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Hong Kong regulator okays China A-shares leveraged and inverse products

By Asia Asset Management  
May 28, 2020

Hong Kong’s securities regular is allowing asset managers to introduce leveraged and inverse (L&I) products that track China A-shares.

An inverse product uses derivatives to produce a daily return that is the opposite of an underlying benchmark, while a leveraged product is used to amplify the movement of the benchmark.

Asset management companies were restricted to offering products tracking US, Hong Kong and some other Asian benchmarks when the Securities and Futures Commission (SFC) first approved them in 2016.

The underlying benchmarks will now be expanded to other indices, including benchmarks for A-shares, or stocks of Chinese companies listed in Shanghai and Shenzhen, the regulator says in a circular on May 22.

The regulator didn’t specify the other indices that are now allowed.

For A-shares inverse products, the maximum leverage must be equivalent to the opposite of the underlying benchmark’s daily return, the SFC says. It set the maximum for A-shares leveraged products at twice the benchmark’s daily return.

There are now 24 L&I products listed in Hong Kong, benchmarked against indices such as the Hang Seng Index, Hang Seng China Enterprise Index and the MSCI China Index.

According to a spokesperson for CSOP Asset Management, assets in Hong Kong’s L&I market could jump to as much as US$3 billion within a few years from the current $1-plus billion now that the SFC has relaxed the requirements.

CSOP and its rival China Asset Management (Hong Kong) are among the Chinese exchange-traded fund managers based in Hong Kong who are keen to launch L&I products based on A-shares.

“The A-share L&I products are expected to come to the market as early as August…The company has been preparing for the launch of such products,” the CSOP spokesperson tells Asia Asset Management (AAM).

China Asset Management (Hong Kong) plans to roll out both leveraged and inverse products to meet investor demand following the inclusion of A-shares into global benchmarks, Frederick Chu, the company’s head of ETFs, tells AAM.

“Currently, investors have little options to hedge against A-share market risks. They may need to buy Singapore’s A50 Index futures to protect their positions from downside risks. The inverse product will provide them with more risk-hedging choices,” he says.