For a long rupee – Newspaper Kommersant No. 58 (7503) dated 04/05/2023

The Moscow Exchange launched trading in futures for the UAE dirham and the Indian rupee. According to experts, contracts may be of interest to investors in order to diversify assets. The dirham could be in demand by citizens, and the Indian rupee by institutional investors, analysts believe. However, the lack of trading in these currencies on the spot market will hold back the development of the derivatives market.

On April 4, the Moscow Exchange began trading in settled futures contracts for two currency pairs — UAE dirham/Russian ruble (AED/RUB) and Indian rupee/Russian ruble (INR/RUB). The exchange believes that participants in foreign economic activity will be able to hedge currency risks with their help. The first trading days with new contracts are traditionally weak.

The volume of trading on Tuesday with a dirham futures amounted to only 2.2 million rubles. (36 transactions), with a rupee futures – only 82 thousand rubles. (8 transactions).

Currency futures occupy a leading position in the derivatives market of the exchange. In January-March, they accounted for 54-61% of the total derivatives trading volume and more than 80% of open interest. The most popular are USD/RUB contracts, which are estimated at tens of billions of rubles per day.

But exotic currency pairs may also be interesting. Dmitry Alexandrov, Managing Director of Ivolga Capital, notes that over the past year, many trade flows have begun to pass through the UAE, in particular, the export of agricultural products is now largely organized through Dubai companies. India is becoming a major buyer of Russian oil, which also creates flows in the national currency. According to the International Energy Agency, China and India account for 70% of Russian oil exports.

However, Russia is a net exporter for both countries. As the head of the Ministry of Industry and Trade Denis Manturov reported at the end of February, the volume of trade between the Russian Federation and the UAE over the past year increased by 68%, to $9 billion. At the same time, exports amounted to $8.5 billion with imports of only $500 million. According to the Ministry of Trade and Industry of India , the volume of trade between the two countries tripled last year and approached $40 billion. At the same time, the Russian Federation supplied goods to India for more than $37 billion.

In order to diversify assets, the UAE dirham is a good alternative to the US dollar, and a rigid peg to the US currency makes it similar in characteristics to the Hong Kong dollar, says Kirill Gorbunov, an analyst at Ingosstrakh Investments.

According to him, in the conditions of “toxicity” of unfriendly currencies, the futures for this “quasi-dollar” may well be in demand from individuals. For companies, the instrument is unattractive given the low volume of payments for Russian exports in this currency, the analyst believes.

However, the dollar peg also plays against the dirham. Oleg Syrovatkin, a leading analyst at the Otkritie Investments global research department, notes that an investor who wants to hedge currency risks will rather prefer a dollar/ruble futures, where liquidity is incomparably higher.

The Indian rupee is increasingly being used in foreign trade transactions, which is positive for the future liquidity of the instrument, Mr. Gorbunov believes. The growth of currency turnover in foreign trade makes the futures on the INR/RUB currency pair attractive for institutional investors, he believes.

However, Mr. Syrovatkin clarifies, the Indian rupee closed down nine of the last ten years against the dollar and its investment attractiveness is not obvious.

In addition, India suffers from a chronic trade deficit, which is an unfavorable factor for the rupee and largely explains its weakness, he notes.

For maximum efficiency of exchange mechanisms, it is necessary to launch trading in currencies on the spot market, analysts agree. The Moscow Exchange announced the launch of trading in the dirham and was exploring the possibility of trading in the rupee. The head of the exchange, Yuri Denisov, noted in December 2022 that India has a ban on conversion operations and settlements in rupees outside the country. However, trading on the spot market has not yet begun.

Ksenia Kulikova