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Asia Index Futures Fair Value
4 October 2013
Global Research
Asia Index Futures Fair Value
HSCEI – Daily Futures Fair Value Monitor
 HSCEI October 2013/November 2013 roll closed at 8.0, 5.0 index points rich to our fair value of 3.0.
 Open interest of October 2013 futures on 3 October was around 81,700 (100%) larger than the 9-year historical average.
 No dividend announcements are expected in the coming week.
Table 1. HSCEI – Futures fair value
Index/Futures
Closing Level
Expiry
Interest Rate(%)
Interest Points
Net Dividend Points
Net Fair Value
Premium(bps)
Cheap/Rich
10517.28
10507.00
10530.00
10522.00
n.a.
30-Oct-13
28-Nov-13
30-Dec-13
28-Mar-14
0.20%
0.29%
0.38%
0.54%
1.43
4.68
9.46
27.15
0.00
0.25
0.25
0.25
1.43
4.43
9.21
26.90
-11.13
7.88
-4.26
n.a.
Cheap
Rich
Cheap
n.a.
Cash Index
Oct-13
Nov-13
Dec-13
Mar-14
Source: Bloomberg, Thomson Reuters Datastream, Hang Seng Indexes, HSBC estimates. Data as of 4-Oct-13. Closing Level shows the close price of cash index and last traded prices of futures. Interest rates are based on HIBOR.
Net Dividend Points and Net Fair Value are based on 10% withholding dividend tax. Premium (bps) is the difference between futures last traded price and HSBC fair value divided by HSBC fair value in basis points. Cheap/Rich
indicates the futures last traded price is lower/higher than HSBC fair value. Net Dividend Points, Net Fair Value, Premium (bps) and Cheap/Rich are all from HSBC estimates.
Table 2. HSCEI – Spread fair value
Spread
Closing Level
Net Fair value
Premium(bps)
Cheap/Rich
Volume
8.00
18.00
36.00
2.99
7.78
25.46
4.76
9.72
10.02
Rich
Rich
Rich
56
106
50
Oct-13/Nov-13
Oct-13/Dec-13
Oct-13/Mar-14
Source: Bloomberg, Thomson Reuters Datastream, Hang Seng Indexes, HSBC estimates. Data as of 4-Oct-13. Closing Level shows the last traded price of spreads. Premium (bps) is the difference between spread last traded price
and HSBC fair value divided by HSBC fair value of front month futures in basis points. Cheap/Rich indicates the spread’s last traded price is lower/higher than HSBC fair value. Net Fair Value, Premium (bps) and Cheap/Rich are all
from HSBC estimates.
Chart 1. HSCEI Futures - Open interest (%)
Chart 2. HSCEI Futures – Volume
100%
100000
80%
80000
60%
60000
40%
40000
20000
20%
0%
30-Aug
14000
12000
10000
8000
6000
4000
2000
0
8-Sep
17-Sep
Oct 13
Nov 13
0
30-Aug
26-Sep
Dec 13
8-Sep
17-Sep
Oct 13 (LHS)
Source: Bloomberg, HSBC. Data as of 3-Oct-13.
Open interest of futures as a percentage of total open interest of all active contracts.
26-Sep
Nov 13 (RHS)
Dec 13 (RHS)
Source: Bloomberg, HSBC. Data as of 4-Oct-13.
Futures codes
Index
Reuters index
Reuters futures
Reuters spread
Bloomberg index
Bloomberg futures
Bloomberg spread
HSCEI
.HSCE
HCEIc1
HCEIc1-c2
HSCEI <Index>
HC1 <Index>
S:HCHC 1-2 Index
Source: Thomson Reuters Datastream, Bloomberg, HSBC.
Vijay Sumon*
Giridhar Muthyala*
Analyst
HSBC Bank plc
+44 20 7991 6839
vijay.sumon@hsbcib.com
Associate, Bangalore
*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations
Issuer of report: HSBC Bank plc
View HSBC Global Research at: http://www.research.hsbc.com
Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the
Disclosure appendix, and with the Disclaimer, which forms part of it
Not for distribution in India, Korea, Taiwan and the US
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Global Equity Quantitative Research
Asia Index Futures Fair Value
4 October 2013
HSCEI - Monthly dividend schedule
 Dividend index points in the next 12 months are based on dividends that have been announced and confirmed by
companies and HSBC estimated regular dividends.
Chart 3. HSCEI – Forecast monthly dividend index points
375
Index points
300
225
150
75
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Mar-14
Feb-14
Jan-14
Dec-13
Nov-13
Oct-13
0
Source: Bloomberg, Thomson Reuters Datastream, Hang Seng Indexes, HSBC estimates. Data as of 4-Oct-13.
Dividend sensitivity analysis of the October 13 / November 13 spread
 Dividend risk is minimal for the roll. Sensitivity analysis of the October 2013/November 2013 spread to the estimated
dividends in November and cash index level is provided below. Details of dividend schedule can be found in table 5.
Table 3. HSCEI - Futures spread net fair value vs. cash index
_______________________________________________ Index level ________________________________________________
10200
10300
10400
10500
10600
10700
10800
Dividend sensitivity
100%
3
3
3
3
3
3
3
Source: Bloomberg, Thomson Reuters Datastream, Hang Seng Indexes, HSBC estimates. Data as of 4-Oct-13.
Interest rate sensitivity analysis of the October 13 / November 13 spread
 Interest rate change risk is minimal for the roll as HSBC's economists believe Hong Kong policy rates will remain
unchanged over the next three months.
Table 4. HSCEI - Futures spread net fair value
Interest rate
sensitivity
________________________________________________ Index level ________________________________________________
10200
10300
10400
10500
10600
10700
10800
0.20%
0.25%
0.30%
0.35%
0.40%
2
3
3
4
5
2
3
3
4
5
2
3
3
4
5
2
3
3
4
5
2
3
3
4
5
2
3
3
4
5
Source: Bloomberg, Thomson Reuters Datastream, Hang Seng Indexes, HSBC estimates. Data as of 4-Oct-13. Interest rates are based on HIBOR. The interest rate sensitivity analysis is based on interest rate change only in the
November 13 futures, i.e., November 13 rate is varied while October 13 rate remains constant.
Not for distribution in India, Korea, Taiwan and the US
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2
3
4
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Global Equity Quantitative Research
Asia Index Futures Fair Value
4 October 2013
Dynamics of the HSCEI October 13 / November 13 spread
 As of 4 October, the HSCEI October 2013/November 2013 roll closed at 8.0, 5.0 index points rich to our fair value of 3.0.
On average, the roll has been trading 5.2 index points rich to HSBC fair value since inception.
 Roll progress is defined as the front month open interest as a percentage of the total open interests in front month and next
month futures.
Chart 4. HSCEI – Oct-13/Nov-13 roll fair value, VWAP & volume
Roll volume (RHS)
Roll VWAP (LHS)
Roll fair value (LHS)
1600
8
1200
6
800
4
400
2
0
0
30-Sep
2-Oct
100%
2000
3-Oct
4-Oct
Source: Bloomberg, Thomson Reuters Datastream, Hang Seng Indexes, HSBC estimates.
Data as of 4-Oct-13. VWAP is Value Weighted Average Price.
Roll progress
Index points
10
Roll volume
12
Chart 5. HSCEI – Oct-13/Nov-13 roll progress
80%
60%
40%
20%
0%
-20
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
Days to expiry
Oct-13/Nov-13 roll
Average -9y
Fastest - 9y
Slowest - 9y
Source: Bloomberg, HSBC. Data as of 3-Oct-13.
Average – 9y, Fastest – 9y and Slowest – 9y are based on Oct/Nov rolls in the last 9 years.
Not for distribution in India, Korea, Taiwan and the US
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Global Equity Quantitative Research
Asia Index Futures Fair Value
4 October 2013
HSCEI estimated dividend schedule for the next 12 months
Table 5. Dividend estimates for the HSCEI constituents for the next 12 months
Bloomberg
Name
1066 HK
2333 HK
2318 HK
1898 HK
3323 HK
857 HK
914 HK
998 HK
2601 HK
3968 HK
728 HK
1066 HK
2628 HK
2883 HK
3988 HK
753 HK
916 HK
1099 HK
2899 HK
386 HK
1171 HK
358 HK
939 HK
1398 HK
1988 HK
1157 HK
1288 HK
902 HK
1339 HK
6030 HK
1088 HK
1336 HK
3328 HK
489 HK
168 HK
1800 HK
2238 HK
6837 HK
2338 HK
390 HK
1988 HK
2328 HK
386 HK
857 HK
2318 HK
2238 HK
2338 HK
Weigao Group
GreatWall Motor
Ping An
China Coal
CNBM
PetroChina
Anhui Conch
CITIC Bank
CPIC
CM Bank
China Telecom
Weigao Group
China Life
China Oilfield
Bank of China
Air China
China Longyuan
Sinopharm
Zijin Mining
Sinopec Corp
Yanzhou Coal
Jiangxi Copper
CCB
ICBC
Minsheng Banking
Zoomlion
ABC
Huaneng Power
PICC Group
CITIC Sec
China Shenhua
NCI
Bankcomm
Dongfeng Group
Tsingtao Brew
China Comm Cons
GAC Group
Haitong Securities
Weichai Power
China Railway
Minsheng Banking
PICC P & C
Sinopec Corp
PetroChina
Ping An
GAC Group
Weichai Power
Net dividend (HKD)
Ex-dividend date
Price (HKD)
Weight (%)
Index drop
0.03
0.89
0.40
0.14
0.17
0.17
0.36
0.19
0.44
0.64
0.09
0.04
0.36
0.35
0.21
0.07
0.08
0.32
0.06
0.15
0.09
0.31
0.33
0.29
0.19
0.17
0.19
0.46
0.03
0.23
1.01
0.17
0.25
0.19
0.51
0.23
0.07
0.19
0.12
0.07
0.19
0.28
0.09
0.20
0.24
0.15
0.08
19-Nov-13
14-May-14
14-May-14
15-May-14
28-May-14
29-May-14
30-May-14
30-May-14
4-Jun-14
4-Jun-14
4-Jun-14
6-Jun-14
6-Jun-14
6-Jun-14
6-Jun-14
6-Jun-14
6-Jun-14
10-Jun-14
10-Jun-14
10-Jun-14
13-Jun-14
13-Jun-14
13-Jun-14
17-Jun-14
19-Jun-14
20-Jun-14
20-Jun-14
24-Jun-14
25-Jun-14
26-Jun-14
27-Jun-14
27-Jun-14
27-Jun-14
27-Jun-14
2-Jul-14
3-Jul-14
4-Jul-14
9-Jul-14
25-Jul-14
25-Jul-14
2-Sep-14
3-Sep-14
5-Sep-14
5-Sep-14
11-Sep-14
18-Sep-14
18-Sep-14
7.69
44.2
58.95
4.69
7.67
8.61
25.9
4.07
28.75
14.62
4.06
7.69
20.6
20.05
3.61
5.21
8.24
19.96
1.81
6.21
7.65
14.94
6.07
5.51
9.32
7.03
3.64
7.99
3.76
16.32
23.6
22.95
5.81
11.7
59
6.19
8.43
12.2
31
4.17
9.32
10.76
6.21
8.61
58.95
8.43
31
0.55
1.94
5.09
0.82
0.94
7.71
1.36
1.41
2.88
2.85
2.39
0.55
6.51
1.31
10.35
0.45
0.93
0.84
0.46
6.73
0.64
0.84
9.98
10.23
2.06
0.38
3.56
1.09
1.18
0.65
3.41
0.55
2.16
1.35
0.90
1.16
0.79
0.73
0.64
0.71
2.06
1.45
6.73
7.71
5.09
0.79
0.64
0.25
4.09
3.62
2.56
2.18
16.36
1.98
7.06
4.66
13.15
5.56
0.29
12.07
2.41
62.97
0.60
0.96
1.41
1.52
17.33
0.82
1.84
57.48
57.17
4.35
0.96
19.86
6.49
0.90
0.96
15.27
0.42
9.58
2.34
0.82
4.51
0.67
1.22
0.26
1.17
4.36
3.92
10.66
18.75
2.14
1.43
0.18
Source: Bloomberg, Thomson Reuters Datastream, Hang Seng Indexes, HSBC estimates. Data as of 4-Oct-13. # - dividend ex-date confirmed. * - dividend amount confirmed.
Not for distribution in India, Korea, Taiwan and the US
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#,*
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Global Equity Quantitative Research
Asia Index Futures Fair Value
4 October 2013
Appendix – Fair value calculation of index futures
We calculate index futures fair value using the following formula:
Index Futures Fair value = Cash index + Interest carry – Net dividend
For the HSCEI futures, we derive interest rates from Hong Kong Inter-bank Offered Rate (HIBOR), which is provided by the
Hong Kong Association of Banks. We estimate stock dividends according to the historical dividend payout and analyst
consensus estimates from Thomson Reuters Datastream. To calculate dividend index points, we apply 10% withholding tax on
H Shares pursuant to the Enterprise Income Tax Law of the People’s Republic of China effective from 1 January 2008 and its
implementation regulations (“Enterprise Income Tax Law”) and the relevant policies and regulations.
Not for distribution in India, Korea, Taiwan and the US
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Global Equity Quantitative Research
Asia Index Futures Fair Value
4 October 2013
Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the
opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their
personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Vijay Sumon
Basis for financial analysis
The strategies discussed in this report are based purely on the quantitative valuation screens illustrated and use consensus
forecasts. For this reason, they do not necessarily coincide with the ratings of HSBC sector analysts who cover any of the
stocks referred to.
This report is designed for, and should only be utilised by, institutional investors. HSBC believes an investor's decision to buy
or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations.
Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations.
Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports
contain more complete information concerning the analysts' views, investors should carefully read the entire research report
and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment
advice.
Rating definitions for long-term investment opportunities
Stock ratings
HSBC assigns ratings to its stocks in this sector on the following basis:
For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate,
regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock
to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the
potential return, which equals the percentage difference between the current share price and the target price, including the
forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months
(or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be
expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points
for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility
status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review,
expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily
triggering a rating change.
*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12
months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However,
stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past
month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating,
however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives)
of companies covered in HSBC Research on a principal or agency basis.
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment
banking revenues.
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Global Equity Quantitative Research
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4 October 2013
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that
company available at www.hsbcnet.com/research.
Additional disclosures
1
2
3
This report is dated as at 04 October 2013.
All market data included in this report are dated as at close 04 October 2013, unless otherwise indicated in the report.
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Global Equity Quantitative Research
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4 October 2013
Disclaimer
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Issuer of report
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