Shares in Hong Kong bourse rally after Chinese stock futures approved

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Derivatives updates

Shares in the operator of Hong Kong’s bourse rallied after it was cleared to offer index futures for mainland Chinese shares, an important hedging tool that could broaden the exchange’s appeal to international investors.

Hong Kong Exchanges and Clearing’s stock rose as much as 6.8 per cent on Monday after it said late on Friday that the operator had signed an agreement with indices provider MSCI to launch a futures contract based on the MSCI China A50 Connect index. The gauge tracks Shanghai- and Shenzhen-listed stocks that are available to trade through market link-ups with Hong Kong.

The futures will begin trading on October 18 after a more than two-year wait for approval from regulators in Hong Kong and Beijing.

Nicolas Aguzin, chief executive of HKEX, called the product a “game-changer”.

“We believe this new product will act as a key risk management tool for investors in managing their A-share equity exposure,” Aguzin said. “This is significant for China as the new A-share derivatives products will drive even more international investor interest into, and demand for, mainland China equities”.

Henry Fernandez, chair and chief executive of MSCI, called the agreement “a positive step towards resolving one of the four market accessibility issues highlighted by global investors” during consultations on greater inclusion of Chinese shares in the company’s benchmark indices.

The agreement also delivered a blow to shares in SGX, the operator of Singapore’s stock exchange. The bourse’s FTSE China A50 futures had previously been the only significant offshore hedging tool for global investors with exposure to mainland China’s stock market. Shares in SGX fell as much as 5.5 per cent on Monday.

The latest offering from HKEX comes more than a year after it snatched a derivatives licensing agreement from SGX allowing it to offer futures and options based on 37 of MSCI’s equity indices.

Analysts at Citi estimated that revenue from the MSCI China A50 Connect contract could boost HKEX’s annual revenues by about HK$1bn ($128m) by 2024. They pointed out that SGX drew about 10 per cent of its revenues from the FTSE contract in the 2021 financial year.

Ashley Alder, head of Hong Kong’s Securities and Futures Commission, said the new contract was a “major milestone in the development of Hong Kong’s capital markets, strengthening its position as a financial risk management and China market access centre of international significance”.