CSOP launches Hong Kong’s first leveraged and inverse China A-shares ETPs

Jul 24th, 2020 | By | Category: Alternatives / Multi-Asset

CSOP Asset Management has unveiled two new ETPs in Hong Kong that are the territory’s first to provide leveraged and inverse exposure to Chinese A-shares.

CSOP launches Hong Kong’s first leveraged and inverse China A-shares ETPs

Chinese A-shares are stocks of China-domiciled companies that trade in renminbi on domestic stock exchanges.

The CSOP CSI 300 Index Daily (2x) Leveraged Product (7233 HK) and CSOP CSI 300 Index Daily (-1x) Inverse Product (7333 HK) have listed on the Stock Exchange of Hong Kong and come with expense ratios of 1.99%.

While there are leveraged and inverse China A-shares ETPs listed in the US and other Asian regions, differences in trading times and market regulations have constrained Hong Kong investors’ access to these products.

The ETPs use swap-based synthetic replication to provide 200% or -100% of the daily return of the CSI 300 Index.

The reference index tracks the performance of the 300 most representative A-shares listed on the Shanghai and Shenzhen stock exchanges, as measured by a combination of market capitalization and liquidity.

With a size of RMB 64.9 trillion, Chinese A-shares represent the second-largest equity market in the world after the US. They are also becoming an increasingly important part of investors’ portfolios as China continues to open up its capital markets.

A-shares have been hitting headlines this month due to an impressive stock market surge – the CSI 300 Index gained 16.6% between 1 July and 13 July before stalling in recent weeks. Analysts note that the rally was driven by a large number of stuck-at-home individual investors expressing optimism that early signs of an economic recovery in China would translate into corporate profits.

Sophisticated investors may now look to use CSOP’s leveraged CSI 300 ETP to amplify potential returns if the rally picks up speed again.

Interestingly, the surge also seems to have been driven by nationalist sentiment with analysts pointing to a front-page editorial in China Securities Journal as the initial catalyst. The editorial highlighted the importance of a robust equity market to China’s strategic development considering the country’s complicated international relations as well as foreign financial and technological competition.

Investors may wish to note that similar political influence was also behind China’s epic bull market in 2014/2015. That rally ended when the bubble burst in June 2015, leading to a crash of approximately 45% up to February 2016. Investors wishing to hedge the risk of a similar future downturn will be well suited to CSOP’s inverse CSI 300 ETP.

Ding Chen, CEO of CSOP Asset Management, commented, “I am very confident on the listing of the China A-shares L&I products given the sizable market demand and expecting the size of this China A-shares L&I products class to exceed $3 billion in the coming one to two years, which is two to three times of the existing HSI L&I products’ size.”

Melody He, Head of Sales and Product Strategy at CSOP Asset Management, added, “CSI 300 Index is our first China A-shares L&I products’ underlying. Shortly after, more China A-shares indices L&I products will be launched to diversify China A-shares L&I offerings. In turn, we expect the enriched offshore market will attract more global investors to participate in China A-shares and sustain the healthy development of China A-shares.”

Lu Suyuan, General Manager of China Securities Index, said, “As the index company to jointly issue the first batch of A-shares L&I products listed in Hong Kong, we believe that the listing of the products will further enrich A-shares index products in the global market and contribute to the long-term healthy development of A-shares market with a positive effect.”

CSOP is the most prominent issuer of inverse and leveraged ETPs in Hong Kong, accounting for more than 85% of the segment’s market capitalization and 95% of average daily turnover, as of the end of June 2020.

Most recently, the firm unveiled the first ETP in Hong Kong to provide leveraged exposure to commodity markets with the launch of the CSOP Gold Futures Daily (2x) Leveraged Product (7299 HK).

Inverse and leveraged ETPs provide an efficient means for sophisticated traders to obtain tactical exposures; however, they are considered less appropriate for retail investors who may not fully understand the risks involved. Specifically, these products tend to decay in value if held for an extended period of time, potentially leading to significant losses especially in volatile but range-bound markets.

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