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Equity Index Highlights - July 2017 Edition

Release date: 19 Jul 2017 | Eurex Exchange

Equity Index Highlights - July 2017 Edition

July Edition

"Looking back over the past six months, two political events have shaped the narrative in Europe: the anticipated presidential election in France and the rather unexpected election in the UK. We witnessed a huge volume uplift in the VSTOXX® Derivatives segment at the time of the French elections which saw the pro-euro and reformist candidate Macron prevail. This has created a positive tailwind in Europe due to the decrease in political uncertainty, which will add pressure on the ECB to reduce quantitative easing in the second half of 2017. We may experience market weakness as investors adapt to changes in the current accommodative central bank policy.

Casting a wary eye across to the U.S., we see in recent months that President Trump's agenda has been rather stalled by the on-going Russia probe. Together with early signs of a stock rotation out of the momentum driven technology sector, this has ignited the debate on whether broad developed equity markets are now due a retracement as we potentially enter late stages of the US economic cycle.

The best performing region YTD has been emerging markets. Eurex with its wide breadth of MSCI Derivatives, spanning several EM regions and single country exposures, has enjoyed record open interest as a result of this outperformance. Despite the announcement that China would soon be included into the MSCI EM benchmarks, albeit with a small weighting initially, there remain question marks around slowing Chinese growth plus the escalating tensions over North Korea could see market volatility increase in the coming months and subsequent demand for MSCI option hedging strategies."

Zubin Ramdarshan
Head of Equity and Index Product Research & Development

Facts and figures

Product news

STOXX's Head of Applied Research, Dr. Jan-Carl Plagge, discusses how a factor-based strategy via futures opens a new door to uncorrelated risk premia:

What is factor investing all about?

What are the main used factors and use cases for factor investing?

What about derivatives on iSTOXX® Factor Indexes?


The increasing and more efficient capture of risk sources in the market has allowed investors to exploit these factors to obtain additional returns. Factor investing has seen a veritable surge in interest in recent years, and the possibilities of extracting, adapting and combining factor-based returns keep growing. In occasion of the launch of the futures, Dr. Jan-Carl Plagge, sat down to review the principles and possibilities of factor investing.


Antoine Porcheret, Senior Equity & Derivative Strategist at BNP Paribas, discusses the Total Return Futures (TRF):

What is equity repo?

What is a Total Return Futures (TRF) and how is it linked to equity repo?

As an investor, why should I trade TRFs?

The market is warming to futurized swaps which deliver margin efficiency and new trading opportunities for the derivatives market. One such new product taking the market by storm is the Total Return Futures. In this short video interview, Antoine Porcheret, Senior Equity & Derivative Strategist at BNP Paribas, explains how the Total Return Futures operates, how it is linked to equity repo and how it is being incorporated into trading strategies, among market participants.

With the introduction of the MSCI EAFE Futures on two index versions (Net Total Return and Price Index) and the tradability for U.S. Participants since Friday, 14 July, Eurex has further completed its MSCI offering.

EAFE (Europe, Australasia and the Far East) is the major benchmark for many U.S. investors seeking international equity exposure. As the index consists of all MSCI World components outside U.S. and Canada, the bulk of the index is calculated primarily in the Asian & European time zone. According to MSCI, roughly 2 tn USD are benchmarked against EAFE.

Following the launch of futures and options on the popular MSCI EAFE index, Eurex has become the only exchange that offers futures and options on all major MSCI indexes on one platform. This enables clients to optimize their margin requirements by focusing on Eurex, which offers a unique portfolio margining system (PRISMA).

In June alone more than 1.8 million MSCI contracts traded - a plus of 114 percent compared to June 2016. A full list with all MSCI product related information can be found on our website.

Two months ago, Eurex introduced futures on six iSTOXX® Europe Factor indexes. Our new offer comprise instruments for investors to allow them to capture factor risk premia associated with the STOXX® Europe 600 benchmark. The STOXX® Europe 600 Futures market has established itself as the broader benchmark for Europe with liquid futures that traded over three million contracts in the first quarter of 2017 with an average daily volume (ADV) of approximately 46,000.

Eurex won the Global Investor Award 2017 in the category "Exchange of the Year". Our derivatives exchange is the first recipient of this award, which measures excellence in the exchange world across asset classes and geographies.

Global Investor stated: "The derivatives exchange's innovative new products offer asset managers volatility protection and opportunities for yield."

Moreover, Eurex' continued commitment to convert over-the-counter products into exchange traded derivatives was highlighted. One example for this are Eurex' Total Return Futures and the firm's continued investments in growing the exchange traded FX market.

Events

Eurex will be present at numerous events and trade fairs during the year. Please visit our website for an overview of upcoming conferences.

To learn more about our products and services, please do not hesitate to contact your local Sales representative, visit our website or follow us on Twitter @eurexgroup and LinkedIn.

 

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