Published On: Sun, Oct 2nd, 2011

High Volatility in Asia Has Buy Side Relying on Dealers But VWAP Performance May Have Improved

September 2011 Asia VolatilitySeptember volatility in Asia remained high with some markets seeing more volatility than when the credit rating downgrade shock befell the US last August 9. Focus on the viability of the Euro kept traders on edge this September and this uncertainty could also be felt in Asia. As such, we are seeing the move to opportunistic algorithms and market savvy dealers continue as VWAP algos are likely to underperform in this trading environment.

Australia’s S&P/ASX 200 VIX began September at a low of 27.34 reached a monthly high of 41.73 on September 26 just a few points below the US credit volatility spike the month before. Based on closing values average volatility was 34.79 almost 15 points above the 200 Day moving average.

Hong Kong’s HSI Volatility Index (VHSI) averaged 36.50 for the month of September. While volatility did not approach the previous months high of 58.61 the index did record the second highest percent change (72%) from its August close. The high of the month was on September 23 unlike Australia’s S&P/ASX 200 VIX which fell on Monday September 26. VWAP algorithms are likely to have underperformed in this market last month.

India’s NSE VIX averaged 30.45 in September with the highest day of volatility coming September 26 at 38.19. This high was in fact greater than the US credit volatility spike of 37.00 and was the only volatility index in Asia to surpass the high of the previous month. It should be noted, however, that volatility in India is the lowest in Asia.

The Nikkei Stock Average Volatility Index had by far its most volatile days in the wake of the earthquake that struck in March recording a high of 69.88. The Euro zone anxiety saw its volatility spike again September 26 but to a much lesser amount of 38.84 a mere 10 points above the August close. Japan appears to have the lowest intra month volatility and should likely see the best performance in VWAP benchmarks.

Korea exhibited the most volatility during the month of September and will subsequently exhibit the worst performance from its volatility profiling algos. On the other hand buysides trading volatility would be happy to see this type of market and could be expected to see higher volumes in the derivatives space namely the KOSPI 200 futures and options.

Given that the current volatility in Asia has been running its course for around 7 weeks overall performance in VWAP algorithms should have improved over August. We would expect the move to more opportunistic algorithms and high touch dealers could slightly subside in light of the volatility profile smoothing over these past weeks. We are expecting volatility to remain at these levels over October as we move into what is traditionally perceived as a negative month.

Data was supplied by Bloomberg, the National Stock Exchange website and the Hang Seng Indexes website.

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