20161122-三星证券-Tail_risk,_structural_changes_to_boost_volatility_46页_2mb

Derivatives Issue Summary

Core Content

This document provides an in-depth analysis of the derivatives market in South Korea, focusing on the performance and outlook of various financial instruments in 2016 and 2017. It outlines the trends, challenges, and future expectations for equity derivatives, including futures, options, ETFs, ETNs, and ELS/DLS products, in the context of rising market volatility and structural changes.

Main Points

2016 Review

• Volatility Spikes: The Korean stock market experienced frequent volatility in 2016, driven by external shocks such as the depreciation of the yuan and credit risks in European financial institutions. The VKospi (Volatility Index) reached up to 26% on an intraday basis due to events like the Brexit vote.
• Derivatives Market Growth: Rising volatility stimulated the derivatives market, with the ETF and SSF markets expanding significantly.
• Market Performance:
  • Kospi 200 Futures/Options: Trading volume declined, with futures down 17% and options down 30% year-on-year.
  • Single Stock Futures (SSF): The SSF market saw the fastest growth, driven by the expansion of underlying assets and tax benefits for liquidity providers.
  • ETFs: The ETF market expanded by 30% annually since 2010, with a wide range of products, including leverage/inverse, overseas-invested, and smart-beta ETFs.
  • ETNs: The ETN market grew, with new products tied to overseas markets and inverse/leverage structures.
  • ELWs: The ELW market stagnated due to tighter regulations and competition from other products, with a shift towards products that limit losses and offer principal protection.

2017 Outlook

• Increased Volatility: The year is expected to see higher volatility due to:
  • Economic Multi-polarization: Developed markets (DMs) and emerging markets (EMs) will adopt divergent policies.
  • Political Uncertainty: Instability in EMs and political events in DMs are anticipated to drive up market volatility.
• Risk Control via Derivatives: As volatility rises, the use of derivatives for risk management will increase, with strategies such as put spreads and $100% - 105%$ collars being beneficial.
• Market Liquidity: The growth in volatility is expected to increase liquidity in the derivatives market, especially for products like SSFs and ETFs.

Key Information

Kospi 200 Futures/Options

• Trading Volume: Declined significantly, with futures down 17% and options down 30% year-on-year.
• Liquidity Trends: After-hours trading showed some improvement, but the overall liquidity of the Kospi 200 options market declined faster than futures.
• Turnover: Options turnover dropped by 80% points in 2015 and 41% points in 2016 compared to 2014 levels.

Single Stock Futures (SSF)

• Growth: SSF market volume increased from 371,000 contracts in 2014 to 692,000 contracts in 2016.
• Liquidity: SSF liquidity improved due to tax benefits for LPs and increased arbitrage opportunities.
• Investor Participation: Foreign investors account for over 40% of the market, with securities brokers growing in participation due to tax exemptions.
• Turnover Ratio: Varies significantly, with some products showing a ratio close to 100% and others below 10%.

VKospi Futures

• Liquidity Issues: VKospi futures have low liquidity, with average daily trading volume at 41 contracts and open interest at 140 contracts.
• Trading Behavior: Investors tend to maintain positions rather than engage in daily trading, leading to low trading activity during volatility spikes.
• Future Outlook: Improved liquidity is expected if more volatility-hedging products are introduced and liquidity providers become more active.

ETF Market

• Growth: The ETF market grew to 241 ETFs by end-October 2016, up from 198 at end-2015.
• Performance: ETFs linked to commodities and undervalued sectors delivered high returns.
• Top ETFs by Net Assets: KODEX 200, KODEX Inverse, KODEX KRW Cash, TIGER 200, and KODEX Leverage.
• Top ETFs by YTD Return: TIGER Latin, KINDEX Gold Futures Leverage, TIGER 200 Heavy Industries, KODEX Silver Futures, and KODEX Banks.

ETN Market

• Growth: The ETN market reached KRW3.3t by end-October 2016, with 130 listed ETNs.
• Performance: ETNs tracking commodities and undervalued sectors had the highest returns.
• Top ETNs by Trading Value: Samsung Chemicals Theme ETN, NH WIS QV Big Vol ETN, Samsung Media Theme ETN, Shinhan Leverage WTI Futures ETN(H), and Samsung Securities Theme ETN.
• Top ETNs by YTD Return: Shinhan Silver Futures ETN(H), Shinhan Gold Futures ETN(H), NH QV Construction TOP5 ETN, Shinhan Brent Futures ETN(H), and NH QV Ship building TOP5 ETN.

ELS/DLS Market

• Stagnation: The ELS/DLS market contracted for the first time since 2009.
• Future Outlook: Products that limit losses, offer principal protection, and have multiple underlying assets are expected to gain popularity.

Product-Specific Outlook

Kospi 200 Futures/Options

• Liquidity: Expected to improve due to regulatory changes and new products.
• Institutional Role: Institutional investors, especially Korea Post, are anticipated to play a more significant role in boosting liquidity.

Single Stock Futures (SSF)

• Growth Drivers: Continued expansion of underlying assets and regulatory support for liquidity providers.
• Investor Trends: Domestic institutional investors (excluding LPs) are expected to increase their participation due to stricter short-selling rules and higher volatility.

ETFs

• Product Diversification: Expected to continue expanding with more leverage/inverse, overseas-invested, and smart-beta products.
• Robo-Advisors: Likely to gain prominence, promoting the adoption of ETF Managed Portfolio (EMP) strategies.

ETNs

• Market Growth: Expected to continue expanding with new products and increased investor interest.
• Liquidity: Improved due to active liquidity provision by issuers like Samsung Securities.

ELS/DLS

• Market Shift: Expected to decline in growth due to regulatory changes and competition from other products.
• Product Trends: Products with loss limitations and principal protection are anticipated to become more popular.

Conclusion

The derivatives market in South Korea is evolving with increased volatility, driven by global economic and political factors. While the Kospi 200 futures/options markets have declined, the SSF and ETF markets have shown significant growth. The ETN market is also expanding, though it faces challenges in attracting long-term investors. The ELS/DLS market is expected to stagnate or contract due to regulatory and structural changes. Overall, the market is moving towards more diversified and sophisticated products, with a focus on volatility management and risk control strategies.