The Stock Exchange of Hong Kong has welcomed its first ETP to provide leveraged exposure to commodity markets.
Hong Kong has taken several steps to advance its ETF market recently.
The CSOP Gold Futures Daily (2x) Leveraged Product (7299 HK) provides 200% of the daily return of the Solactive Gold 1-Day Rolling Futures Index which, in turn, tracks the performance of the active month gold futures contract traded on COMEX.
The listing’s sponsor is local investment manager CSOP Asset Management which is carving out a name for itself as a provider of leveraged and leveraged (L&I) products.
Just last month, the firm launched a leveraged ETP offering twice the daily return of the Nasdaq 100 Index.
Melody He, Managing Director and Head of Sales and Product Strategy at CSOP Asset Management, commented, “I am very proud of what we have achieved in the past years. The team spends a lot of time assessing our investors’ needs and with Hong Kong’s first commodity-based L&I product, we have created another advanced tool to help them build efficient portfolios.
“Moreover, with Solactive, we have found a new trusted partner that shares our spirit for innovation. We look forward to expanding our partnership with the fast-growing German index provider to develop more high-quality products for our investors.”
Steffen Scheuble, CEO of Solactive, added, “Using our Solactive Gold 1-Day Rolling Futures Index, CSOP has created a powerful tool for investors to tactically diversify or hedge their portfolios. We are honoured to serve as the index provider for this innovative product from CSOP, who is a major player in the Hong Kong L&I space and one of the leading asset managers for China investments.”
CSOP’s leveraged gold ETP trades in Hong Kong dollars and comes with an expense ratio of 1.99%. Investors can gain unleveraged, physically backed access to gold for 0.40% through the SPDR Gold Trust (2840 HK).
The listing comes at a time when investors have renewed their interest in gold.
According to data from the World Gold Council, year-to-date (31 May) inflows into gold ETFs have already surpassed any previous full calendar year. Investors have sought gold exposure to bolster their portfolios against inflation and potential further turmoil caused by the Covid-19 pandemic, while record low interest rates have increased the relative value of gold compared to income-producing securities.
In terms of the Hong Kong market, the average daily turnover of gold ETFs has increased from $18 million last year to over $100m in 2020.
Hong Kong has taken several steps to advance its ETF market recently. Last year saw the introduction of the region’s first actively managed ETF as well as its first inverse leveraged ETP. Average daily trading volume for ETFs, including ETPs, on the exchange during the first five months of this year was $7.3bn, up from $6.6bn during the same period last year. Inverse and leveraged ETPs, in particular, have gained strong momentum with total turnover rising to $46bn in May from $16.5bn in January.
Brian Roberts, Head of Exchange Traded Products at Hong Kong stock exchange, commented, “The introduction of the first gold futures leveraged product provides investors the ability to express a short-term market view on gold prices. Today’s listing further enriches the product diversity of Hong Kong’s ETP market.”
Leveraged and inverse ETPs provide an efficient means for sophisticated traders to obtain tactical exposures; however, they are generally considered less appropriate for retail investors or longer-term investors. 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.