Report Overview - Report Date: July 2, 2025 - Report Title: Index Futures Basis Series: Maintaining the Strategy of Basis Convergence - Analysts: Yu Kan, Li Honglei 1. Report Industry Investment Rating - Not provided in the report 2. Core Viewpoints - The futures market's characteristic of following the upward movement but not the downward movement may indicate investors' expectations for the index market. Coupled with the improvement of fundamentals and the continuation of the low - interest - rate environment, the report is optimistic about the further improvement of the index beta, which will drive the basis to rise. Regulatory policies may bring trillions of incremental funds to the market, increasing the certainty of the index's upward trend. Currently, the basis has returned to a historical low, and the previous strategy ideas can be continued, including enhancing the long - position substitution strategy, mainly using near - month hedging for short - position hedging, and adopting the term reverse arbitrage strategy for inter - period arbitrage [6][20][26] 3. Summary by Directory 3.1 Recent Basis Review - **Market Performance in June**: The A - share market in June showed a "low - first - then - high" structural trend. At the beginning and middle of the month, despite favorable policies, the market risk appetite was not significantly repaired. In the last week, with multiple positive factors, the market risk appetite rapidly increased, trading volume significantly expanded, and the index rose rapidly. Small and micro - cap stocks led the gains, with a monthly increase of over 5% [6][7][8] - **Basis Changes**: In June, the arbitrage trading of eating the basis increased. The basis of IC and IM has been continuously converging since mid - June, while IH and IF remained stable throughout the month. At the end of the month, due to market adjustments and institutional profit - taking pressure, the basis widened rapidly, and each variety's basis returned to a low level in the past three years. The intraday 1 - minute frequency basis of each variety remained highly consistent, indicating systematic expectations. The futures market's characteristic of following the upward movement but not the downward movement reflects investors' expectations for the index market [6][14][20] - **Strategy Performance in June**: The return of the long - position substitution strategy further increased. The excess returns of the IC and IM main contracts compared to the index increased to 2.8% and 12.6% respectively, nearly 2% higher than in May. For short - position hedging, near - month contracts had lower costs, especially in the IC variety. In inter - period arbitrage, the long - far - month and short - near - month strategy gained some profits but suffered a retracement at the end of the month [22] - **Product - End Strategy Adjustment**: In June, there were adjustments in the strategy positions of the product end, showing the characteristics of quick entry and exit. Index - related products were stable with a slight decline, but the scale of A500ETF stabilized and rebounded, and the new issuance of index - enhanced products increased compared to May. The neutral strategy suffered a certain retracement, but the long - short positions increased as the hedging cost decreased. The long - position substitution strategy of futures was evident, and the CTA strategy's futures positions increased rapidly during the index's rise but decreased rapidly at the end of the month, causing the basis to fall back to a historical low and creating an arbitrage space [24][25] 3.2 Long - Position Roll - Over Performance Review - **Performance Data**: In the past 250 trading days, the annualized excess returns of IF, IH, IC, and IM in the long - position roll - over strategy were - 3.6%, 0.9%, 2.1%, and - 4.1% respectively. The benchmark portfolio was set as a weighted combination based on the previous trading day's closing positions of each contract, without considering handling fees. The trading prices in the calculation were the TWAP prices in the first half - hour of the opening [38] 3.3 Short - Position Roll - Over Performance Review - **Performance Data**: In the past 250 trading days, the annualized excess returns of IF, IH, IC, and IM in the short - position roll - over strategy were - 0.2%, - 0.5%, 1.2%, and - 0.3% respectively [45]

Report Industry Investment Rating - Not provided in the content Core Viewpoints of the Report - In April, the market sought balance between economic and foreign trade pressures and policy support. The market was affected by overseas tariff issues, with policy - makers taking a firm stance to support the market. The transaction volume decreased, and the basis of stock index futures changed significantly. The basis of IH and IF weakened slightly compared to the end of last month, while IC and IM remained basically the same. In the future, the basis of IH and IF may rise with the inflow of long - term funds, and the deep discount of IC and IM is likely to converge [5][22]. - There are potential long - term bullish factors in the product side, such as the increase in the share of index ETFs and the new issuance of index - enhanced products. The neutral strategy has stable performance, and the impact of over - the - counter options on the futures market has basically ended [5]. Summary by Related Catalogs 1. Recent Basis Review - **Market Situation**: In April, the market faced external tariff pressure at the beginning, with small - cap and high - valuation sectors under pressure. The policy layer actively supported the market, and the core broad - based indexes were strongly supported. As the tariff issue eased, the market was volatile and bullish, but the market's upward drive was insufficient, and the average daily trading volume of the whole A - share market dropped to 120 million. By the end of April, the broad - based indexes had not fully recovered, with small - cap stocks having a larger gap [6]. - **Basis Changes**: IH and IF basis weakened slightly compared to the end of last month, while IC and IM remained basically the same. As of April 30, 2025, the annualized basis rates of the quarterly contracts of IH, IF, IC, and IM were 0.76%, - 2.36%, - 8.43%, and - 11.23% respectively, still at a relatively low level in the past three years [8]. - **Driving Factors**: The main fluctuations in April came from the overseas tariff event on April 7, when IC and IM hit the limit down, and the hedging demand shifted to large - cap varieties, causing the basis of IH and IF to decline significantly. The change in the capital side was also an important factor. Due to the policy of restricting institutional stock sales, the basis of each variety declined rapidly on April 11, and the estimated impact scale on the futures side was about 30 - 40 billion [13][15]. - **Product - Side Changes**: Index ETF shares increased significantly, and index - enhanced products were newly issued at a relatively fast pace in April. The neutral strategy had stable performance, with a median return of about 4% and a maximum drawdown of about 1% since this year. The expiration peak of over - the - counter option products has passed, and the impact on the futures market has basically ended [5]. - **Future Outlook**: Currently, IH and IF are slightly discounted, and the potential increase in new - share subscription hedging demand has limited directional impact on the basis. The inflow of long - term funds from insurance may drive the basis of these two varieties to rise. For IC and IM, the deep discount is likely to converge as the over - the - counter option drive disappears and the neutral strategy cannot support a higher discount level [22]. 2. Long - Position Rollover Performance Review - **Performance Data**: As of April 2025, the annualized yields of the long - position rollover strategy for IF, IH, IC, and IM in the past 250 trading days were - 0.8%, 3.6%, 7.5%, and 8.9% respectively; the benchmark portfolios were 3.0%, 3.3%, 6.1%, and 12.3% respectively; the excess returns were - 3.9%, 0.3%, 1.4%, and - 3.4% respectively [26]. 3. Short - Position Rollover Performance Review - **Performance Data**: As of April 2025, the annualized yields of the short - position rollover strategy for IF, IH, IC, and IM in the past 250 trading days were - 4.8%, - 5.2%, - 6.5%, and - 12.2% respectively; the benchmark portfolios were - 3.6%, - 3.9%, - 6.7%, and - 12.1% respectively; the excess returns were - 1.1%, - 1.3%, 0.2%, and - 0.2% respectively [28].