HONG KONG, Oct 18 (Reuters) - Hong Kong's new futures
product based on an index of onshore Chinese shares, which began
trading Monday, had the highest first-day trading value of any
new futures launched on the Stock Exchange of Hong Kong,
according to the bourse.
The data underscore the demand from investors in China for
hedging tools during the current market volatility and also mark
the start of a new front in the battle for derivatives dominance
between exchange operator Hong Kong Exchanges and Clearing
and Singapore Exchange, whose rival China
derivatives product currently dominates the market.
HKEX's MSCI China A 50 Connect Index Futures, which track a
new index of 50 A-shares - Chinese stocks traded onshore, saw
1,395 contracts traded on Monday with a notional value of $93.5
million, according to a company spokesperson.
This figure was the highest for the first day of any new
futures contract traded on the exchange, he said.
International investors have been increasing their exposure
to onshore-listed Chinese stocks in recent years, but often
complain that they have limited access to derivatives products
like futures to manage their risk.
This has become particularly relevant during recent months,
as Chinese policymakers have launched a series of crackdowns on
sectors from technology to property that have roiled Chinese
"With global investors' China exposure growing, changes in
China's regulatory policies are having bigger and bigger impacts
on their portfolios, so the demand to manage such risks more
accurately is on the rise," said Wei Zhen, MSCI's head of
Asia-Pacific Index Solutions Research, adding the new product
would help investors hedge short-term regulatory risks.
In addition, China's securities regulator gave the green
light on Monday to four Chinese mutual fund managers to launch
exchange-traded funds based on the new A 50 Connect Index.
However, SGX's rival long-standing FTSE China A50 futures
had an average daily notional value of $7 billion in September,
dwarfing Hong Kong's first day-volumes.
"It is still very early days, it generally takes time to
develop liquidity for a new product, and even the rest of Hong
Kong's MSCI derivatives contracts are still ramping up," said
Michael Wu, an analyst at Morningstar.
The exchanges are increasingly competing for business as
HKEX seeks to diversify its revenues from fees from cash equity
trading into derivatives, SGX's traditional strength.
HKEX launched new derivatives' contracts with MSCI last
year, after the index provider ended its long running
partnership with SGX, but SGX held onto much of the trading
volumes by launching equivalent products with FTSE, another
"In this first 'battle' SGX was able to defend its Asia
derivatives market share," said analysts at Citi in a note.
As for the new China products, "the stakes are high for SGX
given that China A50 drives over 40% of derivatives volumes. ...
We fear over the next 6-12 months SGX derivative revenue could
come under pressure if HKEX attempts to engage in a China A50
(Reporting by Alun John in Hong Kong and Samuel Shen in
Shanghai, additional reporting by Anshuman Daga in Singapore;
editing by Mark Heinrich & Shri Navaratnam)