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Markets

Futures likely to be pricey

(China Daily)
Updated: 2010-04-16 09:40

SHANGHAI: China's stock-index futures will begin trading on Friday at the "expensive side of fair value" as volumes will be limited, Goldman Sachs Group Inc said.

"Under close monitoring by authorities, we expect a gradual increase in liquidity, but even then we do not expect a significant direct impact on the stock market," Christopher Eoyang and Jason Lui, analysts at Goldman Sachs, wrote in a report on Thursday.

The futures contracts are agreements to buy or sell the CSI 300 Index, representing exchanges in Shanghai and Shenzhen, at a preset value on an agreed date and are designed to allow investors to bet on and profit from both gains and declines.

They will contribute to the "deepening and maturity of the Chinese domestic equity markets", the analysts wrote.

Trading volumes for local-currency A shares should rise with the introduction of stock index futures, Jing Ulrich, JPMorgan Chase & Co's chairwoman for China equities and commodities, said last month.

The futures market may grow "several times" over the physical market, judging by past experiences in South Korea, according to China International Capital Corp.

Chinese stocks have declined this year on concern the central bank will raise interest rates to contain inflation and prevent asset bubbles. The CSI 300 Index has fallen 4.8 percent while the Shanghai Composite Index has lost 3.5 percent.

The value of the futures contracts are points of the CSI 300 multiplied by 300 yuan ($44), according to the trading rules the exchange set in January.

The exchange will start trading four types of contracts, which will be settled each calendar month, the following month and the next two quarters. Settlement day will be on the third Friday of the expiring month.

Bloomberg News