Leveraged betting against India assets to launch in Hong Kong

PUBLISHED : Wednesday, 20 July, 2016, 9:37pm
UPDATED : Wednesday, 20 July, 2016, 10:46pm

CSOP, the offshore asset manager of mainland based China Southern Asset Management, on Wednesday introduced the first derivative products that enable investors in Hong Kong to bet for and against the Indian market, after the city’s regulator approved leveraged and inverse (L&I) products earlier this year.

The new products are due to start trading on the Hong Kong Stock Exchange from Thursday, and will be derived from the Nifty 50 Index, the most widely used exchange traded fund (ETF) in India.

One of the offerings, the CSOP Nifty 50 Daily Leveraged Product (ticker 07202), corresponds to twice the daily performance of the Nifty 50 Index, while the CSOP Nifty 50 Daily Inverse Product (ticker 07335) corresponds to one times the inverse daily performance of the index.

Alvin Li, CSOP senior associate, said the leveraged and inverse products aim to deliver respectively twice or the opposite of the index return on a daily basis only.

“However, if an investor hold the products for a period longer than one day, the cumulative returns could vary significantly from the multiple or the opposite performance over a longer period due to the compounding effect,” he said, adding it is more suitable for short-term investment compared to traditional ETF products.

Both Hong Kong and Singapore this year approved rules for L&I ETFs, which are popular in Japan, Taiwan and South Korea. Average daily turnover of these kinds of products accounted for 85 per cent of traditional ETF turnover on the Japanese market in December, CSOP’s research shows.

Melody He, an executive director from CSOP, said the total turnover of ETFs in Hong Kong accounted for roughly 10 per cent of the average daily turnover, while trading of L&I is even smaller.

She said they were considering using underlying benchmark indicesin mainland and Hong Kong, but the progress depended on the regulatory stance from the Securities and Futures Commission, which is due to launch a review of L&I products by the end of this year.

Hong Kong’s current rules allow for two times leverage and one times inverse betting.

Samsung Asset Management launched the first L&I products in Hong Kong in mid June, based on underlying stock indices in Japan and South Korea.