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Innovative A-share leveraged inverse ETF is coming

Fang submitted 2020-08-10 11:48:00

Innovative products! A-share leveraged inverse ETF is coming.

The Hong Kong subsidiary of public funds that went overseas in 2008 continued to be rooted in market demand and innovate. Recently, A-share positive and negative leveraged products appeared in the Hong Kong market for the first time, which has attracted widespread attention under the recent market fluctuations.

A reporter from China Fund News understands that products such as positive and negative leverage for the CSI 300 Index are currently appearing in the Hong Kong market. At present, at least two Hong Kong subsidiary funds are deploying such products. CSOP CEO Ding Chen predicted that the current market demand for such products is huge. It is estimated that in the next one to two years, the total scale of China's A-share leveraged inverse products market will exceed 3 billion US dollars.

Usher in A-share hedging tools

Previously, for A-share hedging products, there were warrants and CBBCs in the Hong Kong market, but the operation of warrants and CBBCs was complicated. This time, the first batch of Chinese A-share leveraged inverse products appeared in the Hong Kong market, which attracted market attention.

According to the reporter’s understanding, among the first batch of China’s A-share leveraged inverse products, CSOP CSI 300 Index Daily Leverage (2x) products and CSOP CSI 300 Index Daily Inverse (-1x) products were released on July 27. The product was approved on July 22. Huaxia Fund (Hong Kong) Co., Ltd. also released Huaxia Direxion CSI 300 Index Daily Inverse (-1x) products and Huaxia Direxion CSI 300 Index Daily Leverage (2x) products. The approval date is July 24.

From the point of view of the name, the daily leveraged (2x) product of the CSI 300 Index refers to a return that closely follows and doubles the daily performance of the CSI 300 Index. If the CSI 300 rose 1% on that day, then the product increase should be 2%; and the daily inverse (-1x) product of the CSI 300 index is a return that closely follows the reverse daily performance of the CSI 300 index, which means that if the CSI 300 declines by 1% on that day, then The product rose by 1%.

According to a relevant person in CSOP, the two leveraged products of CSOP adopt a synthetic simulation strategy based on swaps to achieve investment goals. The current transaction price of these two products is 7 HKD, each transaction is 100 lots, and the entrance fee is about 700 HKD. As the first batch of Chinese A-share leverage products in Hong Kong, these two products attracted a total of approximately US$270 million in initial investment at the beginning of their establishment.

Talking about the original intention and difficulties of designing A-share leveraged inverse products, a relevant person in CSOP said that China’s A-shares is the world’s second largest stock market, but because China’s capital market is not fully open to international investors, China’s offshore market has limited financial derivatives related to China A shares, which limits the willingness of international investors to invest in China A shares. Although Chinese A-share-related leverage products have been listed in the United States and other Asian regions, due to differences in trading hours and market access restrictions, these issued Chinese A-share leverage products have certain limitations. CSOP's launch of China A-share leverage products in Hong Kong will enable global investors to easily, efficiently and flexibly amplify the performance of A-shares and hedge the downside risks of China's A-shares. "Because A-share leveraged inverse products use swap contracts to achieve their investment goals, product design is particularly important. The selection of swap contract counterparties, the design of product holding structures, and the control of product operating costs are the product’s difficulties and core."

In addition, there are other Chinese-funded institutions in the Hong Kong market that also deploy A-share leveraged inverse products. Cai Fengyi, Executive Director of the Investment Products Department of the Securities and Futures Commission of Hong Kong, said, “A-share leverage products will help meet investors’ increasing demand for hedging and risk management tools in the A-share market. The listing of A-share leverage products is an important milestone in Hong Kong’s asset management industry."

A-share leveraged inverse products bring new gameplay

A-share positive and negative leveraged products in the Hong Kong market have brought many new ways to institutional investors and ordinary investors. For example, A-shares are mainly retail investors, showing the characteristics of chasing ups and downs. When the market continues to rise, or the proportion of financing rises sharply, when these long signals appear, buy leveraged products to amplify returns. When the market continues to fall, or the financing ratio shrinks significantly, you can buy inverse products to hedge against risks at this time.

At the same time, A-share bulls are short and bears are long, and the short-term trend is rising. Leveraged products can double the income. In the long-term volatile bear market, the flexible application of leveraged products and inverse products can also be used to seek bilateral opportunities.

In addition, A-share market have a certain premium over H-share market. When the premium is at a low level, A-share leveraged products + H share inverse products can be bought for arbitrage. When the premium is high, the opposite strategy can be used to deploy.

However, it is worth mentioning that although A-share positive and negative leveraged ETF products can realize hedging, etc., some risks need to be paid attention to. First, the trading hours of Hong Kong stocks and A shares are different. The trading time of Hong Kong stocks is longer than that of A shares. Therefore, when A shares are closed, the price of A-share leveraged inverse products traded in Hong Kong stocks may appear due to market expectations. Deviation in net worth.

Second, in the extreme cases of A-shares experiencing significant changes, such as the daily limit, the price of the A-share leveraged product may also experience a significant discount or premium.

Third, leveraged inverse products also need to pay attention to issues such as product compound effects.

In addition, since the cost of swap transactions is higher than that of stock index futures, the tracking error of A-share leveraged inverse products may be larger than that of HSI leveraged products.

A-share positive and negative leveraged products have huge space

There is huge room for A-share positive and negative leveraged products. CSOP CEO Ding Chen said, “In view of the huge market demand, we are confident in the listing of China’s A-share leverage products. We estimate that in the next 1-2 years, the scale of China’s A-share leverage products will be as large as the existing ones. The HSI Index Leverage product scale is 2 to 3 times larger, and the total scale will exceed US$3 billion."

Hexian, the head of sales and product strategy of CSOP, said that the CSI 300 Index is the first tracking index for CSOP's China A-share leverage product. In the future, there will be more leverage products that track other China A-share indexes, enriching China's A-share leverage product line. It is hoped that there will be more and more A-share ancillary products in the offshore market in the future to attract more global investors to invest in China A-shares and promote the healthy development of China A-shares.

Many overseas investors are also optimistic about the long-term investment value of A shares. According to people from the South East and the British, the new coronavirus epidemic broke out globally in 2020, and China is the first country to get out of the epidemic. This is undoubtedly the biggest short-term benefit for A shares. Moreover, A-shares have experienced bottom volatility for many years and have been maintained at a very low valuation level. Now they are also beginning to rise strongly. Indices such as the Growth Enterprise Market have ranked first in the world this year. The rising level of financing and the cyclical rise of the sector all point to the short-term upward trend of A shares. In the medium and long term, A-shares, as the world's second-largest stock market, and China, as the world's second-largest economy, are seriously underweight in the asset allocation of global investors. As A-shares are gradually included in major global indexes, the proportion of A-shares in the global investor allocation table has steadily increased. Despite the recent deterioration in Sino-US relations, it is still believed that the medium and long-term investment value of A-shares will gradually become prominent.

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