With the society and businesses becoming more conscious on Environmental, Social and Governance (ESG) these days, Bursa Malaysia has launched the exchange's first ESG-based futures contract - the FTSE4Good Bursa Malaysia Index Futures (F4GM) in December 2022.
In this post, we'll explore what exactly is F4GM futures, and why one should consider adding F4GM in his/her trading arsenal.
An Overview of F4GM Futures
To start, the F4GM futures tracks the FTSE4Good Bursa Malaysia (F4GBM) Index as its underlying instrument, with the goal to fulfill the increasing demand from investors to include sustainable investment themes into their portfolios.
The F4GBM index represents the performance of more than 100 public-listed companies in Malaysia that demonstrates strong ESG practices.
These companies are selected from the FTSE Bursa Malaysia EMAS Index, which comprises small, medium, or large market capitalization companies.
How are Malaysia's public-listed companies screened and rated for ESG?
To encourage the adoption of ESG practices in the marketplace, Bursa Malaysia works with FTSE Russell in coming out with a structure for ESG score for the public-listed companies in Malaysia.
FTSE Russell analyze companies' exposure across a full spectrum of material ESG risks, which is classified into 14 ESG themes and underpinned by more than 300 detailed quantitative and qualitative indicators.
In this process, companies are evaluated through the level of materials ESG risk that they face relative to their business operations, as well as publicly disclosed actions that are taken to manage the relevant risks.
In other words, the ESG rating shows us how well a company is in managing ESG issues. Companies in the Bursa Malaysia EMAS universe with an ESG score exceeding a defined threshold are eligible for inclusion in the FTE4Good Bursa Malaysia Index.
F4GM Futures Contract Specifications
Below are the specifications of the F4GM futures contract:
Settlement: Cash settled
Value per point: RM50
Minimum price fluctuation: 0.5 index point (RM25)
Contract months: Spot month, the next month, and the next two calendar quarterly months. The calendar quarterly months are March, June, September, and December.
Trading hours: Mon - Fri (Malaysia time)
Morning trading session: 8:45 a.m. to 12:45 p.m.
Afternoon trading session: 2:30 p.m. to 5:15 p.m.
After-hours (T+1) trading session: 9.00 p.m. to 2.30 a.m.
Top constituents of F4GBM Index
The composition of the F4GBM index is reviewed semi-annually in June and December.
As of 29/3/2024, the top 10 constituents by market cap (which makes up of over 50% of the weightage of the index) of the F4GBM Index are:
Meanwhile, the top 3 industries that make up the F4GBM index are:
Financials (37.20%)
Utilities (11.26%)
Industrials (10.17%)
Why trade F4GM futures?
#1 Trade both directions
As a trader, trading F4GM futures provide the opportunity to express conviction be it in the long or short side on an ESG equity index.
#2 Access to leverage
F4GM futures also provide leverage exposure to traders, which allows traders to trade the F4GM futures with a relatively small initial margin, which would magnify the profit (or loss) with any chance in price.
#3 Hedge against unfavourable price movement in the equity markets
F4GM futures also allow investors that have position in the equity market to hedge against a negative price movement in their existing position.
For instance, investors can take a short position in F4GM futures to cover the losses (be it fully or partially) that they are experiencing from a negative price movement in the equity market.
#4 Regulated by Securities Commission
Since F4GM futures is a product regulated by the authority, it provides a safe and transparent manner for traders to express their trade ideas in the ESG market.
How to trade F4GM futures?
It is easy to gain access to the F4GM futures. Simply open a futures trading account from reputable futures brokers that allow access to Bursa Malaysia Derivatives products.
Verdict: Express your conviction in the Malaysia ESG market via F4GM futures!
The introduction of the F4GM futures represents the effort from the financial market in Malaysia to come out with innovative products that are in line with the market demand.
Hopefully this post gives you a clear idea of what F4GM futures is about, and stay tuned for more related content!
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Disclaimers
Any of the information above is produced with my own best effort and research.
This post is produced purely for sharing purposes and should not be taken as a buy/sell recommendation. Past return is not indicative of future performance. Please seek advice from a licensed financial planner before making any financial decisions.
Leverage is a financial tool that comes with its advantages and risks. Please learn and understand both the upsides and downsides of leverage before using it for trading.
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