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Summary
- New Zealand Stock Exchange Limited (NZX) joined hands with Singapore Exchange Limited (SGX) to give a boost to its dairy derivatives market considering SGX’s strong presence among Asian trading community.
- The above-mentioned agreement gained momentum followed by MOU signed between the two bourses in 2018 to increase mutual co-operation in the Asia-Pacific region.
- The proposed partnership between both the exchanges will facilitate farmers and milk processors to hedge their risks to the highly volatile milk prices in global markets.
- The agreement is expected to be completed in the first half of 2021, after discussion with experts and market participants.
Recently, New Zealand Stock Exchange (NZX) and Singapore Exchange Limited (SGX) joined hands to give a boost to the trading business of New Zealand’s dairy derivatives market. The current agreement between the two bourses includes- listing of New Zealand dairy derivatives contracts on Singapore Exchange Limited’s trading platform.
Must Read: A Look at NZ Dairy Sector and Key Stocks
SGX’s strong presence among Asian trading fraternity: A plus point for the NZ dairy sector.
How SGX Could Revive New Zealand Dairy Industry
New Zealand dairy industry is likely to get benefits of SGX’s global outreach and strong presence in Asian markets, which is the need of the hour for NZ dairy industry to increase the sales growth and liquidity of dairy derivatives.
Higher Liquidity
Trading access provided to commodities like Skim Milk Powder (SMP), Whole Milk Powder (WMP), etc in SGX is helpful to gain liquidity, with the help of international clients. With higher liquidity in the market, it is usually easier to buy and sell a commodity due to increased volumes in the market.
Diversification provided by commodities
Commodities give a diversification option to market participants against stocks and bonds. Generally, the commodity market has a negative correlation with the stock and bond market because higher commodity prices increase the cost of production of industries, which utilises commodity as input resulting in the lower profits. SGX’s world-class infrastructure would allow global traders to diversify their respective portfolios by adding dairy derivatives.
The NZX-SGX Agreement enhances prospects for hedging related to Dairy trade
This agreement would provide benefits across local and global farmer fraternity, as well as international milk processors/manufacturers hedge their risks to counter price volatility in milk prices within global dairy markets.
On the other hand, NZX would help SGX with its dairy product expertise and higher engagement with clients considering New Zealand as a global pioneer in the dairy sector.
Notably, the New Zealand Stock Exchange Limited has launched its dairy derivatives market for trading in 2010, with several future and option contracts of dairy food ingredients like skim milk powder, whole milk powder, butter, anhydrous milk fat, and Milk Price(MKP) Futures Contracts.
Do Read: Dairy Sector Players Resilient Amid COVID-19: SM1, A2M, KTD
Singapore Exchange Limited (SGX): The World’s most liquid international exchange for Asian indices
SGX is Asia’s leading exchange, which provides trading, listing, clearing, settlement, depository, and data services to its clients.
Singapore Exchange functions in equity, and derivatives markets among others to the top regulatory standards. SGX was one of the first exchanges that adopted the principles of Financial Market Infrastructure, on a global level.
SGX offers Asian equity indices, commodities, and currencies to international clients. It is also acknowledged for its risk management and clearing capabilities. SGX is Asia’s most well-connected exchange with international clients having established linkages across Europe, India, etc. Singapore Exchange is worldwide known as the most liquid global market for the yardstick equity indices of regions like China, India, Japan, and ASEAN.
NZX and SGX signed MOU in 2018: This is how it started
The current tie-up between the two exchanges have gathered momentum over the Memorandum of Understanding (MOU) signed in 2018 to increase mutual co-operation and understanding in the Asia-Pacific region, along with supporting the development related works across various sectors such as the promotion of derivative products, dual and secondary listings, exchange traded funds and investor participation.
New Zealand, the largest dairy products’ exporter in the world, plays a vital role in the international dairy sector. The recently inked agreement facilitates all participants including traders, manufacturers, farmers, etc to manage their price risks.
NZX would remain significant in catering to Asian dairy requirements considering the surging population and increasing demand of dairy products among Asian nations. SGX’s renowned infrastructure, and strong global distribution network would allow it to support the growth of the New Zealand’s dairy derivatives market.
Useful Read: Dairy and Farm: A Glance at Fonterra and Synlait Milk
Partnership Expected to be confirmed in the first half of 2021
SGX and NZX would discuss the agreement possibilities with their respective shareholders and market participants, along with the need to take regulatory approvals related to the global partnership in the coming months. Further, the agreement between the two stock exchanges is expected to be confirmed in the first half of 2021.
