Stock Index Futures Can Play An Active Role

August 03, 2016

Mainland stocks gain ground as analysts maintain optimistic long-term outlook

Mainland stocks managed to inch up on Wednesday despite pressure from falling financial shares and a decline in the ChiNext Index, as analysts remained optimistic about equities in the long-run.

The benchmark Shanghai Composite Index added 0.24 percent to close at 2,978.46 points, while the Shenzhen Component Index finished the day 0.30 percent higher at 10,281.25 points.

The CSI 300 Index of the biggest companies traded in Shanghai and Shenzhen inched up 0.14 percent to 3,193.51 points.

The ChiNext Index, which tracks the country's NASDAQ-style board for growth enterprises, slipped 0.23 percent to 2,108.31 points.

A total of 381.9 billion yuan ($57.61 billion) in shares changed hands on the Shanghai and Shenzhen exchanges on Wednesday.

Stocks in most sectors rose on Wednesday, with stocks related to State-owned enterprises (SOEs) reform leading the winners, and bank, securities and insurance stocks leading the losers.

The China Financial Futures Exchange is planning to relax restrictions on stock index futures that sparked a 99 percent plunge in trading, Bloomberg reported on Wednesday, citing people familiar with the matter.

Stock index futures can play an active role in reducing volatility and systemic risk in the mainland stock markets, said Yan Hong, professor at the Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University. Yan noted that investors can use index futures to hedge bets on stocks.

Yan also said that the stock index futures can help attract more professional institutional investors, who usually apply multiple investment strategies, which is helpful in price discovery.

Analyst from Jinbailin Investment Consulting said stocks came under pressure on Monday from a sell-off in overpriced small and mid caps. However, they also said that SOEs reform will bolster stocks and make it impossible for the benchmark index to collapse as long as the government maintains its push for reform.