Hong Kong to see strong growth in leveraged and inverse ETFs – Cerulli

By Imogene Wong

Added 30th March 2016

Leveraged and inverse Exchange-traded Funds, which are expected to be launched in Hong Kong later this year, are likely to boost trading in ETF products in the territory, according to research firm Cerulli Associates.

Hong Kong to see strong growth in leveraged and inverse ETFs – Cerulli

After Taiwan introduced structured ETFs in September 2014, daily average trading volume of ETFs in Taiwan rose by 45% in 2015 to 299.5 million units, the firm said, adding that Hong Kong could expect a similar surge in trading activity.

But, Cerulli said, because Taiwan has first mover advantage, it expects the country to continue to set the pace between the two jurisdictions for future developments in the space.

“Hong Kong continues to be behind the curve in developments in the ETF space compared to Taiwan,” it added.

Cerulli also expected the talent hunt for ETF specialists in Hong Kong to intensify if leveraged and inverse ETFs take off.

Leveraged ETFs aim to amplify the gains of the underlying index, while the inverse type of ETFs try to generate returns when the benchmark suffers a loss.

Korea-based Samsung Asset Management and Mirae Asset Management have already expressed interest in bringing over similar products from their home market to the SAR.

South Korea and Japan are the two other Asian countries that introduced the products in 2011 and 2012 respectively.

The local regulator said in a February circular that it will restrict leveraged products to have a maximum leverage level of two times. No leverage is allowed for inverse ones. Such products will be applicable to non-mainland and non-Hong Kong indices at the first stage.

It will consider extending to Hong Kong equity indices after a six-month review, but SFC noted there is no plan to include mainland indices.

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