The index is based on the newly created MSCI China A 50 Connect index, which consists of 50 largest securities in the Chinese A shares market, including at least two stocks from each of all 11 Global Industry Classification Standard sectors.
Hong Kong’s Securities and Futures Commission gave the go-ahead for the October launch on Friday. The product would be the first A shares derivative in Hong Kong, giving it an edge over its close competitor, Singapore, which currently offers an A-shares-tracking futures contract.
“This new product will act as a key risk management tool for investors in managing their A-share equity exposure,” said Nicolas Aguzin, HKEX chief executive officer, in a statement. “It marks a key step forward in furthering our plans to build an offshore mainland China equities derivatives suite in Hong Kong.”
MSCI has seen foreign holdings in China A shares growing at 80% over the past four years, with 90% of the foreign holdings coming through Stock Connect, a mutual market access service between Hong Kong and mainland China set up in 2014. Hence, it has noted increasing demand for an index offering closer exposure to the broader Stock Connect.
“The launch of an MSCI China A-share index future in HKEX is a positive step towards market accessibility issues highlighted by global investors when including A shares in their portfolio”, added Henry Fernandez, MSCI’s chairman and CEO.
The futures contract was also backed by top officials in Hong Kong.
“Launching the A-shares index futures contract will expand the product scope offering in our capital markets, strengthen Hong Kong’s offshore Renminbi businesses and deepen the collaboration between the two capital markets, thereby contributing to the further development of the mainland’s capital market towards internationalisation,” said the country’s chief executive Carrie Lam.
“[The product] could serve as a useful risk management tool for offshore investors participating in the A-share market, financial secretary Paul Chan echoed in a statement, adding that the launch will further reinforce Hong Kong’s function as a global offshore renminbi business hub, an international asset management centre and a risk management centre.
The announcement came after the city’s stock exchange signed a license agreement with MSCI in March 2019, introducing futures contracts on the MSCI China A Index, subject to regulatory approval and market conditions.