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As we near the end of 2015, we are already starting to look ahead to what next year will bring. This year was a major milestone in capital market development in Mainland China as we experienced the first full year of Shanghai-Hong Kong Stock Connect. This major market innovation is not only bringing new liquidity to Shanghai and Hong Kong, it is also subtly altering the ecology and investment demands in the two markets.
We just celebrated the anniversary of Shanghai-Hong Kong Stock Connect earlier this month, and I said at the time that we are already moving forward with new initiatives to improve the Stock Connect and prepare for a more widespread opening of the Mainland’s financial market, which we believe is inevitable.
Therefore our job is to get ready for these opportunities. This opening will eventually see more Mainland investors invest offshore, and we want to ensure Hong Kong is their first choice. We are creating an environment where Mainland and global investors have more options when it comes to allocating their assets.
That brings me to our announcement of the launch of 34 new stock futures contracts, some of which will begin trading tomorrow (30 November) and the rest on 7 December.
These new futures contracts cover the 34 most actively-traded stocks in Southbound trading under Stock Connect, together accounting for about 60 per cent of Southbound trading turnover. The addition will also bring the total number of stock futures contracts traded in Hong Kong to 71. This gives investors much more choice and flexibility, and come at a time when stock futures trading volume on HKEx rose 91 per cent in the first 10 months of the year from the same period last year.
We are also nearing the debut of the launch of new London Metal Mini Futures contracts for nickel, tin, and lead. The three will expand the range of commodities products offered by HKEx, broaden our base of potential market participants and provide more arbitrage opportunities. The contracts, which are all RMB-denominated, join the first batch of London Metal Mini Futures contracts – London Aluminium Mini Futures, London Copper Mini Futures and London Zinc Mini Futures – that launched in December last year.
Like Stock Connect itself, we believe the launch of these new stock futures, and their commodities counterparts, lay the groundwork for future growth. As more Mainland investors invest Southbound, the risk of volatility will increase alongside the need to manage risk. However, this process will take time; we don’t expect immediate results, but we want to ensure we’re ready when the demand is there.
Compared to equities, stock futures can create higher capital efficiency for investors. If used properly, they can also be a very effective risk management tool. However, as any kind of derivative can be high-risk, investors should fully understand the contract and have a high risk-tolerance before investing. Along those lines we will launch a number of education sessions with futures brokers to help them understand the new products and explain them to their clients.
These new futures contracts align with our overall vision, which we have been steadily realising since our acquisition of the London Metal Exchange in 2012. We are enriching our product line, providing new opportunities for investors, and ensuring we become China’s top international financial centre and the world’s best access point to China.
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