Rising global economic uncertainty and the continued liberalisation of financial markets is accelerating demand for Chinese derivatives by both domestic and foreign institutions, a recent conference of asset managers heard.

More than 150 insurance asset management professionals at the Insurance Management Association of China (IAMAC) conference held in Beijing on August 6 were told how transaction volumes of derivatives in China have continued to rise.

Hu Tao,
China Pacific Insurance

For the first seven months, the daily average trading volume of the three main index futures in the country stood at Rmb373.7 billion ($57.7 billion), hitting a new record high, according to the China Financial Futures Exchange.

“The stock index futures market and the stock spot market are closely related, which enriches the dimensions of our observation of the spot market and gives us more evidence in observing market sentiment and assisting in judging market trends," Hu Tao, director of quantitative assets at China Pacific Insurance told the conference.

ONE YEAR ANNIVERSARY

In terms of structuring investment portfolios, Hu noted that the expansion of government bond futures trading was providing great opportunities for insurers.

In July last year, The China Banking and Insurance Regulatory Commission (CBIRC) issued regulations that permitted Chinese insurance funds to be invested in China treasury bond futures, thus granting institutional investors access to the treasury market.

While equipping investors with more hedging tools, the new rules bar the use of such assets to speculate.

From 2018 to 2020, the overall trading volume of treasury bonds futures have shown spectacular growth.

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LEARN FROM THE US

As at the end of 2018, the total scale of investment in the US life insurance industry stood at $4.5 trillion, while the total nominal value of derivatives used in the life insurance industry was as high as $2.6 trillion.

Of these, 95% of the derivatives were used for hedging. About 1% is used to increase investment income, according to Li Jin, general manager of asset management department at ICBC AXA Life Insurance.

Li highlighted the importance of adding treasury bond futures to manage the duration gap of a life insurance company and said he believed China could see higher growth over the coming years.

“Derivatives have created a blue ocean (an untapped market) of their own for North American life insurance companies,” he added.