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Enoch Yiu

Retail investors are expected to react modestly to the debut of the MSCI China Free Index futures today amid weak market sentiment, according to brokers.

But they believe the new futures products will be more popular than two exchange-traded funds launched by Hong Kong Exchanges and Clearing (HKEx) last Wednesday.

Eugene Law, executive director and chief operating officer of Celestial Asia Securities, said the China futures would be more attractive to local investors than the regional market contracts.

'Local investors are much more familiar with the China-related stocks than with the stocks listed in Taiwan and South Korea,' he said.

'I think the debut of the China futures contracts today will not be too exciting, but at least it will have more turnover than the two exchange-traded funds.'

The two regional exchange-traded funds had a total of only 22 transactions, worth US$1.91 million, on the first day of trading on Wednesday.

The MSCI China Free Index Futures is the first new futures product introduced by HKEx this year.

The initial margin for the new futures product is HK$27,500, which is how much investors need to pay to trade the contract.

The new contract is traded on the MSCI China Free Index, compiled by Morgan Stanley Capital International (MSCI) and which traces the performance of 30 stocks - 14 H shares, 14 red chips and two B shares.

H shares are the shares of state-owned enterprises listed in Hong Kong. Red chips are mainland-backed companies incorporated in Hong Kong, and B shares are stocks listed on the Shanghai and Shenzhen stock markets and traded by foreign investors and mainland investors with foreign-currency deposits.

China Mobile will dominate the index, representing 61.55 per cent of its weighting, followed by Citic Pacific (11.95 per cent) and Legend Holdings (5.64 per cent).

As of December 29, the 30 companies had a market capitalisation of US$66.04 billion.

Fred Grede, chief operating officer of HKEx, said the new China contract would provide a hedging tool for international investors to manage a portfolio of China-related stocks.

With China expected to join the World Trade Organisation this year, the exchange expected mainland stocks to become a focus for international investors.

'These investors would require a hedging tool for their China stock portfolio. As a result, we think the timing is right to provide the China index futures,' Mr Grede said.

He said HKEx wanted to encourage institutional and retail investors to trade the new futures contracts.

David Friedland, managing director of online futures broker Interactive Brokers said: 'There is a lot of potential in the new contracts. It will be an ideal hedging tool for anyone who has invested in China-related stocks.'

However, he believed the trading volume of the China futures contract might disappoint at the outset.

'It would usually take some months for investors to learn about the new products before they invest in them,' he said.

Choi Chen Po-sum, chairman of the Institute of Securities Dealers, also believed investors would take a wait-and-see approach to the new futures contract.

'The overall stock-market sentiment is not very good at the moment, and the market turnover is not particularly high in recent months,' she said.

In the first quarter, Hong Kong trading turnover dropped almost 51 per cent year on year. The benchmark Hang Seng Index dropped almost 15 per cent during the first quarter.

'Under such market conditions, we should not expect the new futures contract to have a very high trading volume,' Mrs Choi said.



Brokers expect them to be more popular with investors than the new exchange-traded funds