap election, tracking concerns over the passing of Budget 2021.

C

04 Nov 2020 – 18 Nov 2020 (+9.08%)

Market rebounded to rise higher in early weeks of November on news that COVID-19 vaccine will be available sooner than later, while the victory of US President elect Joe Biden in US election also supported the positive sentiment.

D

02 Dec 2020 – 11 Dec 2020 (+5.61%)

After trending sideways, market continued its upward trajectory led by banking stocks on optimism of potential economic recovery as the banks are seen as the direct beneficiary in a recovering economy.

E

17 Dec 2020 – 31 Dec 2020 (-2.77%)

Apart from window dressing activities in the final weeks of the year, the performance of FKLI was also affected by the poor sentiment amid the extension of Conditional Movement Control Order (CMCO) in Selangor, KL and Sabah and rising COVID-19 cases nationwide.

Source : Bloomberg and The Edge Market

FKLI Market Demography Q4 2020

Review:

  • The same pattern of market demography can be seen in FKLI market as foreign institution maintained their position as the largest participant with participation rate above 60%.
  • Domestic retail participants retained their second spot of largest participants of FKLI market with a market share over the last three months of 2020 consistently around 29%.
  • Meanwhile, both locals and domestic institution maintained their third and fourth ranking of largest participants, respectively.
  • Local participants made up around 6% to 7% of FKLI market share, while domestic institution made up around 2% to 3% of the market share.

Source : Bursa Malaysia Website

Bursa Malaysia Derivatives Q4 2020 Highlights

1

Crude Palm Oil Futures (FCPO) contracts Continued to Achieve a New High of Trading Volume in 2020

  • 2020 proved to be a great year for Bursa Malaysia Derivatives (BMD) exchange as its flagship products of FCPO continued to generate more interest of participation.
  • On 28 October 2020, the Chairman of Bursa Malaysia Berhad, Tan Sri Abdul Wahid Omar, announced a new historical all-time high volume for FCPO contract at 12 million lots, surpassing the previous record of 11.91 million lots achieved in 2017.
  • The success is a proof that FCPO is gaining more interest especially in times of uncertainty as means of hedging tool against price volatility.

2

Virtual Palm and Lauric Oils Price Outlook Conference and Exhibition 2020

  • Despite the situation of COVID-19 pandemic, Bursa Malaysia Derivatives continued its commitment to host the annual Palm and Lauric Oils Price Outlook Conference and Exhibition, or better known as POC.
  • The event was held virtually for 2 days from 27 to 28 October 2020 with registration of more than 2,000 people globally.

3

Bursa Malaysia Derivatives (BMD) has been named as “Exchange of The Year – Asia Pacific” at Futures and Options World (FOW) International Awards 2020

  • In December 2020, the London based Global Investor Group hosted the Futures and Options World (FOW) International Awards 2020 to recognize the achievement and commitment of the market participants of global cleared derivatives industry.
  • In the award ceremony, BMD has been named as the Exchange of the Year – Asia Pacific, successfully defeating other regional exchanges like Hong Kong Exchanges and Clearing and Singapore Exchange.

4

Bursa Malaysia Derivatives (BMD) Completed the First Physical Delivery of FMG5

  • Following a relaunch of the 5 Year Malaysian Government Securities (MGS) Futures Contract, or better known as FMG5 on 18 September 2020 with a revised settlement methodology to physical delivery, the contract has achieved a new milestone in 2020 when it successfully completed its first physical delivery on December 2020.
  • The delivery of the contracts amounted to RM 11 million in principal value and was done via a Delivery vs Payment (“DvP”) model on the RENTAS system.

5

Bursa Malaysia Derivatives (BMD) Relaunched the Mini FTSE Bursa Malaysia Mid 70 Index Futures (FM70)

  • Following the suspension of trading of FM70 contracts in early March 2020, BMD has reviewed and revised the contract specification of the product.
  • The revisions include:
    1. Contract size – contract multiplier increased to RM4 per index point from the previous RM2 per index point.
    2. Minimum price fluctuation – tick size increased to five (5) index points per tick from the previous one (1) index point per tick.
  • The revision was made with the objective to increase the cost efficiency in trading and thereby enhancing its appeal among retail investors.
  • The revamped FM70 contract was relaunched on 14 December 2020.

Source : The Edge Market

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Disclaimer: 

The information contained in this material are derived from proprietary and non-proprietary sources deemed by Kenanga Futures Sdn Bhd to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Kenanga Futures Sdn Bhd, its officers, employees or agents.

This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole
discretion of the reader.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Trading in listed derivatives involves risk including possible loss of principal.

Prepared by Kenanga Futures Sdn Bhd, a Trading Participant of Bursa Malaysia Derivatives Berhad and a Clearing Participant of Bursa Malaysia Derivatives Clearing Berhad