Mirae Asset Global Investments, Samsung Asset Management, CSOP and China Asset Management, all of which already have leverage and inverse (L&I) products listed on the Hong Kong Exchange (HKEx), will expand their offering on Tuesday, March 14 with the listing of new L&I products tracking the Hang Seng Index (HSI) and the Hang Seng China Enterprises Index (HSCEI).
The move from the four asset managers follows the exchange's decision to broaden the pool of eligible L&I underlyings to include domestic equity and other non-equity indices.
L&I products fill a market niche for investors looking for mild leverage, unlike the popular and highly-leveraged warrants and callable bull-bear contracts (CBBCs) in Hong Kong that offer 15x and higher gearing, according to David Tsoi (pictured), ETF analyst at the Hong Kong ETF division of Mirae, whose Topix and S&P 500 L&Is accounted for 48% of the total L&I trading volume since they were listed on October 11, 2016. "We expect higher interest in the home index-based products," said Tsoi. The HSI has seen spectacular rises in the last few months and, even though sentiment is now normalising, HSI and HSCEI L&I products are expected to be in demand, according to Tsoi.
L&I products will play a core role in Mirae's Hong Kong strategy for 2017 and, as the products are new to Hong Kong investors, a lot of effort will be put into market education, according to Tsoi. "With about 500 brokerages in Hong Kong, it will take a significant effort in going to branches, organising seminars and speaking to investors, so we expect that it will take some time for L&I products to gain traction in Hong Kong," said Tsoi. "It took about six months to one year for these products to get up to speed in Japan, Taiwan and Korea, where they are now a dominant force on ETF markets."
This year, the trading of leverage products accounted for 72% of L&I aggregate average daily turnover, while the Topix has been the most popular underlying, with 30% of trade coming from products on the Japanese benchmark; Nasdaq was second with 23%.
Including ETFs in the Mainland China-Hong Kong Connect scheme would be welcomed, although it will take time for regulators to agree on the framework, and then for asset managers to begin marketing efforts and develop distribution channels, according to Tsoi.
HKEx said last year that it is working with its Mainland counterparts to include ETFs in the Connect Programme to 'provide additional investment opportunities for South bound investors'.
L&I products were introduced in Hong Kong in 2016, and there are 13 listed on the HKEx, including two pairs on Japan's Topix, one pair each on the S&P 500, Nasdaq 100, Kospi 200 and Nifty 50, as well as an 'enhanced investment' leverage product on the FTSE China N Shares All Cap Capped Net Tax Index. These products return either twice the performance of the underlying or the inverse of its performance, and are designed to be held for no more than a day for trading and hedging purposes.
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