22 February 2018
TRADING OPPORTUNITIES FOR FINANCIAL SERVICES IN SHANGHAI
China’s trade market is on a ‘once in a lifetime’ winning streak according to experts, with the China ETF reporting the longest period of consistent gains since 2006.
This unprecedented growth has been attributed to the rapid maturation of the Chinese economy, which has created increased market interest from global financial services organisations attracted by the numerous trading opportunities.
Did you know? The Shanghai Stock Exchange is the world’s 4th largest exchange for market capitalisation
Experts are also claiming that a sense of ease has swept over the financial services world, with Wall Street-tracked commodities demonstrating significantly less volatility over the past months.
The result has been a boost in the number of trading opportunities available to financial institutions, particularly through the Shanghai Futures Exchange (SHFE) and the Shanghai Stock Exchange (SSE); the world’s 4th largest exchange by market capitalisation.
Particular opportunities are present in base and precious metals, with China having ‘called the shots’ on metal commodity pricing for quite some time, becoming a global pricing centre for heavily-traded commodities such as copper. Current contracts available through the SHFE include zinc, nickel, and aluminium, as well as fuel oil and natural rubber.
In addition, for stocks that are not tracked to Wall Street and are seemingly disconnected from values in alternative markets, a wide range of arbitrage opportunities also exist. However, there are a number of challenges associated with financial trading in Shanghai.
Primarily, these challenges relate to differences in accounting standards. Typically, non-Wall Street-tracked commodities have shown high volatility (resulting in the stock market crash of 2015); a concern that can be directly attributed to both the dominance of the market by Chinese investors, and to recent reports of insider and executive trading.
Technology is changing the way that financial services firms face these problems with international trading – and how they handle these challenges effectively, to ensure they are in a position to take advantage of the numerous opportunities within emerging and high performing markets.
To begin with, improved access to real-time information from any place, at any time, is opening up doors to increased global trading outside of the China domestic market.
Additionally, low latency connections and faster, automated execution are boosting arbitrage opportunities, while simultaneously reducing risk.
Technology and Opportunity
Technology is certainly leading the way in obstacle avoidance in international trading, and widespread adoption of technological advances is currently being witnessed not only in Shanghai but across much of the Asia Pacific region.
China has recently been updating its poorly-performing internet infrastructure, and Indonesia is rolling out a new 4G network in a bid to increase connection speeds and improve overall reliability.
Technology holds the potential to break down existing barriers to international trade in Asia
Essentially, when utilised in the correct ways, technology holds the potential to break down existing barriers to international trade in Asia, while simultaneously respecting the local culture.
For financial services organisations which are not already utilising available technologies to facilitate international financial trading, particularly in what are deemed to be somewhat risky yet high rewarding markets such as China, it is not too late to take action.
Experts predict a 13% gain for the Shanghai Composite Index (SCI) throughout 2018, and advisors are focusing heavily upon technology, health care, and financial related commodities.
Despite the Shanghai Stock Exchange rising and falling rapidly, long-term analysis of the market appears positive, highlighting China as a market bursting with opportunity.
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