Following Samsung Asset Management's launch of the first set of leverage and inverse products (L&I products) on the Hong Kong Stock Exchange (HKEx) on June 13, 2016, SRP spoke to Joe Yip (pictured), the firm's associate director of marketing, ETF & index, about the prospects around this segment of the market and Samsung's plans in the short term to grow and promote leverage and inverse strategies among qualified retail investors in Hong Kong.
Are the new L&I products targeted to a particular distribution channel?
We believe both institutional and retail investors will be interested in [these products]. As we've seen in Korea, institutional investors always find a convenient way to short the market, and for retails investors, this can be a transparent and cost-efficient way to leverage the gain of the market. We've observed that since the inception of the products in Korea, we've seen increasing numbers of retail investors engaging these products. Within a couple of years after the launch of the products in Korea, the ETF AUM almost tripled - this was not just money coming from leverage and inverse partners.
What happened was that the investors saw that these L&I products were something interesting and innovative which they can trade, so they went for that, but then they stayed for other active asset classes as well e.g. fixed income and commodities. So we truly believe that this was a catalyst, and it brought new demand to the ETF market. We have seen similar situations in Japan and Taiwan, and we hope to see that in Hong Kong as well. We'd love to see the Hong Kong ETF market to double the size, partially because of the products we are bringing to the market.
Do you expect the HKEx restrictions around the use of underlyings by L&I products to be lifted any time soon?
There is no doubt that the Korean and Japanese market are two of the major stock markets in Asia. According to the circular regarding L&I products issued by the Securities & Futures Commission (SFC) in February this year, the regulator is only accepting applications for L&I products tracking liquid and broadly based non-Hong Kong, non-Mainland foreign equity indices at the initial stage. However, we expect, as the regulator stated in the circular, a review will be conducted six months later to consider extending eligible indices to include liquid and broadly based Hong Kong equity indices.
Do you think the new product set will get traction among local providers?
We are happy to see more managers to launch L&I products in Hong Kong for providing more choices to the investors. We strongly believe the reason why we are having more than 50% of the ETF market in Korea is that we understand the full spectrum of what needs to be done - everything from coming up with the product idea to implementation, but now not only that, we will engage with investors and help them to use the tools to create demand for them, and also to ensure that there is no misrepresentation, mis-selling or misunderstanding. As the market leader in Korea, we know all about this and we hope to bring this experience to Hong Kong market.
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