17 May 2017
The Apple of Taiwan’s Eyes
  • Taiwan continues strong year-to-date momentum as the Taiex index climbed to a 17-year high to breach 10,000 points last week.
  • Closely correlated to the Taiex index, the MSCI Taiwan IndexSM rose to 376.59 points on 15 May 2017 to hit a 10-year high.
  • Month-end open interest in SGX MSCI Taiwan Index Futures has increased by 30% year-on-year as participants continue to use SGX contracts for active risk management. As of 25 April 2017, open interest reached 264,168 contracts, or approximately US$10 billion in notional value. Average daily volume surged to circa 90,000 contracts, the most in two years.

Taiwan stocks have been in great shape lately, as the ongoing global rally in the Information Technology (IT) sector has positively impacted the technology export-oriented economy.

 

For the first time in 17 years, the benchmark Taiex index closed above 10,000 points, a level not seen since the peak of the dot-com bubble in 2000. Taiwan is the third-largest constituent of MSCI’s benchmark emerging markets index, with a capitalisation of US$1.1 trillion.

 

Closely correlated to the Taiex Index, the MSCI TW IndexSM, a free-float adjusted market capitalisation weighted index designed to measure the performance of the large- and mid-cap segments of the Taiwan market, soared by 9% from the start of the year to close at 376.59 points, the highest since 2007.

 

MSCI Taiwan Index and Taiex Index

 

 

Taiwan - “Pocket of Value” in Emerging Markets

 

The appeal of Taiwanese technology companies seems to be driving the upswing. Seven of 10 contributors to the MSCI Taiwan Index’s year-to-date index gains are key suppliers of the iPhone. Taiwanese contract electronics manufacturers dominate the supply chain of Apple Inc, the world’s most valuable company. According to Bloomberg, 80% of Apple’s total cost of goods sold originate from Taiwan.

 

Contribution to MSCI Taiwan Index YTD Gain  (%)

*Apple suppliers.  Source: Bloomberg

 

Three of Taiwan’s largest companies have crucial links to Apple’s supply chain. (1) Taiwan Semiconductor Manufacturing Co. (“TSMC”), the world’s biggest chipmaker, (2) Hon Hai Precision (i.e. Foxconn) and (3) Largan Precision have chalked up year-to-date gains of 12%, 23% and 29% respectively. “Taiwanese semiconductor firms do look like better companies – they seem to be well-run but for some reason completely ignored or unloved, which makes it interesting,” said James Montier of GMO, the asset manager, who described them as a “pocket of value” in emerging markets.

 

Taiwan Dollar Outperforms

 

Global investor interest in Taiwan equities has not abated so far. Foreign funds channeled US$8 billion into Taiwanese equities on a year-to-date basis; further, global investors pulled US$345 million from Indian shares in April 2017 after the world-beating rally sent valuations to the highest level since 2010. The withdrawal helped Taiwan surpass India as Asia’s top destination for overseas money so far this year. This has, in part, resulted in the surge of the Taiwanese dollar, which has strengthened by 9% over the past year.

 

Performance of Regional Currencies against the Greenback over the past year

 

 

SGX MSCI Taiwan Index Futures

 

Given the recent rally in the Taiwanese market, investors could consider participating in this space through the MSCI Taiwan IndexSM. With 88 constituents, the MSCI Taiwan IndexSM covers approximately 85% of the free float-adjusted market capitalisation in Taiwan.

 

Month-end open interest in SGX MSCI Taiwan Index Futures has increased by 30% year-on-year as participants continue to use our contracts for active risk management. As of 25 April 2017, open interest reached 264,168 contracts, or approximately US$10 billion in notional value. Average daily turnover surged to circa 90,000 contracts, the most in two years.

 

The T+1 session, which has been extended to 4:45am since November 2016, allows market participants to trade price movements during European and US hours. The average bid-ask spread during the T+1 session stands at an average of 1-2 ticks, allowing participants to take advantage of or hedge against price movements during the European and US hours.

 

In addition, our SGX MSCI Taiwan Index Futures/Options remain available for trading on all onshore holidays, with the exception of New Year’s Day (1 January). Margin discounts on spreads formed with other SGX derivatives allow for greater capital efficiency for investors with views on multiple Asian markets/asset classes.

 

SGX MSCI Taiwan Index Futures Average Daily Volume and Open Interest

 

 

Cross-Product Margin Offsets (As of 16 May 2017)

 

Contract

Contract

Margin Offset

SGX FTSE China A50 Index Futures

SGX MSCI Taiwan Index Futures

50%

SGX USD Nikkei 225 Index Futures

SGX MSCI Taiwan Index Futures

50%

SGX MSCI China Index Futures

SGX MSCI Taiwan Index Futures

35%

SGX Nifty 50 Index Futures

SGX MSCI Taiwan Index Futures

50%

SGX MSCI Singapore Index Futures

SGX MSCI Taiwan Index Futures

50%

SGX Nikkei 225 Index Futures

SGX MSCI Taiwan Index Futures

50%

SGX TWD/USD Futures

SGX MSCI Taiwan Index Futures

65%

 

 

Contract Specifications

 

SGX MSCI Taiwan Index Futures

Contract Size

US$100 x SGX MSCI Taiwan Index Futures Price

Ticker Symbol

TW

Contract Months

2 nearest serial months and 12 nearest quarterly months

Tick Value

0.1 index point (US$10)

Trading Hours (Singapore Time)

T Session:  8:45am to 1:45pm

T+1 Session: 2:15pm to 4:45am

Last Trading Day (LTD)

Second-last business day of the contract month

Daily Price Limits

(a) Whenever the Initial Price Limits are reached, i.e. the price moves by 10% in either direction from the previous day’s Daily Settlement Price (“DSP”), a Cooling Off Period is triggered where trading within the Initial Price Limits shall continue for a period of ten minutes.

(b) After the Cooling Off Period is over, the Final Price Limits, i.e. the price moves by 15% in either direction from the previous day’s DSP, come into effect and shall apply for the rest of the trading day. No trades are allowed to take place at prices beyond the Final Price Limits.

There shall be no price limits on the Last Trading Day for the expiring contract.

With regards to the T+1 session, the Daily Settlement Price (DSP) derived in the T session that just ended will be the reference price to determine price limits.

Position Limits

A person shall not own or control more than 10,000 contracts net long or net short in all Contract Months combined, unless otherwise separately approved by the Exchange.

Final Settlement Price

The Final Settlement Price shall be the average of the MSCI Taiwan IndexSM values on the Last Trading Day taken at one-minute intervals during the last twenty-five (25) minutes of trading on the MSCI Taiwan IndexSM preceding the commencement of the closing auction session, and the closing index value. The Final Settlement Price shall be rounded to two decimal places.

Settlement Basis

Cash settled (USD)

Margins Offset

Yes

Negotiated Large Trade

Minimum 50 lots

Price Information

(Vendor: Ticker)

Thomson Reuters: STW: <F3>

Bloomberg: TWA <INDEX> CT

 

SGX MSCI Taiwan Index Options

Contract Size

One SGX MSCI Taiwan Futures contract

Contract Months

2 nearest serial months and 12 quarterly months

Tick Value 

0.01 index point (US$1.00)

Trading Hours (Singapore Time)

T Session: 8:45am to 1:50pm

T+1 Session : 2:15pm to 4:45am

Last Trading Day (LTD)

Second-last business day of the contract month

Strike Prices

Five index point intervals


The Exchange will list At-the-Money (ATM) strike put and call options and the next eight strikes above and below the ATM strike.

Position Limits

A person shall not own or control options and underlying MSCI Taiwan Index Futures contracts that exceed 10,000 futures-equivalent contracts net on the same side of the market in all contract months combined. Note: Clearing Members may apply to the Exchange for higher position limits on behalf of their customers. Approval is based on the financial standing of the Member and their customer on a case by case basis.

Option Exercise

European Style

Settlement Basis

Cash settled (USD)

Margins Offset

Yes

Negotiated Large Trade

Minimum 25 lots

Price Information

(Vendor: Ticker)

Thomson Reuters: STWs: <F3>

Bloomberg: TWA <INDEX> OMON

 


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