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HKEX to launch first A-share derivatives product – The Asset

Hong Kong Exchanges and Clearing Limited (HKEX) is set to launch its first A-share derivatives product, which aims to provide international investors with a new risk management tool for their A-share portfolios under the Stock Connect scheme.

The Hong Kong market operator has entered into a licence agreement with index provider MSCI to launch a futures contract based on the MSCI China A 50 Connect Index, which tracks the performance of 50 key Shanghai and Shenzhen stocks available via Stock Connect. The offshore sector-balanced China A-share index futures product will be launched on October 18.

Chief executive officer Nicolas Aguzin says the launch of the futures product is part of HKEX’s plans to build an offshore mainland China equities derivatives suite in Hong Kong and develop the city as Asia’s premier derivatives hub.

“As the global markets leader in the Asian time zone with a unique role connecting China and the world, we believe this new product will act as a key risk management tool for investors in managing their A-share equity exposure,” says Aguzin.

Henry Fernandez, MSCI chairman and CEO, adds: “The importance of China in global investment portfolios is growing, evidenced by the country’s market capitalization weight in the MSCI Emerging Markets Index increasing from 18% in December 2009 to 34% in August 2021.

“The investment industry is undergoing significant transformation and investments are becoming more complex and diversified, leading to a rise in demand for enhanced trading and risk management solutions. As part of our commitment to empowering global investors to better manage their portfolios, we are very pleased to expand our partnership with HKEX through this new licence agreement.”

The new agreement will add to the suite of MSCI Asia and Emerging Market futures and options launched by HKEX last year, and underscores the ongoing strategic partnership between MSCI and HKEX. The Hong Kong exchange has already launched a total of 41 derivatives based on MSCI indices.

The MSCI China A 50 Connect Index is designed to have a comprehensive representation of the Chinese economy by including 50 stocks of the largest stocks in the China A-share large-cap universe, and by targeting at least two stocks from each sector. The index comprises 50 Stock Connect-eligible underlyings and historically has a high correlation to the performance of main MSCI A-share indices.

Since its launch in 2014, Stock Connect, the landmark mutual market access programme linking the Hong Kong and mainland China equity markets, has become the key channel for international investors to access the A-shares market and has helped facilitate the inclusion of Chinese A-shares into key global indices.

Stock Connect trading volumes reached fresh records in the first quarter of 2021, with average daily turnover of northbound and southbound trading significantly increased to 126.8 billion yuan (US$19.52 billion) and HK$60.8 billion (US$7.8 billion) respectively.