New futures contract launched in Hong Kong
Product will keep track of domestic firms listed in HK and mainland
Hong Kong Exchanges and Clearing on Wednesday unveiled a new stock index futures contract tracking mainland companies listed in Hong Kong and on the mainland.
The new futures contract, trading of which starts on Aug 12 on the HKEx, follows the CES China 120 Index, which is maintained by China Exchanges Services Co Ltd. Launched at the end of last year, CES is a joint venture between China’s three stock exchanges: HKEx, Shanghai Stock Exchange and Shenzhen Stock Exchange.
The new product was launched to create synergy between the three exchanges. Options on the same underlying index are in the pipeline.
“The new product marks a milestone for the three exchanges’ cooperation. Going forward, we will see more fruitful gains emerging from the cooperation,” said Charles Li, HKEx’s chief executive.
The CES China 120 Index comprises the 80 largest A- share companies on the Shanghai and Shenzhen stock exchanges, as well as the 40 largest companies on the HKEx, including H-share companies and red chips. H-shares are companies incorporated in the mainland and listed in Hong Kong. Red chips are companies based in China, incorporated elsewhere and listed in Hong Kong.
Most heavily weighted constituents include China Construction Bank Corp, China Mobile Ltd, Tencent Holdings and China National Offshore Oil Corp.
Calvin Tai, co-head of equities, fixed income and currency in HKEx’s global markets division, said the product will help investors optimize their China equity exposure.
“Investors can trade this one product and have exposure to Chinese equities in both Hong Kong and on the mainland. Before, they would have had to buy a combination of products to achieve that goal,” said Tai.
The CES China 120 Index has slumped around 12 percent in 2013 as a reflection of China’s slowing growth. The index stood at 3,720 points on Aug 1. The contract value is HK$186,000 (about $24,000) based on the index on Aug 1. Minimum fluctuation is set at 0.5 of an index point. HKEx will offer futures expiring in August, September, December and March. There will be no commission levy on the products for the first six months of trading.
The new product comes on the back of ever-growing market demand for China exposure in light of China’s growing economic strength. The average daily trading volume of HKEx’s H-shares index futures jumped by more than 100 times over the past 10 years. Market capitalization of H- share companies grew more than 23 times over the past decade to HK$4,211 billion at the end of June this year. Red chips saw their market capitalization increase fivefold.