New futures contracts that will specifically track a large number of Asian companies are expected to soon be made available on the Hong Kong Exchange.
Hong Kong Exchanges & Clearing Ltd. (HKEX) has partnered up with MSCI Inc., a noted index compiler to create them these new Asian futures contracts.
This will provide a big boost to the exchange as it tries to increase its derivative market presence. It also provides a foothold for international investors to Chinese equities.
The plan is to develop futures that are tied to the MSCI AC Asia ex-Japan Index. This index already tracks 650 companies in Asia without focusing on the Japanese market.
If things go as per plan, then HKEX will have a new product that goes beyond its usual offerings of Hong Kong and China stocks. It will also be a big step for MSCI since it hasn’t had a listed future in Hong Kong for more than a decade.
In a statement, Jeffrey Ng, HKEX spokesman said
HKEX is constantly exploring ways to expand our suite of derivative products, including futures contracts, to meet market demand. HKEX will update the market when there are further developments.
HKEX’s CEO Charles Li has plans to improve the derivatives market on the exchange. Its closest competitor, Singapore Exchange Ltd., offers futures from all over the world, something that HKEX does not fully match. Right now, HKEX receives only 18 percent revenue from its derivatives, while Singapore can boast that 38 percent of its revenue comes from derivatives.
The release of this new product is still not scheduled though. It will still need regulatory approval before everything is finalized.
MSCI’s Move Into China
MSCI also stands to benefit from this partnership. The New York-based indexing firm recently fast-tracked it’s weighting for its emerging markets index, which can influence trillions of dollars in funds. The weighting will now finish November 2019 instead of May 2020.
When it is finished, the MSCI China A Index will have 421 large and mid-cap stocks. Besides having futures allocated to it, the stocks themselves will be available at Shanghai and Shenzhen exchanges. However, the important thing is that it will also be available on the Hong Kong exchange.
Experts say that with the addition of futures, MSCI will have one of its concerns addressed. Earlier this month, the indexing firm noted that the Chinese market lacked equities futures contracts to help fuel trading. With the inclusion of futures, an additional 3.3 percent will be added to the index in November. This can mean billions of new dollars entering the Chinese stock market.