Hong Kong sees first leveraged and inverse exchange-traded funds amid volatile market

PUBLISHED : Monday, 13 June, 2016, 8:30pm
UPDATED : Monday, 13 June, 2016, 8:30pm

Hong Kong now has its first leveraged and inverse exchange-traded funds after South Korea’s Samsung Asset Management listed four products on the city’s stock exchange.

The ETF products are expected to be popular amid continuing volatility in the local market, providing investment tools focused on short term opportunities.

Samsung AM launched four L&I products including the Samsung KOSPI 200 Daily (2X) Leveraged Product, Samsung KOSPI 200 Daily (-1X) Inverse Product, Samsung TOPIX Daily (2X) Leveraged Product and Samsung TOPIX Daily (-1X) Inverse Product. They began trading on the Hong Kong stock exchangeon Monday.

Among the four, one pair of ETFs provides exposure to South Korean equities and the other pair tracks the Japanese stock market. Leveraged ETFs use derivatives to deliver multiples of the performance of the indices or benchmarks they track, while inverse ETFs use derivatives to profit from the decline in value of the indices they track.

Joe Yip, Samsung AM’s associate director of marketing for the ETF and index team, expects the new products will be popular among Hong Kong investors. “Investors are usually more willing to accept new products in a bearish market because they are searching for new investment tools,” said Yip.

We will continue educating Hong Kong investors so that they are well aware of the advantages and risks of these L
Koo Sung-hoon, Samsung Asset Management

However, he also warned of potential losses for anybody putting money into L&I funds in a volatile market as these products are not suitable for all investors.

“[They] are not intended for holding longer than one day,” he explained. “There may be an investment opportunity when you see an obvious trend in the index that the L&I products track.”

Koo Sung-hoon, chief executive of Samsung Asset Management, said the demand for short-term investment tools from Hong Kong investors is increasing due to the lingering market volatility. “The new ETF funds will provide investors with a wider range of product choices, enabling them to navigate the market volatility with multiple investment tools including short-term focused tools,” Koo said. “We will continue educating Hong Kong investors so that they are well aware of the advantages and risks of these L&I products.”

Hong Kong’s Securities and Futures Commission (SFC) gave the go-ahead to the products in February this year, but allows only ETFs tracking “liquid and broadly based non-Hong Kong, non-mainland foreign equity indices”.

Yip expects leveraged and inverse products will generate more interest from investors if Hong Kong equity indexes are allowed because investors are more familiar with local markets.