HKEX Introduced futures on Hang Seng TECH Index

Hong Kong Exchanges and Clearing Limited (HKEX), the operator of the world’s sixth-largest stock market, launched the first batch of Hang Seng TECH Index futures last Monday. 

According to HKEX, the Hang Seng TECH Index Futures is the first exchange-traded derivatives contracts to track the index. It can help to complement HKEX’s flagship Hang Seng Index and Hang Seng China Enterprise Index products.

Hang Seng TECH Index was launched back in July 2020. Similar to the NASDAQ Composite in the United States, Hang Seng TECH Index tracks the 30 largest technology companies listed in Hong Kong, such as Alibaba, Tencent, Meituan and Xiaomi. These tech giants have businesses that span from e-commerce to network development. 

While the market has been very volatile in 2020 due to the pandemic, these technology companies have generally performed very well despite the recent turbulent times.  For instance, the stock price of Meituan-Dianping, a Chinese online platform offering food delivery, has increased by threefold this year. 

Both institutional and retail investors have shown strong interest in these tech giants. According to the historical statistics of HKEX, technology companies have dominated the top 5 traded stocks in terms of trading volume over the past 12 months. 

The introduction of the futures contracts can provide investors with a new exposure management tool. Futures contracts are a type of derivatives which are popular among institutional and professional investors. A futures contract gives investors the right to buy a certain commodity or financial instrument at a later date and therefore investors can profit from securities’ short-term price movements and trends, both up and down, without actually owning the underlying asset. 

Currently, there are already futures contracts focusing on a particular technology stock in the market. For example, you can buy a futures contract on Tencent. However, this batch of futures contracts allows investors to speculate on the overall movement of 30 technology stocks, rather than on one particular stock. 

Henry Chow, a retail investor who used to work in a trading firm, has been investing in technology stocks for over 2 years. Even though there were already futures contracts on a particular technology stock in the market, he is very excited to learn about this new type of futures.

“By trading futures on the TECH Index itself, it is less risky than trading on a particular stock, such as Alibaba. It is good to see that HKEX is offering different types of financial products. Investors always want more choices,” said Chow.

The Hang Seng TECH Index is shown in Bloomberg Terminal. Photo by Cherry Chung.

Chow is confident that there will be more people trading Hang Seng TECH Index futures, especially retail investors who have less capital. 

Hang Seng TECH Index futures had over 16,000 transactions on the day it was launched. Issuers also launched over 100 warrants and callable bull/bear contracts that track the index, offering a more diverse choice to investors.

HKEX also plans to launch the first batch of Hang Seng TECH Index Options on 18 January 2021. Similar to futures, an option is another type of derivative product. With options, the buyer has the right, but not the obligation in futures, to buy or sell the underlying asset. The option seller is more passive and must comply with the buyer’s action.

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