May 27, 2019
Eurex Clearing | Eurex | Eurex Group
Three reasons to consider MSCI Saudi Arabia Index Futures from Eurex
On 20 May Eurex launched MSCI Saudi Arabia Index Futures. We spoke to Ralf Huesmann, Senior Expert, Equity & Index Strategy and Product Design, about the product launch and the reasons for it.
Saudi Arabia will be included in the MSCI Emerging Markets Index (MSCI EM) in the rebalancing of the indexes at the end of the day on 28 May. More than USD 1 trillion are linked to the MSCI EM, which Saudi Arabia will join in two steps: a weighting of 50 percent at the end of May and the rest at the end of August. On the latter date Saudi Arabia will have an overall weighting of roughly 2.7 percent in the index.
Why Eurex?
Eurex aims to cover all Emerging Markets with MSCI country index futures. By listing of MSCI Saudi Arabia Index Futures now, as well as MSCI Argentina Futures last month, Eurex covers 22 out of 26 EM countries. What is special here is that Saudi Arabia does not have its own derivatives market yet. A specialty of the Saudi Arabian cash market is that it trades from Sunday through Thursday. Eurex, along with most of the financial industry, trades Monday through Friday. Our contract allows everyone to gain exposure to the Saudi Arabian market.
Which clients do you think will benefit most from the new futures?
I see three main client interests here. Firstly, clients who want to either under- or overweight the Saudi Arabian stocks they hold in their emerging markets portfolios. Secondly, the futures allow clients to access a market that is not the easiest to connect to. Thirdly, the futures can be used as an instrument in this index inclusion process.
What has the uptake been so far and how are the MSCI futures and options developing in general?
MSCI indexes are some of the world’s most widely tracked benchmarks, with more than USD 12 trillion linked to them. They also serve as the basis for almost 1,000 Exchange Traded Funds (ETFs). The massive amount of capital benchmarked against MSCI indexes and the improved tradability of index-based products via ETFs has led to the increased need for futures and options. MSCI derivatives help managers facilitate in and outflows of funds, hedge existing equity exposure and enhance portfolio performance.
In general, we are very satisfied with the development of the MSCI futures and options. Currently, we offer 117 MSCI futures and 20 MSCI options. These cover Emerging Markets (EM) and Developed Markets (DMs) in different index types (NTR, GTR and price indexes) and different currencies (EUR, USD, GBP and JPY). Our MSCI derivatives segment saw another record quarter in the first quarter of this year with over 4.7 million traded contracts. In total, the open positions reached EUR 100 billion in MSCI derivatives as of end of April 2019.
