Hong Kong Exchange and Clearing Ltd (HKEX) yesterday launched a new futures contracts scheme, making it easier for international investors to bet on mainland Chinese stocks and providing a much-needed boost for the territory’s underperforming bourse.
The launch is something of a blow for Singapore which, until now, had a monopoly on Chinese futures.
HKEX chief executive officer Nicolas Aguzin called the new product a milestone, saying that Hong Kong continues to be a channel for global investors to access the Chinese market.
Goldman Sachs Group Inc analysts wrote late last month that the “HKEX A50” futures scheme would become the “biggest offshore traded A-share equity futures product over the medium term.”
The product could add about 5 percent to HKEX’s revenues by 2025, although trading volume for MSCI index-based futures is typically “negligible” for the first two years, they added.
Analysts believe it would take years for Hong Kong to catch up with Singapore given its head start on the market.
While Singapore provides investors better liquidity, fewer holidays and a mature offshore derivatives ecosystem, Hong Kong has a stock trading link with mainland China and the underlying index the contracts would use has more balanced sector weightings, they said.
Hong Kong’s A50 futures product mirrors the sector weight allocation of the MSCI China A Index, which tracks the performance of 50 key Shanghai and Shenzhen stocks available via a Stock Connect scheme. Singapore’s product, which was launched in 2006 and had no direct competition, tracks the FTSE China A50 Index.
Singapore’s competing Chinese futures product benefits from lower fees than Hong Kong, said Michael Syn, head of equities at Singapore Exchange Ltd.
Singapore’s exchange also does not “shut down when a typhoon hits,” he said.
The Singapore bourse has built its derivatives product on this gauge and an expansion of the index could pave the way for it to increase exposure to the market, Syn said.
For the HKEX, the new futures contract offers a much more cost-effective alternative to existing China A-share hedging solutions, such as swaps and other listed A-share index derivatives, a spokesperson at the bourse said in an e-mail, adding that the exchange “looks forward to continuing to develop Hong Kong’s leading position as Asia’s derivatives hub.”
Additional reporting by Bloomberg
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