Mirae Asset Global Investments launched two pairs of leveraged & inverse (L&I) products in Hong Kong earlier this month, as asset managers vie to place themselves in this new part of the market.
Mirae's products are linked to the S&P 500 and Japan's Topix indices. The Mirae Asset Horizons S&P 500 Daily (2x) Leveraged Product and the Mirae Asset Horizons S&P 500 Daily (-1x) Inverse Product aim to produce double the daily performance and the inverse daily performance of the S&P 500, respectively, while the Mirae Asset Horizons Topix Daily (2x) Leveraged Product and the Mirae Asset Horizons Topix Daily (-1x) Inverse Product aim for the same goals but on Tokyo's Topix.
Hong Kong's Securities and Futures Commission (SFC) only allowed L&I products, which are the same as L&I exchange-traded funds (ETFs) that are found in other markets, in February of this year. The SFC also allows only "liquid and broadly based non-Hong Kong, non-mainland foreign equity indices" as underlyings.
"There are now 12 L&I products listed in Hong Kong... [but] their trading volume now is relatively small compared to the entire Hong Kong ETF market," said David Tsoi (pictured) of the Hong Kong ETF division at Mirae Asset Global Investments. "It will take time for retail investors to be conversant with L&I products," said Tsoi.
"We believe the key to the success of L&I products in Hong Kong is investor education," said Tsoi. "Mirae Asset will use its extensive ETF experience in South Korea and other overseas markets, like Canada and Australia, to educate Hong Kong investors so that they are well aware of the advantages and risks of L&I products."
L&I ETFs have been extremely popular in other big regional markets. In Korea, one of the biggest L&I markets in Asia, retail investors first traded L&I products actively and moved into plain vanilla ETFs afterwards. Tsoi noted that the spectacular 45% increase in Taiwan ETF trade last year was driven primarily by the inclusion of L&I offers to the market. "We believe the successful launch of L&I products in Korea, Japan and Taiwan can be repeated in Hong Kong as well," he said. "We expect L&I products will generate more interest from investors if Hong Kong equity indexes are allowed as investors are more familiar with local markets."
Mirae's S&P 500 L&I products are based on swaps, rather than futures, like all other L&I offers in Hong Kong, as this allows the company to avoid operating a night desk for trading S&P 500 futures, according to Tsoi.
Samsung Asset Management, the biggest ETF provider in Korea, launched the maiden L&I products in Hong Kong in June, with leveraged and short offers on the Kospi and Topix.
In Hong Kong, the product offering for ETFs is quite varied and diverse, but, in terms of trading volume, the most commonly traded products are Hong Kong and China-related ETFs. There are 183 ETFs listed on the Hong Kong Exchange (HKEx), with total assets under management (AUM) of HK$430.1bn (US$55.5bn) as of the end of August, according to HKEx.
Monthly ETF turnover in August totalled HK$112.8bn, and the average daily turnover in the year-to-date as of the end of August was HK$4.44bn.
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