Lynn Strongin Dodds assesses the latest SGX Acuiti report gauging the sentiment among derivative market participants in Q4 and 2025.
The derivative industry was cautiously optimistic about the state of play in the last three months of 2024 and expectations are high that this year will be busy, according to the latest SGX Global Market Sentiment Index.
The Sentiment Index, produced by Acuiti, is based on a quarterly poll of its Expert Networks, comprising senior, derivatives-focused executives from hedge funds, asset managers, proprietary trading firms and the sell-side.
Each quarter, Acuiti surveys Expert Network members on their outlook for the next three months to compile the index.
The Q4 report showed that the index rose to 72 from 68 in the previous quarter due to growing positivity among hedge funds, asset managers and sell-side execution desks. In addition, concerns abated over an escalation in the Middle East conflict and a slowdown in China after the government introduced a stimulus package over the summer.
Confidence was also boosted by another year of record volumes as global investors managed risk more efficiently in volatile markets, said Pol de Win, head of global sales & origination at SGX Group, He added that “in 2025, investors will chase higher returns, seeking innovative investments and ways to optimise their portfolios.”
However, not everyone was enthusiastic with the index slightly falling among senior executives overseeing sell-side derivatives clearing businesses and senior proprietary trading managers. This was mainly attributed to fears over a prolonged dispute by Trump if he did not win the election.
“Q4 2024 saw a meaningful increase in sentiment across the derivatives market,” says Will Mitting, founder of Acuiti. “This was driven in part by volatility in the run up to the US election but also by strengthening confidence in Asia as the market recovered.
He added, “Data for this quarter’s report was collected between 23 September and 15 November, meaning that the results of the US election were only reflected in small sample of the data. However, we did see an uptick in sentiment after the election as fears over a disputed election did not come to bear. We will see the full impact of the market’s response to the results of the US election in the Q1 2025 Index report.”
Aside from taking the temperature of the industry, the report also looked at investment budgets for 2025. It found that overall, a majority within all groups, aside from asset managers, were expecting above average spend in 2025 with proprietary trading firms leading the way. Sell-side clearing firms and hedge funds were also typically aggressively increasing their wallets.
Although each group was targeting different areas, risk management was a common theme as the industry moves towards a more real-time risk model, both to optimise capital and margin as well as mitigate the risk of sharp market moves.
Drilling down by segment, hedge funds and proprietary trading firms were directing their investments towards market data, improving latency and connectivity to new markets. This not only reflected their optimism about this year but also the importance of staying ahead of the pack.
Meanwhile, asset managers were most interested in compliance technology such as data analysis and reporting tools to meet the ongoing regulatory burden especially in Europe such as the Sustainable Finance Disclosure Regulation (SFDR).
Unsurprisingly, sell-side clearing firms, were targeting repo clearing functionality ahead of the introduction of the Securities and Exchange Commission’s mandate to clear repo and Treasuries from the end of 2025.
The report also broke down views for asset class performance although the consensus was that volatility was likely to continue throughout the year.
More specifically, senior sell-side executives pinpointed equity derivatives, fixed income and energy as standouts while cryptocurrencies – a market that the sell-side is largely excluded from – were seen as the worst performing.
Hedge funds expected commodities and energy to feature highly which is a trend also seen among US asset managers. The buy-side in general were more bearish about equity markets, especially in futures.
Proprietary trading firms, on the other hand, believed the bull run in equity options markets would continue as more traders are drawn to shorter term options.
The next report, published at the end of March, will be an early indication of the impact Donald Trump’s strongly pro-American foreign and trade policy will have on the derivatives markets.
