Hong Kong’s markets regulator has given approval for the first leveraged and inverse exchange-traded funds, and the first mover will be Korea's Samsung Asset Management, as tipped by AsianInvestor last month.
The fund house will list the first L&I products on the Hong Kong exchange next Monday (June 13), and the first four of which will provide exposure to Japanese and Korean indices.
This will come as welcome boost for asset managers, after concerns had been voiced that Hong Kong was lagging as a regional ETF hub. But as regional wealth managers have pointed out, investors must be educated on the use of L&I products to ensure they understand how they differ from mainstream ETFs, or they risk big losses.
Peter Lee, head of global strategy for ETFs at Samsung AM, told AsianInvestor: "We are very excited about the launch, but also know there is much to be done to make the products a success.”
The products being listed by Samsung are Kospi 200 Daily (2X) Leveraged and Kospi 200 Daily (-1X) Inverse ETFs, and Topix Daily (2X) Leveraged and Topix Daily (-1X) Inverse.
The regulatory approvals came much earlier than had been expected some months back. Originally it was thought the first funds would not get the go ahead until October. But last month, Samsung AM and their advisers, law firm Simmon & Simmons, indicated that approval was imminent.
Like many observers, Lee does not expect the market to really take off until Hong Kong’s Securities and Futures Commission (SFC) opens the authorisation process to funds linked to Hong Kong and Chinese indices.
He told AsianInvestor that Samsung hoped to build out its L&I product range in Hong Kong with fixed income, commodities, thematic and smart-beta products. He expects rival firms to offer regional and global funds initially, then country-focused funds.
“Once we have a few of these products in the market, I expect you will see funds offering exposure to North America, Japan, Korea, Southeast Asia, even India,” said Lee.
Other firms considering listing L&I funds in Hong Kong include Korea's Mirae Asset, Hong Kong firms CSOP and EIP, Beijing-based China Asset Management and US firm Direxion.
L&I products are being introduced in two phases in Hong Kong to allow investors time to familiarise themselves with them and to allow the SFC to monitor their potential impact.
In the first phase, the regulator is only willing to look at indices excluding Hong Kong and China, so initial products are likely to reference major benchmarks such as MSCI World, S&P 500, Nasdaq 100, FTSE 100 or Nikkei 225.
“The market is expecting Hong Kong products, so nobody is concerned that the SFC will not allow them, and obviously there’s a natural home bias,” said Lee.
He added that being a first mover would hopefully work in favour of Samsung and the other early players when it came to partnering with index providers and gaining regulatory approval in the second stage.
Meanwhile, Singapore's bid to carve out a share of the south Asian ETF L&I market has failed to get off the ground, with no fund managers currently deeming the market worth the effort.